Bloomberg News

Ontario Securities Watchdog Probing Emerging-Market Stocks

July 06, 2011

(Updates with SEC-China talks in seventh paragraph.)

July 6 (Bloomberg) -- Canada’s main securities regulator, which is already reviewing Sino-Forest Inc., said it has begun a “targeted review” of companies that operate in emerging markets and trade on the country’s exchanges.

The Ontario Securities Commission will examine the disclosures, auditing and underwriting of Ontario companies listed on Canadian markets that have a significant emerging- markets presence, the OSC said in a statement yesterday, a month after research company Muddy Waters LLC asserted Sino-Forest manipulated financial data. The OSC didn’t mention the Chinese timber company, which is based in Hong Kong and Mississauga, Ontario, in its statement.

The OSC is likely to focus on China-oriented companies in its investigation, said James Cole, who oversees C$750 million ($776 million) as a Calgary-based money manager for Portland Investment Counsel Inc.

“I would say two words -- it could be one hyphenated: Sino-Forest,” Cole said when asked why the OSC has begun the probe. “There’s nothing like locking the barn door after the horse is gone.”

Sino-Forest, whose executives have denied the Muddy Waters assertions, have plunged 74 percent since the day before the company founded by short seller Carson Block released its June 2 report. A Bloomberg index of 50 other China-focused companies traded in Canada has declined 9.6 percent since June 1.

The OSC is “investigating matters related to Sino- Forest,” Wendy Dey, a spokeswoman for the commission, said in an e-mail on June 8.

Reviewing Issuers

Chinese and U.S. officials will meet next week to discuss giving American securities regulators the right to investigate companies within China for the first time, said two Chinese officials with direct knowledge of the plans.

Representatives from the Securities and Exchange Commission and the Public Company Accounting Oversight Board will meet with counterparts from the China Securities Regulatory Commission in Beijing from July 11 to 12, said the officials, who asked not to be named because the talks are private.

The Ontario securities regulator will decide after its review what law changes might be necessary to protect investors, the commission said. It didn’t say how long it expects the probe to last. The review will examine the disclosure of “certain issuers” and the vehicles through which these companies have accessed the Ontario market.

‘Protect Investors’

“This targeted review is part of our ongoing effort to protect investors and strengthen market integrity,” OSC Chairman and Chief Executive Officer Howard Wetston said in the statement. “Issuers who access our market, and the advisers who support them, have important responsibilities to investors and we will take regulatory action as warranted to ensure these responsibilities are met.”

The Toronto-based regulator didn’t mention any countries or other companies in its statement. Dylan Rae, an OSC spokesman, didn’t return a telephone call seeking comment yesterday.

Sino-Forest fell 61 cents, or 12 percent, to C$4.68 at 9:44 a.m. in Toronto Stock Exchange trading. The shares more than doubled in the previous five trading sessions.

Sino-Forest climbed 30 percent on July 4 after Wellington Management Co., the Boston-based investment firm that manages $663 billion, said in a regulatory filing it owned an 11.5 percent stake.

A tour for analysts of Sino-Forest’s operations in China planned for this month has been postponed, the company said in a letter to investors and analysts that was posted on its Website. Many analysts who cover the company wouldn’t be able to attend until after a review of Muddy Waters’ allegations by an independent committee, Sino-Forest said.

--With assistance from Christopher Donville in Vancouver, Eva Woo in Beijing and Dune Lawrence in New York. Editors: David Scanlan, Steven Frank.

To contact the reporters on this story: Matt Walcoff in Toronto at Mwalcoff1@bloomberg.net; Sean B. Pasternak at spasternak@bloomberg.net.

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net.


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