Sept. 9 (Bloomberg) -- Canada’s main securities regulator extended the trading ban on Sino-Forest Corp.’s shares while it pores over tens of thousands of documents as part of an investigation into possible fraud at the forestry company.
Ontario Securities Commission Vice Chairman Mary G. Condon lengthened the suspension to Jan. 25 at a hearing in Toronto yesterday. Lawyers for Sino-Forest and former Chief Executive Officer Allen Chan agreed to the move. Chan and four other executives of the Hong Kong- and Mississauga, Ontario-based company will be unable to trade securities through that date.
There isn’t “adequate information in the market” for Sino-Forest investors to make decisions, Karen Manarin, a lawyer for the commission, said at the hearing. “The confidence of the integrity and fairness of the capital markets may be compromised if trading in securities of Sino-Forest is permitted at this time.”
Shareholders including billionaire Richard Chandler must now wait at least four months to trade their shares. The stock has plunged 74 percent in Toronto since June 1, the day before short seller Carson Block’s Muddy Waters LLC research firm said in a report Sino-Forest overstated timber holdings. Sino-Forest has denied the allegations. The commission halted trading on Aug. 26 and Chan resigned as chairman and CEO two days later.
Sino-Forest has established an independent committee of directors to examine and respond to the allegations in the Muddy Waters report. The company said Aug. 15 the investigation would take until the end of the year to complete.
The commission’s staff sought an extension of the trading ban to give it time to review the conclusions of the independent review, Manarin said. The commission won’t disclose more details of its investigation to avoid impeding its own probe or the independent committee’s, she said.
“Our investigation is a major undertaking and staff has committed significant resources to it,” she told Condon at the hearing. “Our work includes interviewing many witnesses, some of whom require interpreters, and the confirmation and review of tens of thousands of documents, many of which are in simplified Chinese or traditional Chinese.”
The commission’s staff has requested some information from Sino-Forest that the company has yet to provide, Manarin said. Stan Neve, a New York-based spokesman for Sino-Forest, declined to comment on the extension of the trading halt.
Officers and directors of Sino-Forest “appear to have misrepresented some of its revenue and/or exaggerated some of its timber holdings,” the commission said Aug. 26. The regulator also demanded on Aug. 26 that Chan and four other executives resign. It rescinded the order later the same day, citing the requirement to hold a hearing first.
Shareholders have lost at least C$3.3 billion ($3.35 billion). Hedge-fund firm Paulson & Co., formerly Sino-Forest’s biggest shareholder, told clients that it sold its entire stake in June after losing C$462 million on the investment.
Chandler spent at least C$148.5 million to nearly double his stake in the company to 48 million shares since July 19, according to regulatory filings, and is now Sino-Forest’s biggest investor. Richard Barton, a Hong Kong-based spokesman for Chandler, didn’t immediately respond to an e-mail request for comment.
Sino-Forest last traded at C$4.81 Aug. 25 on the Toronto Stock Exchange. The shares traded over the counter in the U.S. on Aug. 26 and fell to $1.38 before being halted, giving the company a market value of $338.4 million.
The other four Sino-Forest employees banned from trading are Vice Presidents Albert Ip, Alfred C.T. Hung, George Ho and Simon Yeung.
Sino-Forest’s lawyer at the hearing was Robert Staley and Allen Chan’s was Emily Cole.
--With assistance from Christopher Donville in Vancouver. Editors: Simon Casey, Steven Frank
To contact the reporters on this story: Matt Walcoff in Toronto at firstname.lastname@example.org; Doug Alexander in Toronto at email@example.com.
To contact the editor responsible for this story: Simon Casey at firstname.lastname@example.org.