Bloomberg News

Canada Watchdog to Hold Hearing on Sino-Forest Put Options

September 12, 2011

(Updates with number of put options in sixth paragraph.)

Sept. 13 (Bloomberg) -- The Ontario Securities Commission will hold a hearing this week to consider modifying a temporary cease-trade order on the Canadian shares of Sino-Forest Corp. to allow the trading of some outstanding put options.

The Canadian Derivatives Clearing Corp. will petition the agency tomorrow to allow the trading of put contracts linked to Sino-Forest shares, Canada’s main securities watchdog said yesterday in a notice on its website. A put is an agreement that gives the holder the right to sell a security for a certain amount by a set date.

In an order last week, the Toronto-based commission extended a trading ban on Sino-Forest shares to Jan. 25 as it investigates allegations of fraud at the Chinese tree-plantation operator. The OSC ordered the cease-trade order on Aug. 26 and said that officers and directors of Hong Kong- and Mississauga, Ontario-based Sino-Forest may have engaged in acts “related to its securities” that they “knew or should have known” perpetrated a fraud.

Sino-Forest’s stock has plunged 74 percent in Toronto since June 1, the day before short seller Carson Block’s Muddy Waters LLC published a report alleging that the company overstated its timber holdings. Sino-Forest has denied Muddy Waters’ allegations and has assigned an independent committee to investigate the claims, hiring PricewaterhouseCoopers LLP to assist.

‘Substantially in Excess’

The existing Sino-Forest cease-trade order prevents holders of outstanding put contracts from exercising their rights under the contracts, the CDCC said yesterday in a letter to the securities commission.

There are about 8,993 outstanding put contracts, which collectively entitle the holders to sell about 899,300 Sino- Forest common shares “at prices substantially in excess of their current values,” the CDCC said in the letter.

“The exercise of the put contracts does not constitute an investment decision but merely the realization of the financial consequences of the investment decision made at the time the put contracts were entered into,” the CDCC said.

--Editors: Steven Frank, Charles Siler.

To contact the reporter on this story: Christopher Donville in Vancouver at cjdonville@bloomberg.net.

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net.


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