Bloomberg News

Canada Regulator Agrees to Modify Sino-Forest Share Trading Ban

September 15, 2011

Sept. 16 (Bloomberg) -- The Ontario Securities Commission agreed to modify a temporary trading ban on Sino-Forest Corp. shares to allow some outstanding options to be exercised.

The Canadian Derivatives Clearing Corp. petitioned the Ontario regulator in a Sept. 14 hearing to allow the exercising of some put contracts linked to Sino-Forest shares. A put is an agreement that gives the holder the right to sell a security for a certain amount by a set date.

Canada’s main regulator said it was “satisfied that it would not be prejudicial to the public interest” to modify the order, according to a notice posted yesterday on its website.

In an order last week, the Toronto-based regulator 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.

The change won’t allow holders of put contracts who don’t already own Sino-Forest shares to buy stock to make delivery upon exercise, the OSC said. Holders of the put contracts who are current or former directors or officers of Sino-Forest and its units, or anyone with more than 10 percent of the company stock, can’t sell shares under the puts, the regulator said.

Muddy Waters

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.

The Sino-Forest cease-trade order had prevented holders of outstanding put contracts from exercising their rights under the contracts, the CDCC said in a Sept. 12 letter to the 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.

CDCC President and Chief Clearing Officer Glenn Goucher said Sept. 14 that “a significant component” of the put contracts are held by individuals rather than companies.

--Editors: Steven Frank, Simon Casey

To contact the reporter on this story: Doug Alexander in Toronto at

To contact the editor responsible for this story: Steven Frank at

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