UPDATE 1-Canadian suit expands Sino-Forest allegations
Wed Aug 31, 2011 4:41pm EDT
* Two law firms file statement of claim on Sino-Forest
* Documents detail new allegations against Chinese company
* Stock options, auditor's independence questioned
* S&P drops Sino-Forest from main Canadian stock index
By Euan Rocha and Allison Martell
TORONTO, Aug 31 (Reuters) - Sino-Forest (TRE.TO) is facing accusations in a proposed class-action suit that go beyond fraud allegations that have triggered investigations, its CEO's resignation and its removal from Toronto's main stock index.
Two Canadian law firms, Koskie Minsky LLP and Siskinds LLP, said on Wednesday they served a statement of claim against Sino-Forest, once the biggest forestry company on the Toronto Stock Exchange.
The claim, outlined in an 85-page document, is part of C$7 billion proposed class-action suit filed in June against the Chinese forestry company that is suspected of fraud.
Kirk Baert, a partner at Koskie Minsky LLP, said in an interview the fresh allegations stem from investigations carried out over the last six weeks.
The suit targets many of Sino's senior officers and directors -- including its disgraced former chief executive -- as well as its auditor Ernst & Young LLP and the financial institutions that underwrote its 2007 and 2009 prospectus offerings.
"This action raises serious questions about how Sino-Forest conducted its business and affairs, and the manner in which it raised capital from public markets," said Dimitri Lascaris, partner at Siskinds, in a statement.
The Sino-Forest saga is the most prominent of a series of accounting scandals that have tainted the image of Chinese companies listed in North America, prompting trading halts, delistings, lawsuits and regulatory probes in Canada and the United States.
STOCK OPTIONS, AUDITING
Sino-Forest has come under mounting pressure since short-seller Carson Block accused it of fraudulently exaggerating the size of its forestry assets. It set up an independent committee to investigate and expects the results of that probe by year-end.
Like Block's report, the claim alleges misrepresentations in Sino-Forest's public disclosures about its tree plantation operations in China.
The document alleges that Sino and three directors and officers, including former Chief Executive Allen Chan, were responsible for the backdating or mispricing stock options, possibly enabling them to enrich themselves unfairly.
Ernst & Young also comes under fire. The documents say Sino rewarded the firm in ways that may have compromised its independence.
"Sino's practice of appointing E&Y personnel to its board - and paying them handsomely ... undermined the audit committee's oversight of E&Y," said the document.
The plaintiffs are trustees of the Labourers' Pension Fund of Central and Eastern Canada and the trustees of the International Union of Operating Engineers Local 793 Pension Plan for Operating Engineers in Ontario.
A spokesman for Sino-Forest was not available to comment.
S&P ACTION
Sino-Forest stock has tumbled about 75 percent since Block made his allegations, and Standard & Poor's said on Tuesday that the company no longer qualifies as a constituent of the S&P/TSX Composite Index, Canada's benchmark stock index. S&P will drop Sino-Forest from its indexes on Sept. 16.
Last week, the Ontario Securities Commission - Canada's main securities regulator - halted trading in the stock for 15 days, saying that it appeared that the company and some of its executives had misrepresented revenues and kept bogus accounts. [ID:nN1E77P0GL]
Sino-Forest said on Sunday that Chan had stepped down and that it had placed three senior employees on administrative leave because of information uncovered in an internal review. |
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