click image to zoomFrom the company's website, a map of Sino-Forest's locations. OTTAWA — China's troubled forest products firm, Sino-Forest, now faces formal charges of fraud from the Ontario Securities Commission, following a formal investigation. Though its operations are in China, Sino-Forest traded on the Toronto Stock Exchange until trading was suspended in 2011.
According to the Ontario Securities Commission findings issued May 22, Sino-Forest and former executives exaggerated timber holdings and misled investigators, including "The undisclosed dishonest process of creating deceitful Purchase Contracts and Sales Contracts and their key attachments," according to the commission's report.
A 2011 report by analysts at Muddy Waters, which triggered the commission's investigation, said Sino-Forest - which operates a vertically integrated timber, lumber and wood flooring business - claimed ownership of woodlands on which it merely had informal agreements for logging rights.
Sino-Forest's market value plunged as a result of the Muddy Waters report. Sino Forest recounts in its latest announcement it was force to resort to bankruptcy protection for its timber, lumber and wood flooring business in March 2012, and it suggests it does not have resources to further defend itself against the charges. Soon after the trading was suspended Sino-Forest said it would file a $4 billion defamation suit against Muddy Waters.
Sino Forest became something of a global poster child of the risks and lack of transparency when investing in sectors of Chinese business operations that trade on foreign exchanges.It's market capitalization at one point reach $6 billion, but has plummeted since trading suspended amid the fraud charges.