A group of underwriters that were named as defendants in the
ongoing Sino-Forest class action have reached a settlement
agreement with the investor plaintiffs. Under the settlement
agreement the financial institutions, which acted as underwriters
for Sino-Forest, will pay $32.5 million to the class. Together with
increased regulatory scrutiny of underwriters, and recent
guidelines on due diligence, the settlement highlights potential
exposure faced by underwriters. The settlement is possibly the
largest settlement ever paid by underwriters in Canada.
Under the settlement agreement, the nine financial institutions
do not admit any liability. Some of the institutions have agreed to
provide the plaintiffs with documents and information relating to
BDO Ltd., one of Sino-Forest's auditors, which still remains a
defendant in the class action. The division of the settlement funds
as between class members, counsel fees and administration costs has
not been finalized. The settlement agreement has not yet been
approved by the judge with carriage of the class action nor has
notice of the settlement been issued to class members.
To date a number of defendants, including Ernst & Young,
have settled with the plaintiffs, who launched a $9
billion class action after the Toronto-listed Sino-Forest was
accused of being a Ponzi scheme. The claim alleged that
Sino-Forest's securities filings contained false and misleading
statements about the company's finances.
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