In a recent 300 page decision, the OSC concluded that Sino-Forest engaged in deceitful and dishonest conduct in relation to the disclosure of its assets and revenues. In August 2011, the OSC cease-traded the sale of Sino-Forest's securities, amidst allegations that it was engaging in short selling. OSC Staff alleged that Sino-Forest committed the following, each of which constituted fraud:
- undisclosed control of companies purportedly at arm's length to Sino-Forest;
- a deceitful documentation process; and
- internal control weaknesses or failures.
In its decision, the OSC found that Sino-Forest, led by CEO Allen Chan, did indeed mislead investors to believe it was selling timber to arm's-length customers, when it was actually selling to customers closely related to Sino-Forest. In addition to this, the OSC found that to cover up the fraud, Sino-Forest forged several documents and disclosure.
The OSC has not yet released its decision on sanctions.
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