The independent committee looking into the allegations of fraud at Chinese timber company Sino-Forest Corp. came out with its final report but failed to provide conclusive answers to some key questions relating to the company’s business practices. The troubled Canadian-listed Chinese forestry company has been in a downward spiral since last June, when short-seller Carson Block and Muddy Waters LLC alleged it had overstated its Chinese forestry assets.
In a highly technical report, the committee acknowledged that it was unsuccessful in its attempt to unravel all the questions surrounding the company’s practices in China and failed to ascertain whether Sino-Forest had some unholy nexus with its suppliers and authorized intermediaries. It said that while “there remain issues which have not been fully answered,” its probe was “now at the point of diminishing returns, because much of the information which it is seeking lies with non-compellable third parties, may not exist or is apparently not retrievable from the records of the company.”
The special investigative committee made up of external lawyers, auditors and company officers came out with an interim report in November, which said that Sino-Forest owned the trees it claimed to own and confirmed that it accurately accounted for its cash stake, but failed to place a value on the trees, which according to many was the most crucial issue.
In its effort to value the trees, the committee hired an external timber consultant to test a sample of forestry stock. The consultant after thorough investigation found that the size and cover of the forest was approximately similar with what the company had reported. However, the committee’s report says that the consultant is yet to complete work that would provide evidence that the trees were valued correctly.
On behalf of some investors, a class-action lawsuit against Sino-Forest was brought in the U.S. Supreme Court, last week. The company has defaulted on indentures relating to its bonds, and major shareholders like New Zealand billionaire Richard Chandler have called for the replacement of the company’s chief executive, Judson Martin.
Sino-Forest was founded by Hong Kong entrepreneur Allen Chan in the 1990s and was listed on the Toronto Stock Exchange through a reverse takeover of a dormant Canadian firm. Once the largest forestry stock listed on the Toronto bourse, it plunged 71 per cent in the two days after the Muddy Waters report was released. Trading has been suspended in the company’s shares since late August. Sino-Forest had a market capitalization of about 5.78 billion Canadian dollars ($5.69 billion) at the beginning of last year, which fell to about C$1.18 billion, just before trading was halted in the stock.
We also have one more article about Sino-Forest, read it – HERE.