Canadian Regulator Suspends Trading In Sino-Forest Shares

Aug 29 2011 | 2:07pm ET

The Ontario Securities Commission has ruled that Chinese timber company Sino-Forest may have defrauded investors—like hedge fund manager John Paulson—by exaggerating its assets.

The OSC stopped all trading in Sino-Forest shares on Friday, saying the company "appears to have engaged in significant non-arm’s length transactions which may have been contrary to Ontario securities laws and the public interest,” reports the CBC.

The regulator accuses officers and directors at the company of "engaging or participating in acts…which they know…perpetuate a fraud."

The OSC originally ordered the company’s directors and executives to resign, says the CBC, but at midday on Friday, issued a second release removing that demand. OSC spokesperson Wendy Day told the Canadian broadcaster the commission was “persuaded” to rescind the resignation order but didn’t say who did the persuading.

The decision validates the views of U.S. short seller and research firm Muddy Waters which called out Sino-Forest as a giant fraud in June. Since the release of the Muddy Waters report, Sino-Forest’s value has plummeted to C$700 million from C$4.7 billion.

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