The Ontario Securities Commission laid out a sweeping case against former executives of Sino-Forest Corp. Tuesday, pledging to call more than a dozen witnesses and evidence to back up allegations of multiple instances of fraud at the disgraced Chinese timber company.
Sino-Forest raised $3-billion in Canada’s capital markets before a short-seller’s allegations of fraud and revenue inflation — and the subsequent OSC investigation — felled the firm and wiped out the holdings of scores of shareholders.
“The risk of this loss was always present, given the flaws in Sino-Forest,” said Hugh Craig, counsel for OSC staff.
Mr. Craig spent about an hour laying out a “road map” to the commission’s case against former Sino-Forest chief executive Allen Chan and four other senior executives.
He said there were multiple individual instances of fraud, which included “the fabrication of assets and revenue.”
The commission’s staff also plans to call witnesses and evidence to back up claims that Sino-Forest’s offshore executives hid relationships between the company and key supplies and customers.
“No investor could make an informed decision whether to buy or sell Sino-Forest securities,” Mr. Craig said, adding that while there may be evidence presented about different business practices in China, there is no getting around the fact that Sino-Forest raised money in Canada’s markets.
The executives are accused of backdating purchases and sales of timber assets, and misleading independent directors, auditors, and OSC investigators.
Before Mr. Craig’s opening arguments got under way, a lawyer for several of the accused told the three OSC commissioners hearing the case that his clients might come to Canada to testify. During a discussion about certain witnesses testifying from Hong Kong by remote link, Markus Koehnen said Alfred Hung, Albert Ip, George Ho, and Simon Yeung would prefer to testify in Canada.
Mr. Koehnen said that would only happen if certain issues were resolved, but he declined to elaborate.
OSC staff hopes to call a handful of witnesses to testify from Hong Kong, including Mr. Chan’s former assistant. If the bid to line up these witnesses is successful, it could involve early morning or late evening hearings to accommodate the time difference between Hong Kong and Toronto.
Mr. Chan’s lawyer, Emily Cole, is expected to present opening arguments to the OSC panel on her client’s behalf on Tuesday afternoon.
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