The Ontario securities regulator Friday ordered senior executives at Sino-Forest Corp. to resign and cease trading of the company's shares on allegations of fraud.
The Ontario Securities Commission said in a release it has reason to believe the company and certain officers and directors have misrepresented some of its revenue and/or exaggerated some of its timber holdings.
The commission also said some of these officers and directors appear to be engaging in acts they know or reasonably ought to know perpetuate a fraud.
"Sino-Forest, through its subsidiaries, appears to have engaged in significant non-arm's length transactions which may have been contrary to Ontario securities laws and the public interest," said the commission.
Chairman and Chief Executive Allan Chan, Senior Vice President Albert Ip, Vice President Alfred Hung, Vice President George Ho and Vice President Simon Yeung have been ordered to resign. The men are also prohibited from acting as a director or officer of any other public company in Ontario. The order was signed by commissioner chair Howard Wetston.
The executives haven't yet publicly commented on the regulator's orders.
The Hong Kong-based and Toronto Stock Exchange-listed company, once Canada's largest publicly traded forestry business, has been in the spotlight since June 2. At the time, short seller Carson Block and his firm, Muddy Waters LLC, alleged that Sino-Forest had inflated the size and value of its forestry holdings in mainland China. Muddy Waters described the company, which has raised more than $3.5-billion from investors through debt and equity markets, as a massive "Ponzi scheme".
The report sent the company's shares into a nosedive and prompted the board to appoint a committee of independent directors to investigate the claims.
The Ontario Securities Commission said Friday that the independent committee investigating Sino-Forest recently suspended Ho, Hung, and Yeung temporarily, and curtailed Ip's duties and responsibilities.
The Ontario regulator took the rare step of ousting top executives using a temporary order before holding a hearing to determine the merits of the allegations.
The commission said it decided that the time required to conclude a hearing "could be prejudicial to the public interest."
The regulator said that the order is effective immediately and it will expire 15 days from Friday unless the order is extended by the Commission.
Sino-Forest sells timber and logs and manufactures downstream engineered-wood products. The company has over 150 subsidiaries, the majority of which are registered in the British Virgin Islands and China. Its management offices are primarily in Hong Kong, China, and Ontario.