Sino Forest Corp (嘉漢林業) said its chief executive has resigned as Canadian regulators investigate fraud allegations against the Hong Kong-based company following claims it exaggerated the size of its forest holdings in China.
Three other employees were temporarily suspended, said a company statement released on Sunday in Canada, where its shares are traded on the Toronto Stock Exchange. Regulators there ordered a 15-day trading halt on Friday.
Shares in Sino Forest, once Canada’s biggest publicly traded forestry business, have plunged in value since a financial firm, Muddy Waters LLC, said on June 2 that it believed the company overstated the size and value of forestry holdings in China. The company board appointed a committee of independent directors to investigate.
CEO Allen Chan (陳德源) also resigned as chairman of the board of directors, Sino Forest said.
It said he would be succeeded as chairman by William Ardell, chairman of the committee of independent directors. Judson Martin, the board’s vice chairman, was named CEO.
On Friday, the Ontario Securities Commission (OSC) ordered the resignation of Sino Forest executives who it said appeared to be engaging in acts they know or reasonably ought to know perpetuate a fraud. However, the commission rescinded its order a short time later, saying it could not demand the resignations under such a temporary order.
“The allegations made in the OSC’s temporary order, while unproven, are of a serious nature,” Sino Forest’s statement said.
It said the investigation by independent directors was still under way and a progress report should be released in four to six weeks.
Sino Forest manages tree plantations in China, sells logs and standing timber and manufactured engineered-wood products. Its management offices are primarily in Hong Kong, China and Ontario.
It has more than 150 subsidiaries and owns a majority stake in Greenheart Group Ltd (綠森集團), a Hong Kong-traded company involved in logging with assets in Suriname and New Zealand.
Muddy Waters and its founder, short seller Carson Block, have described the company, which has raised more than US$3.5 billion from investors through debt and equity markets, as a massive Ponzi scheme.
“Our conviction that Sino Forest is a fraud has not wavered since we issued our report and we look forward to seeing justice done,” Block said on Friday.
Sino Forest did not identify the three employees who were suspended.
The Canadian regulators’ order demanding the resignation of executives applied to Chan, senior vice president Albert Ip and vice presidents Alfred Hung, George Ho and Simon Yeung.