One of Canada's largest pension funds has joined a lawsuit seeking millions in compensation from Sino-Forest Corp., its management, directors, auditors and a slew of Bay Street firms that helped the scandal-plagued forestry firm raise capital from investors.
The British Columbia Investment Management Corp. (BCIMC), which has $90-billion in assets under management and is an agent of the provincial government, has joined a proposed class action lawsuit led by Toronto legal firm Kim Orr Barristers P.C. and Milberg LLP of New York City, according to documents filed with the Ontario Superior Court of Justice and obtained by The Globe and Mail.
BCIMC is, by far, the largest single investor to commence legal action against Sino-Forest, which was once the most valuable forestry company listed on the Toronto Stock Exchange, boasting a market value of more than $6-billion before fraud allegations made by U.S. short-selling firm Muddy Waters caused the stock to collapse in July.
"We believe that our clients and the Canadian marketplace were deceived. We also believe that many parties including the officers, directors, auditors and underwriters of Sino-Forest have failed in their duty to protect the Canadian investing public," BCIMC said in a statement.
According to an affidavit sworn by Bryan Thomson, BCIMC's vice-president of equity investments, the B.C. pension fund manager currently owns 1,468,218 Sino-Forest shares and has owned as much as much as 6.5 million Sino-Forest shares.
The BCIMC legal action caps a brutal week for Sino-Forest, which is now teetering on the brink of collapse. On Monday, Sino-Forest warned it could not file its financial results and expects to be tipped into default by holders of its $1.8-billion in debt. The company, which is based in Mississauga, Ont., and headquartered in Hong Kong, had less than $600-million in cash in early November.
Sino-Forest's largest shareholder, Singapore's Richard Chandler Corp., is demanding that the Sino-Forest board of directors resign and that the company's new chief executive officer, Canadian Judson Martin, be sacked. Chandler and Sino-Forest's second largest shareholder, Davis Advisors, are demanding that the company stop preserving cash and make a $10-million interest payment on its debt due Dec. 15.
Sino-Forest's directors, and the advisers to a special committee probing the fraud allegations, say the company can't file its financial results or make interest payments on its debt because they can't unravel the complex web of relationships between the company and its business partners. Some of Sino-Forest's relationships with timber suppliers and the brokers who sell its trees appear to be potential related-parties.
In his affidavit, Mr. Thomson said that BCIMC had previously raised governance issues with Sino-Forest management. In 2007, 2008 and 2010, BCIMC withheld its votes for Sino-Forest's slate of directors because of poor attendance at meetings by several board members.
In 2010, BCIMC filed a shareholder proposal asking Sino-Forest to adopt individual director election. The company did so in 2011, but BCIMC withheld its votes for several Sino-Forest directors that year because of "excessive short-term bonus payments" and the fact that some directors served on too many other corporate boards.
The Ontario Securities Commission halted Sino-Forest shares from trading in August and is now investigating the company and management. The OSC says it appears that Sino-Forest executives, including co-founder and former chairman and CEO Allen Chan, may have engaged in fraudulent activity. The RCMP is also investigating.
At least three separate proposed class actions have been filed against Sino-Forest and its advisers. An Ontario judge will begin deciding whether to certify the proposed class actions later this month.
In addition to Sino-Forest management and directors, the Kim Orr proposed class action names auditors Ernst and Young LLP and BDO Ltd. as defendants, as well as the brokerage firms that helped Sino-Forest raise more than $2-billion from investors. These firms include Dundee Securities Corp., UBS Securities Canada, Haywood Securities Inc., Credit Suisse Securities Canada Inc., TD Securities Inc., RBC Dominion Securities Inc., Scotia Capital Inc., CIBC World Markets Inc., Merrill Lynch Canada Inc., Canaccord Financial Ltd., Maison Placements Canada Inc., Morgan Stanley & Co. Inc. and Bank of America Merrill Lynch.
In a statement, RBC said, "We conduct an appropriate level of due diligence on all transactions, and strictly adhere to our responsibilities and obligations as part of any underwriting syndicate. We believe the allegations in the claim against RBC Dominion Securities are without merit, and we are defending against the suit."
Canaccord, Haywood, UBS and Scotia declined to comment and the other firms named in the suit did not respond to e-mail requests for comment.