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Sino-Forest shareholder calls for suit against CEO

Sino-Forest operations in China.

The Globe and Mail

A shareholder of Sino-Forest Corp. is demanding that the company and its board of directors sue former chief executive officer Allen Chan and other employees of the scandal-plagued Chinese timber firm.

A so-called "derivative demand action" was served on Sino-Forest and its board on behalf of the unidentified shareholder, according to people familiar with the matter.

The action calls on the company to sue Mr. Chan and other Sino-Forest employees who were subjected to a cease-trade order in late August by the Ontario Securities Commission, which alleged that the former CEO and others had engaged in fraudulent activity.

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If the company fails to sue Mr. Chan and the other employees, the shareholder intends to seek court approval to launch proceedings against the individuals on behalf of the company.

It is understood that the deadline imposed by the shareholder for Sino-Forest to take legal action against the individuals has already passed.

Sino-Forest acknowledged the action in a press release Friday but would not identify the shareholder or the specific nature of the complaint.

An independent committee of Sino-Forest directors is looking into the shareholder's demand and will advise the board as to what, if any, action it should take, the company said.

Once the largest publicly traded forestry firm in Canada, Sino-Forest's shares have collapsed in the wake of allegations made in June by short-seller Muddy Waters LLC that the company overstated its revenues and profits from its operations in China. A separate investigation by The Globe and Mail also found inconsistencies and irregularities with Sino-Forest's operations.

Sino-Forest's stock has been halted by the OSC since Aug. 26, when it also ordered five men – Mr. Chan, as well as Albert Ip, Alfred Hung, George Ho and Simon Yeung – not to trade any shares. This cease-trade order on Sino-Forest shares was recently extended into to the new year.

Sino-Forest also said Friday that its independent committee's second interim report on the fraud allegations levelled by Muddy Waters is taking longer than expected and will now be presented to the board of directors by early- to mid-November. The company has said the independent committee hopes to complete its investigation and final report by the end of the year.

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Asia-Pacific Reporter

An award-winning journalist, Andy Hoffman is the Asia-Pacific Reporter for Canada's national newspaper, The Globe and Mail. More

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Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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