In the final frames of the movie The Big Short, the narrator laments that no one on Wall Street ever went to jail for fraud in connection with the 2008 financial meltdown.
Canada's Sino-Forest scandal is headed for a similar denouement.
More than four years after Canada's largest publicly traded forest products company collapsed under the weight of fraud allegations, top Sino-Forest executives are about to face the music.
Ya, not so much.
The final chapter in this sad saga is being played out before an Ontario Securities Commission panel, where lawyers began making their closing arguments this week in one of the longest and most complex securities cases in Canadian history.
In the mid-2000s, Sino-Forest was one of the hottest stocks on the Toronto Stock Exchange. The company took in $3-billion from investors and eventually reached a market value of $6-billion. There isn't a trace of most of that money now, and the company's few remaining assets are in the hands of bondholders.
There isn't much sign of real justice in this case. Even if found to have committed fraud, former Sino-Forest chief executive officer Allen Chan and four top executives won't be going to jail because they haven't been criminally charged. The OSC could fine them, but since all five of the defendants are Chinese citizens living in China, the chance of the OSC collecting anything is virtually nil. The most severe sanction the men face – a lifetime ban from Canadian capital markets – would also be meaningless because the men are unlikely ever to resume business activities in Canada.
It's a safe bet that Mr. Chan and his colleagues aren't losing much sleep over any of this. The OSC did not have the power to make them appear at the panel hearings and it has limited powers to investigate wrongdoing outside Canada.
So, the case has quietly played out between lawyers for the OSC and the defendants, with little drama or intrigue in front of a near-empty hearing room on most days.
So why does the OSC even bother? The securities watchdog has devoted enormous time and resources to the investigation. So far, the hearings have lasted more than 170 days over nearly two years and involved thousands of exhibits. That's unfortunately typical of securities fraud proceedings.
It does seem like an awful lot of effort in pursuit of a company that, by all indications, was mostly a mirage.
The company purported to own 500,000 hectares of timber, all of it in China, valued at $2.5-billion (U.S.) in 2010.
Unfortunately, there weren't any trees. Neither the OSC nor an independent committee of the Sino-Forest board could find evidence that Sino-Forest owned any timber.
As OSC lawyer Hugh Craig told the hearing: "If you cannot find the trees, you can't prove existence, let alone ownership and value." He said there was very little evidence that the company's main timber operations did any "real business."
The company would report massive timber deals to investors, but no money actually moved through the company.
The heart of the OSC case is that Sino-Forest was a multibillion-dollar pile of nothing.
Through their lawyers, the former Sino-Forest executives have blamed low-level employees for providing them with inaccurate information about the company's assets. At other times, they blamed the OSC's lack of understanding of China's cultural and business practices.
The allegations against the men include fraudulent overstatement of assets, falsified evidence of ownership, and undisclosed control of both its suppliers and customers.
The OSC may well win the case. But it would be a Pyrrhic victory – a flimsy deterrent to others who might try to dupe Canadian investors with empty promises. A finding against Mr. Chan and his colleagues won't offer much comfort to investors.
Maybe it's all about upholding the reputation of the OSC – a demonstration by the OSC that it won't tolerate white-collar crime and will aggressively pursue fraud cases, no matter how complex.
Instead, the case has exposed gaps in Canada's securities regulation regime – particularly when key elements of an alleged fraud occur in other countries, where authorities may be unwilling to co-operate.
Mr. Chan is probably smiling right now, confident that his Canadian misadventure won't come back to bite him.
Whatever happens, Sino-Forest will be an enduring stain on Canada's financial markets.