TORONTO - The chairman and chief executive of Sino-Forest Corp. has resigned just two days after the Ontario Securities Commission halted trading in the TSX-listed Chinese timberland operator's shares amid stunning allegations of fraud.
Sino-Forest announced early Sunday that founder, chairman and CEO Allen Chan had voluntarily stepped down pending an independent investigation by the company into allegations that rank among the most serious ever levelled against a publicly traded Canadian company.
"The allegations made in the OSC's temporary order, while unproven, are of a serious nature," Sino-Forest said in announcing the executive changes early Sunday.
"The three overriding priorities of the company are to complete the work of the independent committee, to co-operate with the OSC and to preserve shareholder value."
On Friday morning, the Ontario regulator levelled stunning, but as yet unproven, allegations against the company, which is listed on Canada's senior market but is based in Hong Kong and operates tree farms and logging businesses across China.
It has been publicly traded in Canada since the mid-1990s and has raised about $3 billion in share and corporate debt issues since 2003 — bought by Canadian, American and international investors.
At one time, Sino-Forest was the most valuable forestry company listed on the TSX, ahead of lumber giant Canfor Corp. and paper producers such as Domtar and Abitibi-Bowater.
However, its stock has lost billions of dollars in value since allegations by a short-seller earlier this summer that the company (TSX:TRE) exaggerated its revenue and timber holdings by providing false or misleading information.
The OSC repeated the June allegations by short-seller Muddy Waters Research and also said the forestry company may have been involved in "significant" related-party deals that could have broken securities laws.
None of the allegations have been proven.
``Sino-Forest and certain of its officers and directors appear to have misrepresented some of its revenue and/or exaggerated some of its timber holdings,'' the Ontario regulator said in a temporary order.
In its release Sunday, Sino-Forest said William Ardell, the lead director investigating the fraud allegations, has been named chairman of the company. Judson Martin, currently vice-chairman, will become the new CEO.
Chan will become founding chairman emeritus.
Ardell is a veteran corporate executive best known in Canada as president and CEO of the former Southam newspaper company in the 1990s.
In its Friday decision, the OSC also issued a cease-trade order for Sino-Forest shares, which have been battered by the allegations. They last traded Thursday at $4.81. Their 52-week range is $25.85 to $1.29.
Sino-Forest launched an investigation by an independent committee headed by Ardell earlier this year after the allegations were first made by Muddy Waters.
The company said last week that its investigation would take longer than the two to three months that was initially predicted and is now expected to be complete by the end of year.
"The company's business is complex, the scope of the review is significant and there are enormous amounts of data that have been marshalled and are under review," the company said.
In addition to Chan's resignation, the company said it had placed three employees on administrative leave and relieved them of their duties. A fourth senior employee has been asked to work for Martin solely to help the independent investigation.
"These actions were undertaken by the company after certain information was uncovered during the course of the independent committee's review, subsequent to the release of the company's second quarter financial results, and before the OSC's cease trade order was issued," Sino-Forest said.