Sino-Forest denies fraud claims

In June, Muddy Waters claimed that Toronto-listed Sino-Forest overstated its revenues and assets by routing funds off its books to intermediaries in order to fabricate sales transactions. It called Sino-Forest the "granddaddy of China RTO frauds," and the news prompted shares in the company to drop approximately 80%.

However, Sino-Forest this week issued a statement averring that it stands by its reporting after conducting an independent investigation into its operations.

"The independent committee report verifies the company's stated cash balances, confirms registered title or contractual rights to the Company's stated timber assets, as well as the book value of these assets ... We can categorically say Sino-Forest is not the 'near total fraud' and 'Ponzi scheme' as alleged by Muddy Waters.

"To say that this has been a tough time for our employees, investors and our company as a whole would be a huge understatement. A great deal of financial and reputational damage has been caused by unfounded accusations made by a short-seller, who we understand personally profited a great deal from the losses of others," the company stated.

Sino-Forest has seen some support for its cause. In August, Singapore-based Mandolin Fund concluded its third stake acquisition in the company in the span of three weeks, which brought its hold to 18%.

However, another investor, Paulson & Co., opted out of its investment. At the time when Sino-Forest's stock traded at a depressed price in the aftermath of the Muddy Waters report, the US hedge fund exited its holding in the company, supposedly incurring a loss of more than $500 million.

Also in August, Sino-Forest's chairman and CEO resigned and three employees were suspended after the Ontario Securities Commission said the company may have misrepresented its revenue statements and exaggerated its timber holdings. It added that Sino-Forest "appears to have engaged in significant non-arm's-length transactions."

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• Topics
• Greater China
• Credit/Special Situations
• Regulation
• China
• Distressed
• regulation