MASSIVE FRAUD in China Companies

MASSIVE FRAUD in China Companies

Posted in the China Forum


Port Moody, Canada

#1 Jun 8, 2012
Winnipeg Free Press - PRINT EDITION

Sino-Forest fraud huge, OSC alleges
New accusations against CEO
By: Peter Koven

Posted: 05/23/2012 1

TORONTO -- After an exhaustive investigation involving many of its most senior people, the Ontario Securities Commission alleges the short sellers were right: Sino-Forest Corp. has committed a massive and complex fraud.

The allegations, which took nearly a year to put together, imply a wide-ranging scheme by Sino-Forest insiders to inflate the value of its assets and revenues. The commission's findings support the most serious fraud allegations that were previously made against Sino, while introducing new ones.

The OSC alleges Sino held "undisclosed control" over the network of third parties through which it conducted purchase and sale transactions. In turn, these deals were backed by fraudulent contracts that were not drafted until the quarter after they allegedly took place and revenue from them was recognized.

The commission also lobbed new allegations against former chief executive Allen Chan, saying he secretly controlled companies that made $22 million when Sino-Forest acquired control of Greenheart Group Ltd., a Hong Kong firm. Five other former executives, including CFO David Horsley, have been accused of fraud. The allegations have not been proven. If proven, Sino-Forest represents one of the largest frauds in Canadian market history.

The Sino-Forest investigation was a challenging one for the OSC, as it had to overcome language and cultural barriers in China while trying to unwind Sino's web of third-party relationships.

Sources said the commission did not do anything out of the ordinary in this investigation -- it interviewed everyone it could and studied every document it came across.

Experts said the OSC moved quickly on the file, given the scope of the investigation and the difficulties involved.

"I think this is a very positive development and the OSC is to be commended for acting swiftly," said Dimitri Lascaris, a partner at Siskinds LLP, which is co-leading a class-action lawsuit against Sino-Forest.

"Relatively speaking, this is fast for any Canadian regulator."

In its statement of allegations, the commission analyzed four of Sino-Forest's transactions it claims were fraudulent. The biggest of them involves a company called Gengma Forestry.

In that case, Sino bought standing timber and land-use rights from Gengma Forestry for $14 million in 2007.

The OSC states the transaction was never recorded and Sino purported to buy the same assets from Yuda Wood (an alleged undisclosed subsidiary) for $83 million.

In 2010, the standing timber was purportedly sold for $231 million, the OSC said. However, the same assets were offered as collateral on a Sino-Forest bank loan in 2011, suggesting the sale could not have taken place a year earlier and been reported as revenue.

The OSC raised other questions about the legitimacy of Sino's purchase and sales contracts. For example, the commission stated forestry bureau employees, who provided confirmations of Sino's tree ownership, obtained gifts and cash payments from Sino's suppliers.

At its peak, Sino-Forest was worth more than $6 billion. Its epic collapse began in June of last year, when short seller Muddy Waters LLC accused the company of fraud. Sino was unable to file its 2011 financial results because of uncertainty around its third-party relationships, which forced the company into creditor protection last March. By that point, Sino's business in China was effectively destroyed by the fraud allegations.

-- Postmedia News

Port Moody, Canada

#2 Jun 8, 2012
This surprises no one and is only the first of many.

A corrupt and illegitimate regime like that of the Chinese Communist Party can only produce companies that are, you guessed it, corrupt and fraudulent.

I wonder HOW MANY other apparently valuable CCP China companies are in fact ESSENTIALLY WORTHLESS and a big scam?



Pretty scary for anyone holding CCP China stocks and trusting the CCP regime to vet the books!

The latest response from the CCP dictators is to REDUCE THE AMOUNT OF FINANCIAL INFORMATION investors receive.

Gee. Is that to FIX the problem of fraud, or HIDE the fraud?

Port Moody, Canada

#3 Jun 8, 2012
OSC accuses Sino-Forest execs of fraud
The Canadian Press Posted: May 22, 2012 1:35 PM ET Last Updated: May 22, 2012 1:34 PM ET
The OSC and a special committee of the company's board both launched investigations last year after fraud allegations were first levelled in June by short-seller Muddy Waters Research.(Ho-Garth Lenz/The Canadian Press)

Related Stories
Sino-Forest to be delisted from TSX
Sino-Forest applies for credit protection
Sino-Forest report disputes fraud allegations The Ontario Securities Commission is formally accusing troubled Chinese timberland company Sino-Forest Corp. of lying to investors and attempting to mislead investigators.

The regulator filed the fraud allegations on Tuesday against the company as well as its founder and former chief executive Allen Chan, Albert Ip, Alfred Hung, George Ho and Simon Yeung.

"This is a complex international investigation and we have dedicated significant resources to this file, moving swiftly to take action against these individuals," said Tom Atkinson, the OSC's director of enforcement.

"This is an important first step and our investigation is continuing into this matter, including an examination of the role of the gatekeepers."

Sino-Forest is accused of overstating its assets and revenue as well as misleading investors as to the relationship between Sino-Forest, Chan and Greenheart, a publicly traded company listed in Hong Kong.

The regulator alleged Chan secretly controlled companies that received over $22 million when Sino-Forest bought a controlling interest in Greenheart.

OSC staff also alleged that former Sino-Forest chief financial officer David Horsley did not comply with Ontario securities law and acted contrary to the public interest.

Case referred to RCMP
However, Horsley did not face the more serious allegations of fraud.

The OSC and a special committee of the company's board both launched investigations last year after fraud allegations were first levelled in June by short-seller Muddy Waters Research.

In addition to its own investigation, the OSC referred the case to the RCMP last year.

The company has filed for bankruptcy protection and put itself up for sale, saying that if it doesn't receive a suitable takeover offer it will implement a restructuring plan under the Companies' Creditors Arrangement Act that would see lenders take control.

The CCAA process can take six months to a year but because there is so much uncertainty over its assets, the Sino-Foreset process could take even longer.

Sino-Forest filed a report by its own independent committee earlier this year into the allegations by Muddy Waters, but fell short of bringing investors any closer to seeing a return on their investment in the company.

Its shares have been delisted from the Toronto Stock Exchange.

Port Moody, Canada

#4 Jun 8, 2012
OSC alleges fraud at Sino-Forest, widens probe beyond company

VANCOUVER, TORONTO — The Globe and Mail

Published Tuesday, May. 22 2012, 12:03 PM EDT

Sino-Forest Corp. and its top executives orchestrated one of the largest frauds in Canadian stock market history through a broad-ranging scheme to falsely inflate the company’s assets and revenue, Ontario’s securities regulator said in a sweeping set of allegations Tuesday.

More related to this story
Chinese groups fail to meet U.S. results deadline

Sino-Forest brass departs in advance of OSC charges

Sino-Forest files for bankruptcy protection

Streetwise Video: OSC accuses Sino-Forest of fraud
The Ontario Securities Commission alleges that Sino-Forest, which traded on the Toronto Stock Exchange and was once valued at more than $6-billion, violated provincial securities laws by overstating its financial performance. The regulator said Sino-Forest moved money in a “circular” manner between various corporate entities in a series of complex related-party transactions. It also said the company falsified evidence of ownership for the vast majority of its timber holdings.

The alleged fraud, which includes the unjust enrichment of the company’s co-founder, former chairman and CEO Allen Chan through Sino-Forest’s purchase of a company he had an undisclosed interest in, marks the biggest black eye for the Canadian capital markets since the Bre-X scandal in the 1990s.

The scope of the alleged fraud has prompted the OSC to widen its probe beyond the activities of Sino-Forest to scrutinize how the company was able to win billions from Canadian investors.

The OSC has now expanded its investigation to include the so-called “gatekeepers,” who oversaw the Chinese company’s financial statements as well as the lawyers and underwriters who helped Sino-Forest raise money in Canada.“Our investigation is continuing into this matter, including an examination of the role of gatekeepers,” OSC enforcement director Tom Atkinson said in a statement.

Between 2006 and 2011, many of Canada’s largest bank and brokerage firms helped Sino-Forest raise more than $3-billion from investors eager to tap in to China’s soaring growth through the burgeoning forestry industry.

The company’s underwriters, lawyers and its auditor Ernst & Young LLC, were all rewarded with fees, but none of them detected the fraudulent activity the OSC alleges was going on at the time.

At its peak, Sino-Forest claimed to control more than 800,000 hectares of timber assets in China and reported revenues of more than $1.9-billion in 2010.

The OSC, in a 33-page statement of allegations, said many of those claims were a lie.


Port Moody, Canada

#5 Jun 8, 2012

Sino-Forest and five of its former top executives, Mr. Chan,“engaged in numerous deceitful and dishonest courses of conduct...that ultimately caused the assets and revenue derived from the purchase and sale of standing timber (that constituted the majority of Sino-Forest’s business) to be fraudulently overstated,” the OSC said.

The watchdog also accused Mr. Chan and the five others of misleading staff during its investigation. Yet it remains uncertain if any of the Chinese-based executives will be held accountable if they are found guilty of breaking securities laws. While the OSC can ban foreigners from acting as a director or officer of an Ontario company it has little recourse to collect any fines if the person refuses to pay.

The RCMP has launched a criminal investigation into possible fraud at Sino-Forest, which is domiciled in Canada but headquartered in Hong Kong.

The OSC charges represent the most detailed and damning evidence yet against a once high-flying company that has been shrouded by suspicion for nearly a year.

In a research report published in June of 2011, a previously little-known short seller named Carson Block and his firm Muddy Waters LLC, accused Sino-Forest of engaging in a “massive Ponzi scheme.” The report sent Sino-Forest shares into a tailspin.

A subsequent investigation by The Globe and Mail exposed a number of inconsistencies that raised doubts about the company’s public statements. Among other things, The Globe found a string of empty regional offices, and spoke to a key Sino-Forest business partner in Yunnan province, who said the company had purchased far fewer trees than the 200,000 hectares promised under a 2007 agreement. Provincial forestry officials who spoke to The Globe also questioned the size and value of Sino-Forest’s timber assets.

Sino-Forest executives and the company denied all of the allegations. The company set up an “independent” special committee of directors led by board member William Ardell to investigate. The committee spent nine months and $50-million but said it was unable to unravel Sino-Forest’s business practices and its relationships with its business partners.

In its statement of allegations Tuesday, the OSC said Sino-Forest and its executives used “caretakers” or friends and former employees to control many of the company’s business partners. The OSC said Sino-Forest used these arrangements to move funds around in a “circular” fashion that inflated the company’s revenue and assets.

Port Moody, Canada

#6 Jun 8, 2012
Fake profits

Fake assets

From a country with fake media, fake government, fake patriotism, fake history, fake law, fake police, fake milk, fake food, fake goods of every kind, etc., etc.

The "Fake China Miracle" is about to be exposed and crash into ruins.

Bye, bye Chinese Communist Party! No one will ever miss you and history will describe you with disgust! Even every one of your own Cadres knows that!


#7 Jun 13, 2012
Fake profits

Fake assets

From a country with fake media, fake government, fake patriotism, fake history, fake law, fake police, fake milk, fake food, fake goods of every kind, etc., etc.

The "Fake China Miracle" is about to be exposed and crash into ruins.

Bye, bye Chinese Communist Party! No one will ever miss you and history will describe you with disgust!

See how your so-called supporters on this forum HIDE FROM THESE FACTS?

How WEAK is that?


#8 Jun 13, 2012
I see the CCP apoplogists are HIDING from this as well!

The CCP is SO WEAK now!


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