Sino-Forest Corp. has broken the silence surrounding allegations that it has misled investors over the value of its assets, and it is coming out swinging.
"The Board of Directors and management of Sino-Forest wish to state clearly that there is no material change in its business or inaccuracy contained in its corporate reports and filings that needs to be brought to the attention of the market. Further we recommend shareholders take extreme caution in responding to the Muddy Waters report."
And from Allen Chan, Sino-Forest's chairman and chief-executive: "We are committed to a high level of corporate governance and stand by the integrity of our company, our 16-year operational track record and our financial statements. Our company has continuously retained the services of internationally recognized law firms, auditors and expert consultants from Canada, the U.S., Hong Kong and mainland China."
Meanwhile, the company pointed out - and this is no secret - that the firm that published the allegations has sold the stock short, meaning that it stands to benefit from any price decline. (The shares fell 21 per cent on Thursday and were halted on Friday morning in Toronto.)
However, Sino-Forest's best line of defence could have been its top shareholder: John Paulson. Through Paulson & Co., the world-famous investment firm that has made a pile of dough betting against the U.S. housing market and, more recently, in favour of gold, is the company's biggest investor, holding a 14.1 per cent stake as of the end of April.