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The Ontario Securities Commission has imposed one of the largest penalties in its history in the fraud case involving failed timber company Sino-Forest Corp., ordering five former executives to make payments totalling more than $81-million.

Founder and chief executive Allen Chan was ordered to pay $67-million of the total himself, including a $5-million administrative penalty and $2-million in investigation and hearing costs.

Most of Mr. Chan’s penalty came from an order to “disgorge” $60.3-million of gains he earned from related-party deals where he had a concealed ownership interest, as well as salary and bonuses he earned between 2007 and 2010.

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Sino-Forest, which had a market value of $6-billion at its peak, was exposed as one of the costliest corporate frauds in Canadian history after a short-seller published a report in 2011 calling the company a Ponzi scheme and alleging it did not own the timber resources it claimed in its financial statements.

The OSC launched a complex and expensive international investigation as staff worked for years to collect evidence in China, where most of the accused were based. The stiff penalties announced on Wednesday mark a victory for the regulator after OSC lawyers asked the hearing panel to impose major sanctions to reflect the severity of the fraud.

“With deliberate planning and foresight, the respondents constructed an elaborate and complex organizational structure that misled investors and resulted in the cumulative loss of $6-billion in equity market capitalization,” the hearing panel said in its decision.

The panel, led by vice-chairman Grant Vingoe, said Mr. Chan in particular was “very involved in day-to-day operations,” and no significant decisions were made without his knowledge and approval.

Lawyer Adam Chisholm, who represented the five men at the sanctions hearing, said Wednesday they are disappointed by the penalties and will consider whether to include the decision in an appeal that has already been launched of the earlier ruling finding that they committed fraud.

“We are currently reviewing the commission’s order on sanctions and costs to determine whether it contains any errors that merit appellate-court intervention,” he said. “We will not be able to comment further until that review is complete.”

The penalties in the case are among the highest the OSC has ever assessed against individuals −rather than corporations − as respondents.

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The OSC reached a settlement deal in 2009 with three executives of Research in Motion Ltd. over allegations of back-dating stock options. James Balsillie, Mike Lazaridis and Dennis Kavelman jointly agreed to pay $83.1-million back to the company under the settlement, and pay a further $9-million in penalties and costs to the OSC.

Under the Sino-Forest decision, however, the payments will go to the OSC and not to the company or investors.

The hearing panel said any amounts Mr. Chan pays to investors under a US$2.6-billion legal judgment imposed by the Ontario Superior Court in March, or under a pending class-action lawsuit from shareholders, will reduce the $60.3-million in disgorgement he is required to pay to the OSC. The hearing panel said the OSC should not compete with investors for available funds.

University of Toronto law professor Anita Anand said the high level of penalties in the case are evidence of the OSC’s efforts to send a tougher deterrence message to the business community about enforcement.

“I’m heartened to see that deterrence is front and centre for the commission in terms of its sanctions,” she said.

However, Prof. Anand said the big question now is whether the executives – all based in China – will pay the penalties, because it could prove to be hard for the OSC to collect in a foreign country.

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“The efficacy of this ruling depends on the sanction being respected and payment being made,” she said.

The case is the first in which the OSC has ordered executives of a company to disgorge the salaries they earned during the period when a fraud was occurring, and Ms. Anand said the rare move shows the OSC is finding “a level of sophistication” about different ways to assess sanctions.

OSC spokeswoman Kristen Rose said the case was “unprecedented in its size, scope and complexity” for the OSC, including a hearing that lasted 188 days, with more than 2,000 exhibits and 22 witnesses from two continents.

“This case demonstrates our commitment to investigate, prosecute and sanction those who seek to harm our markets,” she said.

The hearing panel also imposed the OSC’s largest penalty in its history for misleading staff during an investigating, ordering Mr. Chan to pay $1-million for that violation as part of his total $5-million administrative penalty.

Albert Ip, Sino-Forest’s senior vice-president, was ordered to pay a total of $6-million in sanctions, including administrative penalties and disgorgements, while Alfred Hung, former vice-president of corporate planning, was ordered to pay $4.3-million. George Ho, vice-president of finance, was ordered to pay total sanctions of $3.7-million.

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Simon Yeung, who was not an officer of the company and not responsible for financial aspects of the business, was assessed a nominal penalty of just $1,000. The panel said Mr. Yeung has “life-threatening medical issues,” no reasonable probability of ever working again and “very limited financial means.”

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