Allen Chan, a businessman from Hong Kong, forms a partnership with Kai Kit Poon, a veteran government forestry engineer, to begin investing in tracts of trees in China.
Sino-Forest Corp. is created in a reverse takeover of two dormant Alberta Stock Exchange-listed companies. Mr. Chan raises $5-million from Canadian investors and the stock begins to trade under the ticker symbol TRE in 1995.
After early struggles, Sino-Forest begins to deliver eerily consistent sales and profit growth. In less than a decade, revenue increases tenfold, reaching almost $2-billion by last year. Even the global recession fails to knock the company off course. Investors pour in money, as the company raises nearly $3-billion in equity and debt from 2003 to 2011.
March 31, 2011
Sino-Forest closes at $25.30 in Toronto trading, a record, amid a rally in forestry stocks. The company is worth about $6-billion, the largest market capitalization of any TSX-listed forestry company and more than the combined value of West Fraser Timber and Canfor, Canada's biggest foresters.
Carson Block, an obscure short seller, declares that Sino-Forest "has always been a fraud" and "massively exaggerates" its assets. The stock, which closed at $19.40 the day before, is halted. It falls to $6.19 on June 3.
The Ontario Securities Commission says it is "investigating matters related to Sino-Forest." Sino-Forest urges the OSC to investigate Mr. Block. The company says an independent investigation of its operations will prove its innocence by September.
The independent investigation bogs down. Sino-Forest says it won't be done until the end of the year. A preliminary report is delivered to the company's board. Sino-Forest blames the delay on the "sourcing and verification of data in China."
The OSC says Sino-Forest and key executives "appear to be engaging or participating in acts ... which it and/or they know or reasonably ought to know perpetuate a fraud." The regulator halts the stock and orders five executives, including Mr. Chan, to resign. Hours later, it rescinds the resignation order, but not the allegations.
Mr. Chan quits as CEO and the company puts three employees on administrative leave in response to the OSC allegations. A fifth employee is kept on but told only to assist the new CEO, Judson Martin.
The OSC extends the freeze on trading Sino-Forest shares to Jan 25, 2012. The company agrees with the request, arguing that the order will give it more time to conduct its internal investigation.