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Sino-Forest operations in China.The Globe and Mail

Sino-Forest Corp. , under siege after fraud allegations caused its share price to collapse, now faces another potential class action filed on behalf of angry shareholders, this one from two fund management companies.

Lawyers for Northwest and Ethical Investments LP (NEI), which manages Ethical Funds, and Comité syndical national de retraite Bâtirente inc., a Quebec labour-sponsored pension fund, filed their lawsuit on Monday in Ontario Superior Court, seeking $5.8-billion in damages for investors who lost money on Sino-Forest.

The TSX-listed Chinese forestry company has seen its shares frozen while the Ontario Securities Commission investigates allegations that the firm exaggerated its revenues and its timber holdings in China. Key executives have resigned or have been suspended.

The lawsuit filed on Monday alleges Sino-Forest made "material misrepresentations" about its integrity, its financial results. It also names the company's auditors, 15 financial firms that allegedly brought Sino-Forest share and note offerings to market, forestry consulting firms, and 20 directors and senior executives.

None of the allegations in the latest lawsuit has been proven in court, and the suit must first be certified by a judge as a class action before it can go ahead.

The lawsuit is the latest of several such actions filed against what was once Canada's largest publicly traded forestry company, as the country's top class-action law firms race to represent shareholders who lost money. The plaintiffs in Monday's suit are represented by Kim Orr Barristers PC of Toronto and New York shareholder class-action firm Milberg LLP.

The plaintiffs, who were both investors in Sino-Forest, say they raised issues over the company's corporate governance earlier this year, before the release in June of the critical report by short-seller Carson Block and his firm, Muddy Waters, that accused Sino-Forest of fraud.

According to a news release sent out by the plaintiffs' lawyers, both NEI Investments and Bâtirente withheld their votes for most of Sino-Forest's directors at the firm's annual general meeting in May.

Sino-Forest has denied the Muddy Waters allegations and set up a special committee of independent directors, assisted by accounting firm PricewaterhouseCoopers, to investigate.

NEI, whose Ethical Funds mutual funds screen companies for their social and environmental policies, says it is acting both to protect its investors and to "uphold the integrity" of the investment industry.

"In our long-standing history of engaging with companies to promote responsible corporate governance practices, this is the first time NEI Investments has taken this last-resort approach to protect investors," Bob Walker, NEI's vice-president in charge of Ethical Funds, said in a statement.

A spokesman for Sino-Forest declined to comment on the lawsuit.

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