Sino-Forest Corp. co-founder Allen Chan said he is sorry that the company's shareholders lost billions of dollars, but he "respectfully disagrees" with the Ontario Securities Commission's ruling that his actions led to the forestry company's demise.
The OSC ruled in July that Mr. Chan and three other senior executives – Albert Ip, Alfred Hung and George Ho – engaged in "deceitful or dishonest conduct" relating to the company's standing timber assets and revenue that they knew constituted fraud. Fraud allegations against a fifth executive, Simon Yeung, were dismissed.
Mr. Chan did not testify during the original hearing, which spanned nearly 200 days over almost two years starting in 2014 and included 2,000 exhibits and 22,000 pages of transcripts. But he did testify on Monday as part of a follow-up hearing to determine sanctions.
Speaking through video conference from Hong Kong on Monday, Mr. Chan said he is sorry that the company's shareholders lost money, but he disagrees that the loss was the result of his actions as the company's chief executive officer.
Instead, Mr. Chan said he believes the company's implosion resulted from a series of actions that were not taken during a two-month period when he was discouraged from exercising his CEO duties.
On June 2, 2011, short-seller Muddy Waters released a research report alleging that Sino-Forest was a Ponzi scheme and had massively exaggerated its assets. The report caused the company's shares to be halted on the Toronto Stock Exchange.
Mr. Chan said that, in the months following the release of the report, he wanted to do a share buyback to restore the market's confidence in Sino-Forest. He also wanted to discuss the report's allegations with the company's shareholders, he added.
But Mr. Chan was not permitted to speak to shareholders or the press about the Muddy Waters report and was discouraged from fulfilling his role until he was relieved from it the following August, he said.
"Those two months, the company was operating in a semi-vacuum," said Mr. Chan, noting that every decision he made during that time span had to be overseen by an independent committee. The company's top management was not involved in running the company during that period, Mr. Chan said.
After Mr. Chan's testimony ended Monday, the sanctions hearing was adjourned until Dec. 19.
Sino-Forest was once a $6-billion company trading on the TSX. It collapsed in 2011 following the Muddy Waters report. Staff for the OSC have accused the former executives of misleading investors by overstating the company's revenue and assets between 2007 and 2010.
The OSC could ban Mr. Chan, Mr. Ip, Mr. Hung and Mr. Ho from trading or becoming an officer or director of a public company. It could also award monetary sanctions of up to $1-million for each violation of securities law, plus the cost of the investigation.