Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

Staff are seen at the Sino-Forest and Sino-Panel China headquarters in Guangzhou, Southern China

ADAM DEAN/The Globe and Mail

One of the key players in the drama around Sino-Forest Corp., the onetime multibillion-dollar Toronto-listed forestry firm that collapsed amid fraud allegations, has made a deal with Ontario's securities regulator to settle the case against him.

The Ontario Securities Commission said Tuesday it had scheduled a hearing on July 21 to review a potential settlement with David Horsley, the former senior vice-president and chief financial officer of Sino-Forest, which went into a tailspin after a short-seller alleged it was a "Ponzi scheme" in 2011.

Details of the proposed settlement were not made public. A lawyer for Mr. Horsley, Peter Wardle, declined to comment in advance of the settlement hearing.

Story continues below advertisement

Word of the potential deal comes just two and a half months before a full hearing on the OSC's allegations against Sino-Forest and its other key executives is to begin in September -- a keenly anticipated proceeding expected to shed light on the biggest scandal to hit Canada's capital markets since Bre-X shook Bay Street in the 1990s with its fake gold results.

According to court documents, Mr. Horsley was fired from Sino-Forest in September 2012, four months after the OSC issued its notice of allegations against the company and a list of its key executives in May of that year. He had remained on the payroll after stepping down as CFO in April 2012, after the OSC warned the company that it was going to issue formal allegations.

Once the highest-ranking Canadian at Sino-Forest, Mr. Horsley did not face the fraud allegations the OSC levelled against the company's other former executives, including former chairman and chief executive officer Allen Chan. Instead, the OSC alleged only that he "did not comply with Ontario securities law and acted contrary to the public interest."

Sino-Forest Corp. grew quickly and became the largest forestry company listed on the Toronto Stock Exchange, with a market capitalization of $6-billion and claims that it had $3-billion in timber holdings in China. But it made headlines in 2011 after allegations from a previously unknown short seller, Carson Block and his firm Muddy Waters LLC, sent the company's stock plunging and sparked investigations by securities regulators and the RCMP.

A year later in May 2012, the OSC alleged that the company and some of its key executives had engaged in a "complex fraudulent scheme to inflate the assets and revenue of Sino-Forest" and made "materially misleading statements in Sino-Forest's public disclosure record related to its primary business."

Essentially, the company was alleged to have misled investors and auditors and falsified evidence of its timber holdings in China, as well as engaging a web of corporate entities in a series of transactions between related parties.

The allegations against the company and its executives have not been proved. Sino-Forest and its executives have denied the allegations.

Story continues below advertisement

According to the OSC's statement of allegations from 2012, the regulator alleged that Mr. Horsley "knew or ought to have known" that purchase contracts and other documentation intended to back up the company's claims about its timber in China were "deceitfully" created and that auditors were relying on them "as proof of ownership of Sino-Forest's Standing Timber assets."

The OSC alleged that Mr. Horsley, as the company's CFO, "authorized, permitted or acquiesced" in the company's commission of its "standing timber fraud" and in the "making of materially misleading statements."

Typically, in settlements with the OSC, the regulator agrees to drop proceedings in exchange for a monetary payment and an admission of some sort of wrongdoing, although the regulator recently said that in certain cases it will allow settlements where admitting wrongdoing is not required. The OSC also has the power to issue trading bans and ban people from serving as corporate directors.

Sino-Forest's auditors, Ernst & Young LLP, have already settled allegations made by shareholders in class action related to Sino-Forest, handing over a massive $117-million to burned shareholders. But Ernst & Young still faces allegations from the OSC that it showed a "lack of diligence" in scrutinizing Sino-Forest's books, and a separate hearing on that case is scheduled for November. The accounting firm has denied the allegations, which have not been proved.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies