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

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.

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.

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