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Allen Chan, the Hong Kong-based businessman at the centre of the Ontario Securities Commission's (OSC) fraud allegations against Sino-Forest Corp., maintains he has done nothing dishonest, his lawyer told a packed hearing room on Tuesday, arguing that business is done differently in China.

"These events did not take place on Bay Street, or even in rural Ontario," Mr. Chan's lawyer, Emily Cole, told the three-commissioner panel as a hearing on the fraud allegations got under way. "The panel should not draw conclusions about them as if they did."

Mr. Chan, the company's former chairman and chief executive, along with four other former Sino-Forest executives, face OSC allegations they committed fraud and misled investors in the company, which once had a market capitalization of $6-billion and a listing on the Toronto Stock Exchange. Mr. Chan and the others are all based in China and none personally attended the hearing on Tuesday.

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The firm, which bought and sold timber rights in China, sunk after a short-seller alleged it was "Ponzi scheme" in June, 2011, costing investors billions. An OSC probe culminated in allegations issued in May, 2012, outlined Tuesday by the OSC's lawyer on the case, that the company used a complex web of subsidiaries in the British Virgin Islands, undisclosed relationships with third-party companies and faked documents to inflate its revenue and deceive investors.

It's the OSC's biggest fraud case since the Bre-X Minerals gold scandal of the 1990s. And Ms. Cole's opening statement Tuesday afternoon was the first time Mr. Chan and the other former Sino-Forest executives had responded publicly to the regulator's allegations.

Ms. Cole told the panel that Mr. Chan takes the losses suffered by investors in Sino-Forest seriously: "But it's his position that his conduct did not cause or contribute to their losses."

Many Sino-Forest business practices that now appear suspicious to North American eyes, she said, were simply responses to the challenges of doing business in China, particularly in the poor, remote rural areas where Sino-Forest bought and sold timber rights.

For example, the OSC has centred on the network of British Virgin Island companies through which Sino-Forest bought and sold timber holdings using so-called "set-off" transactions, which the regulator says were "off-book" and difficult to track. In these deals, buyers were asked to pay another supplier for assets Sino-Forest intended to buy, rather than paying Sino-Forest itself. Ms. Cole said this was necessary because Chinese rules made it impossible for Sino-Forest, a foreign company, to accept such payments directly.

Ms. Cole also said the company did draft its own "written confirmations" to show it owned Chinese timber assets, but that these documents were then approved by local forestry authorities and not fraudulent.

Sino-Forest itself, which went in to bankruptcy protection and saw its remaining assets handed over to its bondholders last year, was not defending itself at the hearing.

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Earlier on Tuesday, Hugh Craig, a lawyer for the OSC, told the hearing that Sino-Forest's revenues and assets were overstated between 2007 and 2010, with the company issuing false financial statements in every quarter: "Due to lies, no investor could make an informed decision about whether or not to buy or sell Sino-Forest securities."

He also said that the Emerald Plantation Holdings, the renamed company that inherited Sino-Forest's British Virgin Islands subsidiaries after its bankruptcy protection hearings, has declared their worth to be "zero," despite claims from Sino-Forest as recently as 2012 that they were worth $3-billion.

But Ms. Cole later countered that the zero valuation was for "business and accounting reasons" and that this was a "far cry from saying that the BVI assets did not exist."

Mr. Craig said the OSC's expected witnesses in the case include three former executives and three former directors from the board of Sino-Forest. The OSC also plans to call three junior employees of the company, including the former executive assistant to Mr. Chan.

Lawyer Markus Koehnen, who is representing former Sino-Forest executives Albert Ip, Alfred Hung, George Ho and Simon Yeung, told the hearing he expects his clients to testify in person if certain issues can be resolved. Ms. Cole did not indicate whether Mr. Chan would also testify in his own defence.

Mr. Koehnen said the OSC had singled out mistakes made by a fast-growing company in China, not fraud: "The fact that someone makes an operational mistake doesn't make it fraud."

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But Mr. Craig urged the hearing panel, headed by OSC commissioner James Carnwath, not to listen to arguments that business practices are different in China. He said Sino-Forest was based in Canada and operated under Canadian securities laws: "This is where the culture of accountability must be recognized."

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