Skip to main content

Following the collapse of Sino-Forest's stock price in June, 2011, Chinese reverse takeovers (RTOs) curdled for investors. Sino-Forest can take some of the blame, but not all of it.

Last year, the Pittsburgh Tribune-Review examined about 125 Chinese reverse mergers and found 105 had either been delisted, were the subject of fraud lawsuits or had other serious problems.

While the TSX-listed Sino-Forest is notorious, the action is overwhelmingly in the U.S. A study by Stanford's law school found that of the 94 securities fraud class-actions filed in the first half of 2011, 24—more than 25%—were related to Chinese RTOs. In all of 2010, only seven suits had been filed.

Story continues below advertisement

In Canada, the Sino-Forest meltdown inspired Ontario Securities Commission head Howard Wetston to declare that RTOs needed more regulatory scrutiny. A subsequent OSC review of emerging-market companies trading on Canadian exchanges called for more "professional skepticism" on Bay Street, but did not raise concerns about the RTO process. The TMX Group, meanwhile, has opened an office in Beijing to encourage more Chinese-based companies to list in Toronto.

Report an error Editorial code of conduct
As of December 20, 2017, we have temporarily removed commenting from our articles. We hope to have this resolved by the end of January 2018. 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.