Perhaps the stock ticker should have given the game away. TRE, better known as Sino-Forest, a Canadian-listed Chinese lumber company, is one “E” short of a full “TREE”. Muddy Waters, the research firm whose “strong sell” note precipitated a collapse of Sino-Forest’s shares, alleges it falls considerably shorter than that. It has accused the company of “stratospheric fraud”, saying that it overstated its forestry holdings in Yunnan province by $900m and sent revenues through a maze of intermediaries designed to fool auditors.
Sino-Forest, which listed on the Toronto stock exchange in 1994 through a reverse takeover, denies these claims. Executives launched an internal inquiry, still lumbering on – every pun intended – in which it sought to prove that its accounts provided a fair reflection of its forestry assets and earnings.
While Sino-Forest was busy counting trees, the Ontario Securities Commission acted. Last Friday, it halted trading of the shares, saying the company appeared to have exaggerated its timber holdings and to have engaged in acts that “perpetuate a fraud”. On Sunday, Sino-Forest said Allen Chan, its chairman and chief executive, had quit. Three other executives have been placed on administrative leave.