Sino-Forest — the alleged Chinese timber fraud — is out.
The part most people will be interested in is where it responds to the Muddy Waters allegations.
Here’s the full discussion of that, including a note at the bottom of how long it will take to get an independent report.
The full report is here.
The allegations and attacks launched by short-seller Muddy Waters have had a significant impact on the Company. As stated in the Company’s press release of June 6, 2011, Sino-Forest believes the allegations are inaccurate, spurious and defamatory. However, due to the substantial impact the report has had on the prices of the Company’s securities and the reputation of the Company, it is the Board’s fiduciary duty to address them in a serious and comprehensive manner. The Board is deeply concerned with this situation and the following actions have been taken as a result:
- The Board established an Independent Committee on June 2, 2011 to lead a thorough examination of the allegations. The Independent Committee is comprised of three of Sino-Forest’s Independent Directors as follows:
William (Bill) Ardell – Chairman of the Independent Committee Lead Director since 2010; nominated as Director since 2010; previously President & CEO and a director of Southam Inc. Bill was director for a number of entities in the public and private sectors, including not-for-profit organisations, serving in varying capacities as Chairman, Director, or member of the board committees. He began his career with Touche Ross in Montreal. James (Jamie) Hyde Director since 2004; previously Vice President, Finance and Chief Financial Officer, GSW Inc., Executive Vice President and Chief Financial Officer, Resolve Business Outsourcing Income Fund, Former Partner, Ernst & Young LLP, where for 24 years he provided a board range of professional services to public and private companies. James (Jamie) Bowland Joined the Board in February 2011; former Managing Director at BMO Capital Markets, Investment & Corporate Banking Group; extensive experience in mergers & acquisitions, capital markets and corporate banking. Jamie is a Director of a number of TSX-listed companies and not-for-profit organisations. He is a Chartered Accountant and holds the Institute of Corporate Directors designation
- The Independent Committee appointed independent legal counsel to support the Independent Committee in its review of the allegations:
- Osler, Hoskin & Harcourt LLP – a leading Canadian law firm
- Mallesons Stephen Jacques – a leading international law firm with offices in Beijing, Shanghai and Hong Kong
- Jun He Law Offices – a leading Chinese law firm
- The Independent Committee appointed accounting firm PricewaterhouseCoopers (PwC) on June 6, 2011 to support the Independent Committee to independently review and examine the allegations.
- On June 7, 2011, the Company requested that the Toronto Stock Exchange and the Investment Industry Regulatory organisation of Canada investigate the trading of the Company’s shares by Muddy Waters, LLC and its principal Carson Block and anyone associated with these persons in advance of the issuance of the Muddy Waters’ report.
- On June 8, 2011, the Company confirmed that the Ontario Securities Commission (OSC) had opened an investigation into matters involving Sino-Forest and stated that it welcomed the investigation. The Company believes that the issues the OSC will seek to address will be consistent with the investigation commenced by the Independent Committee.
Commenting on the situation, Mr. Allen Chan, Chairman & Chief Executive Officer said, “We are very disappointed for our stakeholders about the significant drop in the value of their investment in Sino-Forest due to the inaccurate and unfounded allegations reported by Muddy Waters, a self-serving short seller. It is shocking that a little-known short seller, who is not listed with the Ontario Securities Commission nor the Securities Exchange Commission as a registered advisor, could reduce so much market value created after 17 years of hard work and global stakeholder investment.”
Mr. Chan continues, “In our recent news releases, we have stated that we stand by our audited financial statements. I can promise investors that the allegations contained in the report against Sino-Forest are inaccurate and unfounded. All material related party transactions are appropriately disclosed in our financial statements.
As Chairman of the Independent Committee, William Ardell said, “We have assembled a strong team of independent advisors who are working diligently to complete this examination. At this time, given that our business is primarily based in China, it is anticipated that the examination will take considerable time to complete. As a result, the Independent Committee does not expect to be in a position to provide a complete report on the findings of the examination for two to three months, at minimum. We appreciate the support and patience of our stakeholders during this time.”
Mr. Allen Chan has pre-recorded a video message to shareholders in response to the recent allegations that is available on Sino-Forest’s website: www.sinoforest.com
Mr. Chan concluded, “Undoubtedly, Sino-Forest’s business will be affected in the short term, as the Company will be devoting much of its resources to work with external professionals in Canada, Hong Kong and mainland China, including independent accounting firm Pricewaterhouse Coopers LLP, to examine the allegations made in the report issued by short seller Muddy Waters, LLC. Given the negative impact, management expects the pace of tree acquisition to be adversely affected.”
“Despite this unfortunate situation, we will continue to focus on our business strategy of expanding operations. With $1.1 billion in cash and $3.6 billion of standing timber assets, Sino-Forest can continue its growth through acquisitions and through sustainable long-term replanting without accessing the capital markets. The outlook for China and its forestry sector remains positive for 2011 as the country continues to benefit from relatively strong economic growth, driven by broad-based industrialisation and massive urbanization. At our May 30, 2011 annual shareholders meeting, we indicated our intention to target an annual wood fibre output of 30 million m3 by 2013 after we sold 17.6 million m3 of fibre last year. We remain confident that we can achieve this compound annual growth rate of nearly 20%.”
“On behalf of Sino-Forest’s Board and employees, we wholeheartedly thank our shareholders, bondholders, customers and other stakeholders for expressing their continued support for Sino-Forest at this critical time. Given our solid, long-term track record and the integrity with which we manage our business, we strongly believe our reputation will be redeemed in due course.”
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