A $2.6 billion damages fee was awarded by Ontario Superior Court Justice Michael Penny to the plaintiffs in Sino-Forest fraud case. This update is expected to lead to more litigation as the Sino-Forest case is one of the biggest cases of securities fraud that involve a listed Chinese firm.
The Sino-Forest fraud case is a civil case filed against Allen Chan, CEO and co-founder of Sino Forest Corp. In the 174-page verdict announced recently, it was found out that Allen Chan was engaged in not just fraud, but negligence and breach of fiduciary duty as well, leading Justice Penny to award $5 million in punitive damages and $2.63 billion for the main damages caused by Chan. Chan’s abuse of his unique position to commit large-scale fraud resulted to Sino-Forest losing billions of dollars.
As a backgrounder about the fraud, Sino-Forest was a timber firm and was traded publicly on the Stock Exchange of Toronto. This held true until Muddy Waters LLC exposed in 2011 that the company is a Ponzi scheme plagued with theft, fraud, and secret related-party transactions.
It was also uncovered that Sino-Forest raised about $2.1 billion and an estimated C$800 million in Canada’s capital and debt markets.
What Went Down
Rather than directing that the spending for Sino-Forest should only be on legitimate business operations, Chan funneled millions of dollars into made-up or over-valued lines of business. He then used these funds to engage in undisclosed related-party transactions and also misappropriated funds to entities he controlled in secret.
Why This Case Is Significant
Aside from being such a huge case in terms of amount of losses, the collapse of Sino-Forest is really a symbol for cases that involve failing or already failed Chinese Firms using the same type of fraud and being found out for it.
Because of the nature of the fraud, authorities will also look into the auditors, valuers, and other directors of the company to find out how deep this rabbit hole of fraud truly is. Executives George Ho, Alfred Hung, and Albert Ip are also implicated in the massive fraud.
The Plot Thickens
It is to be noted that accountancy firm Ernst & Young, one of Sino-Forest’s auditors, agreed to pay C$117 million back in 2012 to settle their part in a shareholder class action case related to the firm. Later, the firm agreed to pay a penalty of C$8 million to the Ontario Securities Commission but they did not admit to committing any error or wrongdoing in their audits of Sino-Forest.
The recent court decision followed Ontario Securities Commission’s July ruling that Sino-Forest’s top executives engaged in dishonest or deceitful conduct along with Chan despite knowing that their actions violated securities law as well as fraudulent.
Isn’t it good news when you hear about fraudulent individuals and/or companies getting what are due them? Be part of making sure that fraud isn’t allowed to pester! Take measures to prevent fraud in your business and personal life and in case you’ve been targeted for fraud, don’t give up without a fight. We can help you gather evidence to build a strong case with our private investigation services. Talk to us today!