Sino-Forest Corporation

The company was formed in 1994 and subsequently claimed that its principal businesses included the ownership and management of tree plantations and complementary manufacturing of downstream engineered-wood products. The company claimed to derive most of its revenue from the sales of wood fibre needed to produce industrial, commercial and residential wood products. Sino-Forest also held a majority interest in Omnicorp Limited, an investment holding company listed in Hong Kong (HK:0094) that in turn claimed to import wood fibre into China. Sino-Forest's common shares traded on the Toronto Stock Exchange under the symbol TRE from 1995 until they were suspended in 2011, and its corporate office were in Mississauga, Canada. Sino-Forest had a market capitalization of just over $5 billion in November 2010.

As of September 30, 2009, Sino-Forest claimed to have had approximately 757,000 hectares of trees under management and over 700,000 hectares of trees available to be acquired under six long-term master agreements. The company claimed to have plans to replant 200,000 hectares by 2012.

Management further claimed that it expected to benefit from China's economic stimulus plan, which included further infrastructure development, rebuilding after Sichuan's 2008 earthquake and building of affordable housing for rural areas.

Business segments

At the end of September 2010, Sino-Forest Corp had claimed approximately 757,000 hectares of forest plantations located in southern China. Its principal business segments include Wood Fibre Operations (i.e. the ownership and management of plantation trees, the sale of standing timber and wood logs, the trading of wood products sourced domestically and internationally) and Manufacturing and Other Operations (i.e. downstream engineered-wood flooring and panels, seedling nurseries, greenery services).

Subsidiaries

Sino-Forest Corporation owned an interest of approximately 60% of Omnicorp Limited (to be renamed Greenheart Group Limited upon shareholder approval), a Hong Kong listed company (HK:0094). In addition, Sino-Forest owned HK$212 million of convertible bonds of Omnicorp, which if fully converted would increase Sino-Forest's interest to nearly 60% of the enlarged issued share capital of Omnicorp.

The principal activities of Omnicorp's subsidiaries claimed to consist of log harvesting, lumber processing and marketing and sales of logs and lumber products to China and other countries around the world. Omnicorp claimed to own 60.4% of the harvesting and other rights in a 184,000-hectare hardwood forest concession in Suriname, South America and Sino-Forest, through its wholly owned subsidiary Sino-Capital Global Inc. owned the remaining 39.6%. Omnicorp also intended to acquire a high quality radiata pine plantation in New Zealand upon satisfaction of certain conditions as announced on November 3, 2010.

Fraud allegations

On June 2, 2011, shares in Sino-Forest plummeted following the release of a negative research report

by Carson Block of Muddy Waters Research, which made allegations that Sino-Forest had been fraudulently inflating its assets and earnings, and that the company's shares were essentially worthless. Muddy Waters claimed that Sino-Forest was a "multibillion-dollar Ponzi scheme" that was "accompanied by substantial theft". Sino-Forest rejected the allegations of fraud and launched an independent investigation by PricewaterhouseCoopers. Shares in Sino-Forest fell by 82% following publication of the Muddy Waters report, with prominent investor John Paulson selling his entire stake in the company at a $720 million loss.

On June 30, debt rating agency Standard & Poors downgraded Sino-Forest's long-term corporate credit rating from "BB" to "B+". A second downgrade to "B" followed on August 23.

On August 15, 2011, Sino-Forest announced that the results of the PwC probe into the allegations would be delayed to the end of the year due to difficulties in gathering data from the Chinese companies involved.

Suspension of trading of shares

On August 26, 2011, the Ontario Securities Commission suspended trading of the shares of Sino-Forest, stating that the company had engaged in practices they "knew or should have known" perpetuated a fraud. The OSC also initially ordered that five directors of Sino-Forest resign, but rescinded this demand a few hours later as the Ontario Securities Act does not allow the commission to summarily force the resignation of a company director without a hearing.

Bankruptcy protection

On March 30, 2012, Sino-Forest filed for bankruptcy protection in Canada under the framework laid out in the Companies' Creditors Arrangement Act.