Sino-Forest Corporation (SNOFF)

[candeeman]

OSC’s Sino-Forest secrecy questioned as cease-trade order extension sought

Howard Wetston, chair of the Ontario Securities Commission, knows about the importance of disclosure. After all, he chaired the OSC panel that penned a much-studied decision on the importance of full and continuous disclosure in 2003 following a probe at YBM Magnex International Inc.

As well-versed in the subject as Mr. Wetston is — now in his second stint at Canada’s largest capital markets watchdog — it came as a surprise to some in Bay Street’s tight-knit legal community that he and his agency slapped a cease trade order on the shares of embattled Sino-Forest Corp. last month.

The OSC sought Thursday morning to extend the initial order until at least Jan. 25.

Why, if the information produced was damning enough to prompt the regulator to act so swiftly and aggressively, was the firm not compelled by the regulator to release it to the investing public?

As some senior securities lawyer see it, it was out of step with a long-held view at the regulator that its role is to ensure investors have access to as much relevant information as possible on which to base their investment decisions.

For much of the summer, until the moment the OSC ordered shares of Sino to be cease traded on Aug. 26, investors were trading based on contradictory claims and little in the way of fact.

Short-seller Muddy Waters claimed Sino overstated its assets and was operating a fraud. The company countered that it was all a misunderstanding that would be explained when a special committee of independent directors had completed an internal probe.

On Aug. 26, the investing public still did not know what had been unearthed by Sino’s independent committee so far. But it appears the OSC did, having received sufficient information to declare that the company appears to have “misrepresented some of its revenue” and “exaggerated some of its timber holdings.” The regulator further alleges that some officers and directors engaged in acts they “know or reasonably ought to know perpetuate a fraud.”

Karen Manarin, a lawyer for OSC staff, argued Thursday that the cease-trade order was necessary because further disclosure of information investors would require to make “informed investment decisions” could “seriously compromise” its ongoing investigation, as well as the probe undertaken by Sino’s independent committee.

The chair of the OSC hearing, Mary Condon, is expected to rule on extending the cease trade order shortly.

Source: http://business.financialpost.com/2011/09/08/oscs-sino-forest-secrecy-questioned-as-cease-trade-order-extension-sought/