Canadian pension fund starts C$6.5bn class action against Sino-Forest, Ernst & Young

Investor takes on crisis-torn Toronto-listed Chinese forestry firm

The C$2bn (€1.4bn) Labourers’ Pension Fund of Central and Eastern Canada has launched a C$6.5bn class action suit against troubled forestry firm Sino-Forest and its auditor Ernst & Young in the latest twist in the ‘Muddy Waters’ saga.

The Oakville, Ontario-based 39,000-member multi-employer construction industry fund filed suit in the Ontario Superior Court of Justice this week. It is seeking to be appointed as the representative plaintiff on behalf of investors who bought Sino shares from May 14 2007 to June 2 2011.

“Throughout the class period, Sino purported to be a legitimate enterprise operating as a commercial forest plantation operator in the PRC [People’s Republic of China],” the legal action states. “In fact, such statements were materially false and/or misleading.”

“This case raises some hard and troubling questions about the quality of diligence being performed by some well-compensated fiduciaries upon whom Sino’s shareholders relied,” said Dimitri Lascaris of law firm Siskinds which is acting as co-counsel to the fund.“We look forward to establishing in a court of law whether those fiduciaries fell woefully short of the standards that the investing public rightly demands of them.”
The scandal erupted on June 2 with a controversial analysis from research firm Muddy Waters stating the firm “massively exaggerates its assets” which sparked a sell-off in Sino-Forest shares and an investigation from the Ontario Securities Commission. Sino-Forest said the Muddy Waters report was “inaccurate, spurious and defamatory”.

On June 14 Responsible Investor reported how Canadian institutional investors had already flagged up governance concerns at Sino-Forest.

Among the casualties of the saga is hedge fund guru John Paulson, who is reported to have lost hundreds of millions of dollars; he announced on Monday that he’d sold his stock in the company.

In its most recent communication, Sino-Forest hit back at a report in the Globe & Mail with a detailed rebuttal of what it termed an “incorrect portrayal”.