UPDATE 3-Canada's OSC takes Ernst & Young to task on Sino-Forest

Mon Dec 3, 2012 5:22pm EST
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* OSC staff allege breach of Ontario Securities Act

* Ernst & Young says its work was up to standard

* Sino-Forest collapsed after short-seller's allegations

* Sino-Forest investors settle for C$117 million

By Allison Martell and Solarina Ho

TORONTO, Dec 3 (Reuters) - Canadian regulators said on Monday Ernst & Young had conducted improper audits of Sino-Forest Corp in the years before fraud allegations brought down its client, and the accounting firm said it reached a settlement in a class-action suit by Sino shareholders.

Dimitri Lascaris, a partner at Siskinds LLP and co-lead counsel for the investor class action, said he believes the auditor settlement, at C$117 million ($118 million), was the biggest of its kind in Canadian history.

The news came on the same day as the Ontario Securities Commission announced formal allegations against the auditor and about a year and a half after short-seller Carson Block first accused Sino-Forest of grossly exaggerating its assets.

Block's report touched off a firestorm that led to the company's delisting and insolvency, as well as a flurry of regulatory actions and lawsuits.   Continued...