Analysis: Sino saga shows flaws in Canada's regulatory regime

Fri Jun 24, 2011 8:45am EDT
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By Euan Rocha and Allison Martell

TORONTO (Reuters) - Canadian regulators are under fire for their disappearing act as shares of Chinese forestry company Sino-Forest melted down, raising new questions about a regulatory regime that's long been criticized for lacking teeth.

Sino-Forest, which three weeks ago had a market capitalization of about C$4.7 billion, is now worth just C$700 million, after accusations of fraud leveled by Hong Kong-based short-seller Carson Block and his one-man firm Muddy Waters sent its shares and bonds into a downward spiral.

Regulators said they had launched an investigation, but then stayed silent, doing nothing to quell the speculation, halt the stock or drill down into the problems.

There were similar complaints of inaction during the huge Bre-X stock fraud of the 1990s, while shareholder activists noted bitterly that press baron Conrad Black was successfully prosecuted in the United States and not in Canada.

"We have a system in Canada that is 80 years behind the times," said Al Rosen, a forensic accountant with Rosen & Associates, who said Canada's current reporting standards serve the interests of auditors more than investors.

He said Ontario regulators, responsible for Mississauga, Ontario-based Sino-Forest under Canada's patchwork of provincial regulators, have let investors down, and Canada would be better served by a single securities regulator, with separate prosecution and regulation arms.

"If you don't have these people with proper supervision and leadership and guts and courage you've got nothing," he said.

The Ontario Securities Commission, the biggest of Canada's provincial regulators, did not return repeated phone calls seeking comment.   Continued...

<p>The company logo of Sino-Forest is displayed at the entrance of its office in Hong Kong June 8, 2011. REUTERS/Xavier Ng</p>