September 8, 2011 / 2:28 PM / in 6 years

UPDATE 4-Sino-Forest cease-trade order extended until Jan

* Ontario Securities Commission halts trade until Jan 25

* Regulator has said fraud accusations appear credible

* OSC investigation into Sino accounting still underway (Adds details, comment from lawyer)

By Euan Rocha

TORONTO, Sept 8 (Reuters) - Canadian regulators on Thursday extended a cease-trade order on shares of Sino-Forest TRE.TO until Jan. 25 as they investigate a short-seller’s damaging allegations of fraud at the Chinese forestry firm.

The Ontario Securities Commission, Canada’s main securities regulator, said extending a 15-day trading halt imposed on Aug. 26 was the best action for investors, who had no clarity to make informed trading decisions at this time. Lawyers for the OSC, the company and its executives had all argued in favor of extending the halt.

“We believe the integrity and fairness of the capital markets will be compromised if trading in the securities of Sino-Forest is permitted at this time,” said Karen Manarin, the OSC’s deputy director of enforcement.

The regulator said last month it had halted trade in Toronto-listed Sino-Forest after preliminary results of its own investigation determined that fraud accusations against the company appeared to have merit.

Darryl Levitt, a lawyer at Macleod Dixon in Toronto, said that if the OSC does eventually find Sino-Forest’s conduct to be fraudulent, it could issue a freeze order, which would prevent the company’s cash and assets from being dissipated.

“This differs from a temporary cease order in that a temporary cease order restricts the trading of certain securities, whereas this preserves the assets of the company,” Levitt said.

He said if it does find evidence of fraud, the OSC can also refer the matter to a law enforcement agency for charges to be laid.

The company, until recently the largest forestry company listed on the Toronto Stock Exchange, has shed some 75 percent of its market capitalization since June 2, when short-seller Carson Block and his firm Muddy Waters accused the company of fraudulently exaggerating the size of its assets.

Its long-time chairman and chief executive, Allen Chan, resigned 10 days ago.

Sino-Forest has appointed a team of its independent directors to investigate the allegations, but says the probe is unlikely to be completed until the end of this year.

The company is one of several China-focused North American-listed companies facing accounting scandals that have prompted trade halts, delistings, lawsuits and regulatory probes. It is also facing several class-action lawsuits from investors who lost money.

The OSC said its own investigation into the allegations is continuing. It gave no details on the allegations and said providing information would hamper both its own investigation and the company’s probe into the matter.

The OSC’s move to order a further extension in the trade halt is not a surprise, said Richard Powers a former litigator, who is currently a lecturer at the University of Toronto.

“I think this was sort of expected in the normal course,” said Powers. “Nothing’s really changed, no further information has been revealed, the OSC has still not tabled the specific allegations.”

“I think the first shoe dropped, we’re still waiting for the second shoe.” (Reporting by Euan Rocha, Allison Martell and Julie Gordon; editing by Janet Guttsman)

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