Allen Chan, who built Sino-Forest Corp. into one of Canada's biggest forest products companies, has resigned amid allegations of fraud and misconduct.
Sino-Forest said in a statement Sunday that Mr. Chan, 59, volunteered to step down as chairman and chief executive officer of the Toronto-based company, which operates extensive forest properties in China.
Mr. Chan and four other executives were accused of fraud on Friday by the Ontario Securities Commission, after sources said the regulator was alerted about irregular transactions. A special committee of company directors has been investigating its financial condition since June, when an explosive report by a little-known short seller accused Sino-Forest of engaging in massive fraud.
Sino-Forest said in its statement that the OSC's accusations were "of a serious nature," but "unproven" and it does not expect to complete its probe until year's end. The regulator early Friday issued a cease-trading order for the company's stock on the Toronto Stock Exchange.
Mr. Chan, a former restaurant manager and financial columnist, will retain honorary status as "Founding Chairman Emeritus'' of Sino-Forest. According to one person close to the company, the honorary title was granted to preserve Mr. Chan's close ties with Chinese officials.
Judson Martin, Sino-Forest's vice-chairman, replaces Mr. Chan as CEO. Mr. Martin is an accountant who held senior financial posts at numerous Canadian companies including Brookfield's real estate arm and broadcaster Alliance Atlantis Communications. He has resided in Hong Kong since 2009, shortly before he was named a director of Greenheart Group, a forestry company with extensive properties in the small South American country Suriname. Sino-Forest acquired control of Greenheart last year.
William Ardell, who leads the board committee investigating fraud allegations, replaces Mr. Chan as chairman.
Three Sino-Forest vice-presidents – Alfred Hung, George Ho and Simon Yeung – have been placed on administrative leave. Senior vice-president Albert Ip has been relieved of most of his duties but remains with the company to assist the internal probe.
According to people familiar with the case, Mr. Chan was confronted by company officials in Hong Kong last week after a review of e-mail accounts outside the company's network revealed questionable transactions and money transfers.
A Sino-Forest spokesman said Mr. Chan was not available to comment.
The confrontation and Mr. Chan's departure is a dramatic fall from grace for a relentless promoter who founded Sino-Forest in 1994 as a Chinese wood chip maker and transformed it into a rapidly growing forest plantation operator with a stock market valuation of more than $6-billion at its peak in March.
The fraud allegations eliminated most of what was left of the company's stock price on Friday and prompted the company to go on the defensive about the health of its bonds and debentures.
The stock collapsed 72 per cent to $1.38 (U.S.) Friday in the U.S. over-the-counter market, where it has now also been halted.
Although the regulator rescinded its initial order on Friday that called for Mr. Chan and the four executives to resign, some legal experts privately raised concerns that the unusually aggressive move could place the company in technical default on some of its debts.
Sino-Forest reported $737-million of debt in its second quarter and most of the debt was raised through the sale of senior notes in recent years. In a statement yesterday, Sino-Forest said it "does not believe any default" has been triggered on $600-million (U.S.) of senior notes it sold last year or on convertible notes issued in 2009.
The statement said the company "will continue to review the terms of its debt and other contractual arrangements."