By Farah Master
November 15, 2011 9:21 AM EST
Canada-listed Sino-Forest Corp said an independent committee found no evidence of fraud at the Chinese timber firm following allegations from short-seller Muddy Waters it had exaggerated its assets, although the committee also said it had been unable to verify the company owned all of its forests.
"We can categorically say Sino-Forest is not the 'near total fraud' and 'Ponzi scheme' as alleged by Muddy Waters," CEO Judson Martin said in a statement on the interim report.
Accounting scandals swirling around several China-focused companies listed in North America have prompted trade halts, delistings, lawsuits and regulatory probes. Sino-Forest faces several class-action lawsuits from investors who lost money.
Sino-Forest was the largest forestry company listed on the Toronto Stock Exchange until its shares collapsed in June after the fraud allegations surfaced. The stock is down 80 percent and was suspended in August pending investigations by regulators and, last week, Canadian police.
In the latest twist to the months-long saga, research firm Muddy Waters, founded by Carson Block, said the timing of Sino-Forest's announcement "makes clear that the directors and officers are responding to the criminal investigation announced last week".
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"It should be noted that all three directors who oversaw the investigation are defendants in shareholder lawsuits, and one resigned just prior to this release," Muddy Waters said.
"We believe this release has no credibility."
In addition, the report said the committee had been unable to verify that Sino-Forest owned all its forests.
"BRUISED, BUT NOT BROKEN"
The scandal has forced staunch allies, including hedge fund manager John Paulson, to abandon Sino-Forest. Paulson alone took a $500 million loss.
In his statement, Martin, a Canadian, said the committee verified the company's cash balances, timber assets, book values and revenues. A final report by the committee should be completed by the end of the year.
He later told reporters in Hong Kong that Sino-Forest had been "bruised, but not broken" by claims that were "either malicious or uninformed", although he acknowledged the process had highlighted shortcomings in the business.
"I do see the PRC (China) business flourishing in the future," he said, adding the accusations showed a fundamental misunderstanding of how business works in China.
A senior Shanghai Stock Exchange official on Tuesday urged companies listed in the United States to return home, saying U.S. institutions had politicized accounting issues involving Chinese firms.
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