Given the kind of publicity Sino-Forest had attracted, even Titanic’s captain might not have envied Martin’s job. Better to charge ahead towards an iceberg with a semblance of hope than lead a company destined to end up with a liquidator. Martin’s job a few months ago seemed merely to ensure that the firm got a decent burial.

 

If you have followed my columns, you know the gist of the long-running Sino-Forest saga. Hong Kong entrepreneur Chan founded the firm by “buying” tracts of Chinese forests in 1993. A year later, he listed the assets via a reverse takeover of a dormant Canadian firm. By March this year, Sino-Forest had grown into a behemoth with a market capitalisation of US$6 billion ($7.78 billion) and its stock price had surged to more than C$25. The firm’s business model seemed simple: It owned the forests but sold the standing trees to authorised intermediaries or parties related to them and often sold them the rights to cut the trees as well. It didn’t really do any of the grunt work of maintaining the forest, or tree felling, wood processing, transportation or logistics. Its detractors said the model looked too good, too clean to be true. The bubble burst in June when gadfly analyst Carson Block’s one-man research outfit, Muddy Waters, published a damning report on Sino-Forestry, calling it a “scam”, a “fraud” and a “Ponzi scheme”, which the firm vehemently denied. Block also alleged that Sino-Forest “massively exaggerates its forestry assets”, citing “evidence” that the firm had overstated its Yunnan timber investments by US$900 million.

 

Sino-Forest’s stock plunged more than 70%. There was a stampede of investors for the door. Some lost hundreds of millions. Prominent hedge fund manager John Paulson wrote off more than US$460 million after he too rushed to offload his stake. The shakeout then attracted a bunch of “vulture investors” such as Singapore’s richest man, New Zealand-born Richard Chandler, who now owns a 19.6% stake in the firm. By the time the Ontario Securities Commission in Toronto suspended the stock and forced out Chan, alleging he and key executives “appear to be engaging or participating in acts... which they know or reasonably ought to know perpetuate a fraud” even Chandler had lost a substantial portion of his investment.