Sino-Forest shares tumble after SEC release hoax, shareholder sells holdings

TORONTO – Shares of forestry company Sino-Forest Corp. (TSX:TRE) took another blow on Tuesday, closing more than 27 per cent lower, as one of its largest stakeholders reportedly sold its holdings in the company and social media sites were aflutter with an SEC news release hoax.

The company’s stock was down 74 cents to close at $1.99 on the Toronto Stock Exchange after heavy volume trading of 60.2 million shares.

The shift came as a representative for the U.S. Securities and Exchange Commission denied issuing a news release accusing research and investment firm Muddy Waters of being involved in a “stock manipulation ring.”

“We have issued no such litigation release,” said SEC spokeswoman Judith Burns in a phone interview.

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Late Monday, reports began to circulate that Sino-Forest’s largest shareholder, Paulson & Co., had sold off its investments in the firm. Billionaire hedge fund manager John Paulson had a 14.13 per cent stake in the company.

Shares in Sino-Forest collapsed in the wake of claims by short-seller Muddy Waters Research that it fraudulently exaggerated the size of its assets. They have continued to fall as a flurry of unusual events unravel around the company.

Sino-Forest has fought back against the fraud allegations by releasing a trove of files documenting much of its holdings and what it has in the bank.

But in a statement issued Monday, Paulson said that “due to uncertainty over Sino-Forest’s public disclosures and financial statements, we have sold our stock.”

Sino-Forest, which trades on the TSX but operates in China, is one of Canada’s largest forestry companies by stock value.

Sino-Forest said it has hired an independent law firm to address the allegations and planned to ask securities regulators in Canada and other jurisdictions to investigate trading by Muddy Waters.

“The company believes Muddy Waters’ report to be inaccurate, spurious and defamatory,” the company said in a statement.

“Muddy Waters’ self-interest is transparent: to make money from the fall in Sino-Forest’s share price on the back of a decline that it itself precipitated.”