Executives of Sino-Forest engaged in fraudulent activity

Senior executives of Sino-Forest Corp., (TRE-T) including chief executive officer Allen Chan, appear to be engaged in fraudulent activity, according to a stunning set of allegations levelled by the Ontario Securities Commission.

Canada’s top stock market regulator halted trading in Sino-Forest shares and said certain officers and directors of the forestry firm “appear to have misrepresented some of its revenue” and “exaggerated some of its timber holdings” by providing false or misleading information. The commission took the unprecedented step of ordering Mr. Chan and other officers to resign Friday -- only to rescind the demand hours later in a bizarre turn of events.

he company also appears to have engaged in “significant” related-party transactions, which may violate Ontario securities laws, the OSC said. If the allegations are true, Sino-Forest, a Hong-Kong-based company that operates in mainland China and was once the biggest publicly traded forestry company on the Toronto Stock Exchange, could turn out to be one of the largest corporate frauds in Canadian stock market history.

The fresh accusations are adding to pressure on Mr. Chan to step down temporarily as CEO, according to people familiar with the matter. An announcement could come as soon as this weekend, sources said.