GLOBAL - Two Canadian pension schemes have filed a CAD6.5bn (€4.6bn) class action against Sino-Forest, the listed timber company under investigation from the Canadian securities regulator for irregularities in its financial reporting.
A statement of claim filed this week on behalf of the CAD2bn Labourers' Pension Fund of Central and Eastern Canada and the CAD1.5bn Local 793 Pension Plan for Operating Engineers alleges widespread management misconduct within Sino-Forest, a Canadian timber plantation owner that has the bulk of its assets in China.
The filing accuses individual directors of exploiting what they need in order to garner "lavish salaries, bonuses and other perks" and "unjust enrichment'.
The claim - which alleges the pension schemes and other investors were "beguiled" by "illusory success" and improbable performance figures - also includes among its targets the firm's auditor, Ernst & Young, which lawyers acting for the pension schemes suggest was hired to "bless" fraudulent reports in return for CAD3m over a two-year period in non-audit-related fees.
The accountancy firm in a statement described the claims against it as "without merit".
The pension schemes' action follows a decision by the Canadian securities regulator earlier this month to suspend trading in Sino-Forest's shares for 15 days on the grounds that its managers had misrepresented revenues and kept fraudulent accounts.
Sino-Forest - acknowledging the allegations were, while unproven, still of a "serious nature" - said it would cooperate with the regulator while it continued its own internal investigation.
Sino-Forest has unravelled in recent weeks after a report by an investor in June claimed it had overstated its timber assets, notably in Yunnan Province.
The company's initial response had been bullish, accusing the investor of trying to make money from a share price decline it had precipitated.
After describing the report as "inaccurate, spurious and defamatory", weeks later it fired chief executive Allen Chan and suspended three other executives.
In the meantime, Fitch cut its rating on the firm, which will this month drop out of the S&P index after a precipitous fall in its share price.