A group of underwriters that were named as defendants in the ongoing Sino-Forest class action have reached a settlement agreement with the investor plaintiffs. Under the settlement agreement the financial institutions, which acted as underwriters for Sino-Forest, will pay $32.5 million to the class. Together with increased regulatory scrutiny of underwriters, and recent guidelines on due diligence, the settlement highlights potential exposure faced by underwriters. The settlement is possibly the largest settlement ever paid by underwriters in Canada.
Under the settlement agreement, the nine financial institutions do not admit any liability. Some of the institutions have agreed to provide the plaintiffs with documents and information relating to BDO Ltd., one of Sino-Forest’s auditors, which still remains a defendant in the class action. The division of the settlement funds as between class members, counsel fees and administration costs has not been finalized. The settlement agreement has not yet been approved by the judge with carriage of the class action nor has notice of the settlement been issued to class members.
To date a number of defendants, including Ernst & Young, have settled with the plaintiffs, who launched a $9 billion class action after the Toronto-listed Sino-Forest was accused of being a Ponzi scheme. The claim alleged that Sino-Forest’s securities filings contained false and misleading statements about the company’s finances.