On September 2, 2014, the Ontario Securities Commission commenced its high-profile hearing in the case of the Sino-Forest Corporation (“SFC“). SFC is alleged to have engaged in widespread fraud relating to its public financial disclosure. The specific allegations involve the fabrication or overestimation of revenue and assets, falsified evidence of ownership, backdated contracts, and undisclosed control over particular customers and suppliers.

This case will bring about complex questions regarding the relationship between Ontario securities law and foreign business and government practices. In their opening statements, counsel for certain SFC executives asserted, in effect, that the allegations are founded on a lack of cultural fluency – a basic misunderstanding of Chinese business culture. The Panel will be asked to determine the appropriateness of viewing foreign practices through a Canadian regulatory lens.  At issue will be the conflicting objectives of the parties of, on one hand, protecting investors and preserving the integrity of Canadian stock exchanges and, on the other, recognizing the nuanced business realities that exist in other parts of the world.

We will continue to follow the matter closely and provide updates as events unfold.