Allen Chan was born in Hong Kong and graduated with a degree in sociology from Hong Kong Baptist College in 1978. He started working life in Hong Kong’s town development and planning department, and went on to take a job in 1984 as a project consultant in the “special economic zone” of Shenzhen, taking advantage of China’s early wave of economic reforms. After attending the 1992 United Nations’ Earth Summit in Rio, Chan become interested in forestry and went on to found Sino-Wood in 1993, which would be merged into Sino-Forest Corporation a year later, with Chan as its chief executive.
What was the scam?
Sino-Forest, which was listed on the Canadian stock exchange in Toronto from 1995 onwards, promised investors that it would make money from a forestry portfolio by acquiring and then running Chinese tree plantations, or by selling them on at a profit to other companies. Sino-Forest’s management invented a huge number of phoney transactions, however, including 450 in the first quarter of 2009, to inflate its profits and revenues. The impression of soaring profits caused Sino-Forest’s shares to surge 540% between 2003 and 2011, giving the firm a peak market capitalisation of C$6bn (roughly US$4.2bn at current exchange rates).
What happened next?
In June 2011 an activist group of short-sellers, Muddy Waters, published a research paper that claimed Sino-Forest’s management was misleading investors and the company was a “near total fraud”. Chan initially denied the allegations, but he resigned as CEO a few months later after the Ontario Securities Commission, the Canadian regulator, suspended trading in Sino-Forest’s shares, which had already collapsed in value. The next year Sino-Forest filed for bankruptcy. In 2017 the Commission ruled that Chan, and several other directors, had indeed committed fraud, a decision that was subsequently upheld in the Canadian courts.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Lessons for investors
Chan managed to escape criminal prosecution, due to the difficulty of extraditing him to Canada, and Sino-Forest’s investors were wiped out in the bankruptcy. One of those investors was John Paulson’s hedge fund, which injected $500m into the company before it collapsed. Short-sellers such as Muddy Waters, which publish negative research about the companies that they short (ie, bet against) are controversial, but they have a good record of exposing fraud. Sino-Forest’s shares plunged 60% when the scandal broke, but those who listened to the shorts and immediately sold out would at least have recovered something.
-
Inheritance tax reforms: government urged to rethink curbs on rural reliefsMPs want the government to delay changes to inheritance rax reliefs for farmers
-
‘I’m among the thousands of millionaires leaving the UK – the new tax rules don’t make sense ’MoneyWeek spoke to a serial entrepreneur who is leaving the UK following the abolition of the non-dom tax status
-
Trapped in a time of zombie governmentIt’s not just companies that are eking out an existence, says Max King. The state is in the twilight zone too.
-
America is in deep denial over debtThe downgrade in America’s credit rating was much criticised by the US government, says Alex Rankine. But was it a long time coming?
-
Bank of England raises interest rates to 5.25%The Bank has hiked rates from 5% to 5.25%, marking the 14th increase in a row. We explain what it means for savers and homeowners - and whether more rate rises are on the horizon
-
UK inflation remains at 8.7% ‒ what it means for your moneyInflation was unmoved at 8.7% in the 12 months to May. What does this ‘sticky’ rate of inflation mean for your money?
-
VICE bankruptcy: how did it happen?Was the VICE bankruptcy inevitable? We look into how the once multibillion-dollar came crashing down.
-
Would a food price cap actually work?Analysis The government is discussing plans to cap the prices of essentials. But could this intervention do more harm than good?
-
UK inflation slides to 8.7% - what does it mean for your money?News Inflation has dropped below 10% for the first time in months, but with food prices at a 45-year high, is this good news and what does it mean for your money?
-
Why the UK equity market is shrinkingAnalysis The crisis has been building for 25 years, says Max King, and it will take decades to reverse the trend.
