Sino-Forest

Source: Capital IQ

Before the mainstream fucks this whole story up here are some facts about the Forestry company that was founded in 1994.  Sino - Forest (SNOFF and TRE) lost 88% of its stock price value or $3.9BN within 2 days of a Muddy Waters, LLC release which stated the Sino Forest is a "stratospheric fraud".  The allegations are self interested and not realistic.  This provides an amazing play that many will jump upon. In this environment of fear (debt ceiling, Euro bailouts, loss of individual freedoms, poverty, wild weather from Nuclear mistakes) Muddy Waters stands to profit immensely off of the fear it has introduced with a "shock jock" report.  Muddy Waters even removed their report on a company they pulled this same shit with last year, see here.

Sino-Forest Corporation operates as a forestry plantation company in the People’s Republic of China.  The Wood Fibre segment acquires, cultivates, and sells standing timber or harvested logs from its purchased, integrated and planted plantation business models in eight provinces and regions across China. It sources logs from suppliers and sells them in the domestic market and sources logs, veneer, sawn timber and other wood-based products globally and sells them in the domestic market. These operations essentially consist of acquiring, cultivating, harvesting and selling logs and standing timber from its tree plantations, selling wood logs sourced from PRC suppliers, and selling wood products imported from outside the PRC. As of December 31, 2008, its tree plantations under cultivation represented approximately 347,000 hectares.

Source: Sino-Forest Website

The company sources logs from PRC suppliers, including pursuant to the Inner Mongolia master agreement and sell them in the domestic PRC market. The company also engages in trading activities of wood-based products sourced from outside the PRC. These consist primarily of large diameter logs, sawn timber, veneer and other wood-based products sourced from Suriname, Papua New Guinea, Brazil, Vietnam, Russia and New Zealand. In these transactions, the company purchases wood-based products that correspond to the requirements of wood dealers and sell directly to these dealers (One online Chinese Wood Market). The company’s customers in these transactions are primarily wood dealers in the PRC. The overseas suppliers generally ship the wood-based products to ports in the PRC designated by the wood dealers.  Wood imports hit a record level in late 2010.

Operations include: particleboard manufactured in Guangdong Province; engineered wood flooring produced in Jiangsu Province, and sold through approximately 200 stores nationwide in the PRC; oriented strand board manufactured in Heilongjiang Province; sawn timber produced in Yunnan Province; finger-joint board, block board and particleboard produced in Hunan Province; and greenery and nursery operations based in Jiangsu Province.

The company’s customers and authorized intermediaries are mostly wood dealers and panel manufacturers. The company’s target customers include pulp and panel mills, and, with respect to its wood-based product manufacturing plants, large furniture manufacturers.

Source: ShortSqueeze.com

Sino-Forest Corporation commented on the share price decline on June 2, 2011 as a result of the allegations made in a 'report' issued on a website by a short seller operating under the name Muddy Waters, LLC. "The Company was not contacted by Muddy Waters for comment ahead of publication of its report.  The Board of Directors and management of Sino-Forest wish to state clearly that there is no material change in its business or inaccuracy contained in its corporate reports and filings that needs to be brought to the attention of the market. Further we recommend shareholders take extreme caution in responding to the Muddy Waters report."

Source: Zack's Investment Research

As indicated in the report, Muddy Waters has a short position in the Company's shares and therefore stands to realize significant gains from a share price decline that it precipitated.  Muddy Waters expressly admits that it makes no representation as to the accuracy, timeliness, or completeness of any information contained in its report. Further, its website discloses no address or ownership information, nor the credentials of any of the authors of the 'report'. Neither the Ontario Securities Commission nor the Securities Exchange Commission website lists Muddy Waters or its author as being registered as an adviser (see for yourself here), . Nevertheless, due to the substantial impact that the report has had on the prices of the Company's securities and the reputation of the Company, the Board has appointed an independent committee consisting of three of the Company's independent directors, William Ardell (Chair), James Bowland and James Hyde.  All three of these directors are financially qualified professionals and two of the three are recent appointees to the Board. The independent committee's mandate is to thoroughly examine and review the allegations contained in Muddy Waters' report, and report back to the Board. The independent committee has appointed Osler Hoskin & Harcourt LLP as independent legal counsel and will retain the services of an independent accounting firm and such other independent advisors as it deems necessary to assist with its examination. During the course of the independent committee's examination, the Company will provide any updates as appropriate. Following conclusion of the report, the key findings of the independent committee will be released to shareholders.

Source: Capital IQ

Allen Chan, Chairman and CEO of Sino-Forest commented: "We are committed to a high level of corporate governance and stand by the integrity of our company, our 16-year operational track record and our financial statements.  Our company has continuously retained the services of internationally recognized law firms, auditors and expert consultants from Canada, the US, Hong Kong and mainland China."

"It is important that our independent committee thoroughly address Muddy Waters' allegations, and they will have my full support and those of the management team in doing so. However, let me say clearly that the allegations contained in this report are inaccurate and unfounded. Muddy Waters' shock-jock approach is transparently self-interested and we look forward to providing our investors and other stakeholders with additional information to rebut these allegations."

Source: Capital IQ

David Horsley, Senior Vice President and CFO of Sino-Forest commented: "I am confident that the independent committee's examination will find these allegations to be demonstrably wrong, as for example:

(a)  Muddy Waters fundamentally misunderstands and misrepresents the most basic items in our published Management's Discussion & Analysis with respect to revenue generated from Yunnan Province, which we report as being approximately 45.5% of the Company's standing timber revenue of approximately US$508 million. Muddy Waters alleges that it is impossible that such revenue existed because achieving such levels would greatly exceed allowable cutting quotas and it would be impossible to truck close to that volume in the period.

However, that revenue was very clearly disclosed in our MD&A filed for Q1 and Q2 of 2010 as revenue resulting  from the sale of the standing timber - there is no cutting or transport involved, as the trees were sold but not harvested and therefore are not considered part of the quota for the region until the harvesting is conducted by the buyers.

Source: Capital IQ

(b) Muddy Waters alleges that the Company overstated the assets in Yunnan Province, based on its erroneous and narrow assumption that our only purchases in Yunnan Province consisted of purchases of 20,574 ha of plantations in Gengma county in Yunnan. However, this allegation ignores the fact that in addition to the purchased plantations in Gengma county, (as disclosed in our 2010 annual MD&A of a total of approximately 193,000 ha purchased in Yunnan Province) we have purchased approximately 173,000 ha of plantations in approximately 25 other counties in Yunnan Province as of December 31, 2010."

As at December 31, 2010, the Company had approximately US$1.26 billion in cash, cash equivalents and short term deposits as reported in the audited consolidated balance sheet.  As at March 31, 2011, the comparable amount was approximately US$1.09 billion. The Company continues to hold such cash, with the majority of it in banks in Hong Kong and offshore.

As previously announced, the Company intends to file its Q1 2011 results on June 14, 2011.

Sino-Forest Corp. (TSX_TRE) Corporate Structure Tree

Source: Capital IQ

Source: Capital IQ

Here, at 4:00 Carson makes one of his all encompassed statements that result in a fast question from Faber, which Carson then cleared up the exaggeration and implied meaning he tossed out, which was that frauds in China are not ALWAYS consummated with the criminals execution.  Read the report he issued for more exaggerations like "Stratospheric fraud" (don't get us started on that concept...(cough) American Social Security (cough) 2008 Bailouts.