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Two Canadian law firms served a statement of claim against Chinese-Canadian forestry company Sino-Forest (TRE-T) on Wednesday, adding to the pressure on the company as it defends itself against allegations of fraud.
Koskie Minsky LLP and Siskinds LLP said they had filed a claim that alleges wrongdoing by Sino-Forest, once the biggest forestry company on the Toronto Stock Exchange, and by several of its senior officers and directors.
The claim also targets Sino-Forest's auditor Ernst & Young LLP, as well as financial institutions that underwrote Sino-Forest's 2009 prospectus offerings.
Among other things, the claim alleges misrepresentations in Sino-Forest's public disclosure relating to numerous aspects of its operations.
"This action raises serious questions about how Sino-Forest conducted its business and affairs and the manner in which it raised capital from public markets," said Dimitri Lascaris of Siskinds in a statement.
Sino-Forest, whose plantations are in China, has been under pressure since June, when shortseller Carson Block accused the company of fraudulently exaggerating the size of its forestry assets. It set up an independent committee to investigate and expects the results of that probe to emerge by year-end.
The law firms said the allegations in their claim go beyond those already been made by Block and his firm Muddy Waters.
The plaintiffs in this action are the trustees of the Labourers' Pension Fund of Central and Eastern Canada and the trustees of the International Union of Operating Engineers Local 793 Pension Plan for Operating Engineers in Ontario.
A spokesman for Sino-Forest was not available to comment.
Sino-Forest stock is down about 75 percent since Block made his allegations, and Standard & Poor's said on Tuesday that the company no longer qualifies to be a constituent of the S&P/TSX Composite Index, Canada's benchmark stock index. S&P will drop Sino-Forest from that index and from other indexes on September 16.
The Sino-Forest saga is the most prominent of a series of accounting scandals that have tainted the image of Chinese companies listed in North America, prompting trading halts, delistings, lawsuits and regulatory probes in Canada and the United States.
Last week, the Ontario Securities Commission-Canada's main securities regulator-halted trading in the stock for 15 days, saying that it appeared that the company and some of its executives had misrepresented revenues and kept bogus accounts.
Sino-Forest said on Sunday that its chairman and chief executive, Allen Chan, had stepped down and that it had placed three senior employees on administrative leave because of information uncovered in an internal review.