Shares in Sino-Forest (TRE.TSX) fell more than 20% on Thursday, before trading was halted in Toronto after a research report by Muddy Waters raised questions over the Chinese forestry group’s accounting, the Financial Times reported. The research firm, founded by short seller Carson Block, makes several claims of improper accounting including that “the US$231.1 million in Yunnan province timber TRE [Sino-Forest] claimed to sell is largely fabricated.” The 39-page report also questions Sino-Forest’s corporate organization, claiming, “Its offshore structure, which utilizes at least 20 British Virgin Island entities, is an unjustifiable black hole.” Sino-Forest, which is based in Mississauga, Ontario and Hong Kong, listed on the Toronto Venture Exchange in 1993 by reverse takeover. Chinese companies trading in North America have faced increasing scrutiny ever since the US Securities and Exchange Commission last year started investigating the use of reverse takeovers by foreign companies.
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