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Regulator Probing Sino-Forest Says Canada Should Discuss Reverse Takeovers

The head of Canada's largest regulator, investigating fraud allegations at Sino-Forest Corp. (TRE.TO), said the country needs to discuss whether reverse takeovers are appropriate for Toronto-listed companies that have operations overseas, Bloomberg reported.

"We need to take a look at RTOs," Ontario Securities Commission Chairman Howard Wetston reportedly said today at a Toronto Board of Trade event. "One of the issues that might flow from our examinations of the emerging-markets issues is to have a good discussion about whether the RTO as a vehicle is appropriate."

Bloomberg noted the OSC is investigating Sino-Forest, a timber producer with holdings in China that listed in Canada through a reverse takeover. In a reverse takeover, a closely held firm becomes public by purchasing a shell company that already trades. In June, the U.S. Securities and Exchange Commission issued a warning about buying stakes in companies that gain listings on American exchanges that way.

The OSC, Canada's main securities regulator, this week extended a trading ban on Sino-Forest shares to Jan. 25. The stock has plunged 74% in Toronto since June 1, the day before short seller Carson Block's Muddy Waters LLC research firm said in a report Sino-Forest overstated timber holdings in China. Sino-Forest has denied the allegations.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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