Sino-Forest was a $5B fraud exposed by a short-seller

Sino-Forest Corporation was a Canadian-listed company claiming to be a leading commercial forest plantation operator in China. By November 2010, its market capitalization had reached about $5 billion and it reported $5.7 billion in assets. The company claimed to own or manage 757,000 hectares of trees in China. It was a favorite of institutional investors and was listed on the Toronto Stock Exchange under the ticker TRE.

On June 2, 2011, Carson Block's Muddy Waters Research published a report alleging that Sino-Forest was fraudulently inflating its assets and earnings. The report called the company a 'multibillion-dollar Ponzi scheme' accompanied by theft. The stock collapsed 82% within days. Prominent investor John Paulson sold his entire stake at a $720 million loss. The Ontario Securities Commission suspended trading of Sino-Forest shares on August 26, 2011, stating the company engaged in practices they 'knew or should have known' perpetuated a fraud.

Sino-Forest sued Muddy Waters for $4 billion in defamation in March 2012, then filed for bankruptcy protection the next day. Auditors Ernst & Young resigned in April 2012. The company was restructured and now operates as Emerald Plantation Holdings. In July 2017, the OSC released its decision finding that Sino-Forest and former CEO Allen Chan committed fraud and misled OSC staff during the investigation. The case became a landmark study in short-seller activism and corporate fraud detection.