By Jennifer Kwan and Pav Jordan
(Reuters) - Lawyer John Mountain watched with frustration last year as the shares of Sino-Forest (TRE.TO: Quote) fell through the floor after short-seller Carson Block accused the China-focused forestry company of fraudulently exaggerating its assets.
It took six days before Canadian-listed Sino-Forest confirmed that regulators were probing the matter. But it was more than two months before the Ontario Securities Commission (OSC), Canada's chief regulator, halted trading in the stock.
"There is a profound sense of frustration around the Sino-Forest case," said Mountain, senior vice president of legal and chief compliance officer at NEI Investments, a firm that dumped some 500,000 shares of the forestry company last summer.
In a rare nod to its critics, the OSC admitted last week to a string of shortcomings surrounding emerging-market issuers such as Sino-Forest, including the process of listing on exchanges and the roles played by underwriters and auditors.
Sino-Forest remains cease-traded as authorities continue to investigate it. Criticism of Canada's biggest regulator goes well beyond the way it handles cases such as Sino-Forest, however.
Addressing the criticism, the OSC says it has upped the ante in its fight against insider trading, boiler room operations and other securities crimes. Indeed, securities experts notice a marked difference in the level of intensity in enforcement in the past year or so, but say it's too early to tell if the agency can reinvent itself as a no-nonsense, world-class enforcer.
"The OSC is genuinely committed to raising their game, but they've got a long way to go," said securities lawyer Edward Waitzer, a former OSC chairman. "You can't create an effective enforcement team overnight. It's people; but it's experience."
Canadian authorities have struggled for years to prosecute big fraud cases. An infamous example is the decade-long Bre-X Minerals gold-mining scandal that centered on a fake gold deposit in Indonesia. Only one executive ever came to trial, and he was eventually acquitted. Continued...