Lawyers representing plaintiffs in a class action lawsuit against Sino-Forest Corp. have served a statement of claim in Ontario Superior Court of Justice, seeking more than $7.3 billion.
On Friday, the company's shares were halted and ceased trading on the TSX. U.S. regulators quickly followed suit, and the company's senior managers have resigned, including CEO Allen Chan.
Law firms Koskie Minsky LLP and Siskinds LLP are leading the suit, but it has yet to be certified as a class action.
The plaintiffs are the Labourers' Pension Fund of Central and Eastern Canada and the International Union of Operating Engineers Local 793 pension plan.
The claim names several Sino-Forest executives, including Chan, consultants Ernst & Young, and financial institutions that had acted as underwriters for the company's 2009 prospectus offering, including TD Securities, Dundee Securities, RBC Securities, Scotia Capital, and CIBC World Markets.
"The underwriters earned fees from the class, whether directly or indirectly, for work that they never performed or that they performed with gross negligence, in connection with the offerings, or some of them," according to the statement of claim.
"Sino, E&Y and the individual defendants further breached their duty of care as they failed to maintain appropriate internal controls to ensure that Sino's disclosure documents adequately and fairly presented the business and affairs of Sino on a timely basis," it said.
The lawsuit also accuses Sino-Forest of backdating or mispricing stock options granted to executives in violation of both the company and regulatory rules.
"On average, the dates as of which Sino's stock options were priced were preceded by a substantial decline in Sino's stock price, and were followed by a dramatic increase in Sino's stock price. This pattern could not plausibly be the result of chance," it said.
Sino-Forest was once the most valuable forestry company listed on the TSX, ahead of such household names as lumber producer Canfor Corp. and paper producers such as Domtar and Abitibi-Bowater.
But that all fell apart earlier this summer when short-seller and analyst Carson Block published an incendiary report on the company, alleging it was effectively a massive Ponzi scheme.
The shares had lost two-thirds of their value before being halted on the TSX last week.