B.C. Auditor General John Doyle criticized the sale of land from three Vancouver Island tree farm licences approved by former forests minister Rich Coleman in January 2007. (CBC)

B.C.'s Auditor General John Doyle has condemned former forests minister Rich Coleman for allowing a forestry company to remove land from three tree farm licences for residential development, citing the possibilities of conflicts of interest and insider trading by government staff.

The report, released Wednesday in Victoria, said Coleman's decision to remove private forest lands from three tree farm licences (TFLs) on southern Vancouver Island was made without sufficient regard for the public interest.

The auditor general also said the investigation raised concerns about at least two potential conflicts of interest and possible insider trading, all of which are now under investigation by the province's conflict of interest commissioner and the BC Securities Commission.

In the report, the auditor general blasted the minister for being more concerned with the financial problems of Western Forest Products than the public interest.

Doyle said the minister acted on incomplete information and with too little public consultation.

"Based on this evidence, I concluded that the removal of private land from TFLs 6, 19 and 25 was approved without sufficient regard for the public interest," Doyle said.

"I am not criticizing the policy of allowing licensees to remove their private land from TFLs," said Doyle, "but I expect that such decisions will be thoroughly informed and that stakeholders will be consulted. In this case, the minister's decision was based on an incomplete analysis."

Minister indignant over allegations

Doyle has also raised the issue of conflicts of interest in the deal. Coleman's brother is an executive with Western Forest Products, the forest company that is developing the land.

The auditor general also noted what he called unusual activity in the stock markets, an issue he asked the BC Securities Commission to investigate.

The government responded by attacking the auditor general for issuing "a biased and inappropriate report."

"It is, in my view, unprofessional — lacking of integrity," said Forests Minister Pat Bell, Coleman's successor. "We are offended by this report. We think it is totally inappropriate and if Mr. Doyle thinks that this is how we do business in Canada, he's dead wrong."

Bell is particularly upset that Doyle alerted the BC Securities Commission about possible insider trading by ministry staff, something the minister said he completely rejects.

Bell said he stands by his predecessor's decision, and that the BC Securities Commission has already investigated the possibility of insider trading and cleared ministry staff of any wrongdoing.

"There was no evidence to support the inclusion of the insider trading investigation in the report," Bell said. "Such allegations cast a pall over the entire Ministry of Forests and Range."

Patricia Bowles, the director of communications for the BC Securities Commission, confirmed that an investigation was conducted into possible inside trading in shares of the forestry company.

"The BC Securities Commission staff did conduct a review into those allegations of insider trading, but found insufficient evidence to pursue an investigation and the file was closed in early May," Bowles said Wednesday.

Doyle said it was not within his mandate as auditor general to investigate his concerns about the potential conflicts of interest, and that he raised that issue with Coleman directly.

Coleman, who is now the housing and social development minister, said when he learned of the concerns, he contacted the conflict of interest commissioner and formally requested his opinion.

"I believe that I have always acted in good faith and have respected my position as a minister of the Crown," Coleman said in a written statement issued Wednesday morning. "I look forward to receiving the commissioner's opinion and I will make that opinion public."

Land removed for residential development

In January 2007, Coleman agreed to remove 28,000 hectares of land from tree farm licences 6, 19 and 25 on the southwest coast of Vancouver Island to allow Western Forest Products to sell it for residential development.

At the time, the ministry estimated the value of the land, which surrounds popular outdoor recreation areas west of Victoria, including a surf break at Jordan River and the Sooke River potholes, at $150 million if removed from the TFLs.

After receiving a number of complaints about the minister's decision, the auditor general announced in November 2007 that he would investigate the decision.

Tree farm licences originated in the 1940s as a means of granting forest companies long-term exclusive rights to harvest Crown timber in exchange for committing to sustained-yield forestry and investing in processing facilities, Doyle said.

The terms of each licence agreement differed, but in many instances the licensee was required by the government to include private land. Recent legislative changes allow licensees to more easily remove their private land from a tree farm licence, and from forestry use altogether, Doyle said.