OSC Alleges Breach of Ontario Securities Act Against Ernst & Young LLP

TORONTO – Staff of the Ontario Securities Commission (OSC) today issued allegations against Ernst & Young LLP, former auditors of Sino-Forest Corporation (Sino-Forest).

OSC Staff allege that Ernst & Young breached the Ontario Securities Act by failing to conduct their audits in accordance with relevant industry standards. The audits related to the 2007, 2008, 2009 and 2010 consolidated financial statements of Sino-Forest.

“Our investigation into Sino-Forest is a complex international investigation, and a major focus has been on whether gatekeepers such as auditors and other corporate advisors properly performed their role in protecting investors,” said Tom Atkinson, Director of Enforcement. “Investors rely on auditors to conduct their audits in accordance with professional standards, particularly when foreign companies are listing on Canadian exchanges. If auditors fail to abide by Canadian auditing standards and securities laws, we will hold them accountable.”

In the Statement of Allegations, OSC Staff allege that Ernst & Young failed to perform sufficient audit work to verify the ownership and existence of Sino-Forest’s most significant assets. OSC Staff also allege that Ernst & Young failed to undertake their audit work on Sino-Forest with a sufficient level of professional skepticism.

On May 22, 2012, the OSC issued allegations of fraud against Sino-Forest and former senior executives. Those proceedings are ongoing.

The mandate of the OSC is to provide protection to investors from unfair, improper or fraudulent practices and to foster fair and efficient capital markets and confidence in capital markets. As part of its review of emerging market issuers, the OSC recently issued an Issuer Guide for Companies Operating in Emerging Markets that summarizes its expectations for reporting issuers listed on Canadian exchanges with significant business operations in emerging markets.

 

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