March 30, 2012 (Update) - Sino Forest files for bankruptcy and has sued Muddy Waters and Carson Block for $4 billion. Seeking $3.5 billion for defamation, punitive damages of $400 million and another $100 million for the cost of investigating the “tortious false allegations.”
June 24, 2011 - An investor in shares of Sino-Forest Corporation (TSE: TRE) filed a lawsuit against Sino-Forest Corp. over alleged violations of Securities Laws. According to the complaint the plaintiff alleges that on behalf of shareholders of Sino-Forest Corporation (TSX: TRE.TO and OTC: SNOFF.PK) alleging securities law violations by Sino Forest Corp, certain of its officers and directors, its auditors, and underwriters.

The plaintiff alleges misrepresentations in Sino-Forest's filings, including the 2009 prospectus offering, press releases and public statements that, among other things, greatly exaggerated the company's assets and revenues.

Any allegations are not yet proven.

Sino-Forest Corporation reported a substantial increase in its annual Revenue between 2007 and 2010. Sino-Forest Corp reported $713.87million in Total 12months Revenue for 2007 and $1.93billion for 2010. It reported an increase in its Net Income over the same time frame from $142.43million to $322.74million.

For the first quarter in 2011 Sino-Forest Corporation reported quarterly Revenue of $338.92million compared to $251.01million one year earlier. However its quarterly Net Income for the first quarter fell to a Net Loss of $20.98million compared to a quarterly Net Income of $16.51million one year earlier.

Shares of Sino-Forest Corporation (Public, TSE:TRE) rose from as low as $5.78 per share in November 08 to $25.02 per share on April 1, 2011.

Then on June 2, 2011 Muddy Waters, LLC published a report and supporting documentation in respect of Sino-Forest which alleged detailed evidence of systemic and comprehensive fraud and illegal activity by Sino-Forest. Muddy Waters, among other things, said that, like Madoff, Sino-Forest Corporation is one of the rare frauds that is committed by an established institution and was aggressively committing fraud since its reverse takeover in 1995.
Muddy Waters alleged that the foundation of Sino-Forest’s fraud is its convoluted structure whereby it runs most of its revenues through “authorized intermediaries” and that Sino-Forest massively exaggerates its assets. Muddy Waters claimed to have evidence that Sino-Forest overstated its Yunnan timber investments in China by approximately $900 million. Muddy Waters also said that Sino-Forest’s capital raising is a multi-billion dollar ponzi scheme, and accompanied by substantial theft.

Sino-Forest shares dropped from slightly under $20 in the beginning of June 2011 to as low as $1.44 per share on June 21, 2011.

Sino-Forest Corporation stock market capitalization has plummeted $4.3 billion inside three weeks.

Among well know funds and mangers exposed to the substantial more than 80% stock drop is Paulson & Co, the New York-based $US37 billion hedge fund, known for its wildly profitable bets against the US subprime mortgages during the financial crisis, was listed as owning by proxy 14.13 per cent of Sino-Forest’s outstanding shares, making it the largest holder. Hedge fund manager and billionaire John Paulson, the man credited with making north of $US15 billion in the bets against subprime mortgages, has since then sold the hedge funds stake at a reportedly loss of somewhere around US $450million.