HONG KONG (Reuters) - The troubles facing China’s Sino-Forest TRE.TO mark a new chapter in the chequered career of Allen Chan, its Hong Kong-born founder who resigned as CEO over the weekend amid massive fraud allegations and a plunge in its share price.
Chan, a columnist and author in Hong Kong with a love of martial arts and classical Chinese literature, may lack the gravitas and vast wealth of Hong Kong’s billionaire tycoons, but he developed a reputation over the years as an innovative entrepreneur with an academic turn of mind.
As a columnist for the respected Hong Kong Economic Journal newspaper, he fused his knowledge of the Chinese classics, history and culture with theories on management, finance and business to nurture a steady readership. As head of Sino-Forest, he trumpeted sustainability and giving back to nature.
In a YouTube video clip, the bespectacled and balding Chan can be seen speaking in rapid-fire Cantonese expounding on his ideas of “monetizing of the forestry industry,” peppering his speech with thoughts on how to achieve predictable growth rates and harvests by melding forestry cycles with bond expiration dates.
“If you add derivatives and CO2 to the mix, it can be quite sexy,” he told a business conference in the 2009 video.
His firm’s fortunes have been decidedly far from sexy of late. Toronto-listed Sino-Forest has seen its stock price plummet since June 2, when short-seller Carson Block and his firm, Muddy Waters, accused it of fraudulently exaggerating the size of its forestry assets. Its market capitalization has fallen by roughly $4.1 billion since.
Sino-Forest has denied any wrongdoing and has appointed a committee of independent directors to investigate the matter. Chan could not be immediately reached for comment on Monday.
However, last Friday, the Ontario Securities Commission ordered a 15-day halt in trading of Sino-Forest shares and said it appeared that Chan and other executives had misrepresented revenues and kept bogus accounts, leading to Chan’s voluntary resignation this past weekend.
The Sino-Forest saga is the most prominent of a series of recent accounting scandals to have buffeted investor confidence in Chinese companies listed in North America, triggering a flurry of regulatory probes both in Canada and the United States.
Chan’s resignation marked another sharp reversal of fortune for a man whose commercial investments have ebbed and flowed over the years.
Chan got his start in business in 1984 by acting as a project consultant for a hotel in Shenzhen, a special economic zone then at the vanguard of China’s watershed reforms and economic liberalization, China’s official People’s Daily newspaper said in a business profile in 2003.
It described Chan as a lover of Chinese classics who had practiced martial arts since the age of 10.
In the aftermath of the Tiananmen Square crackdown in 1989, however, when foreign investment stampeded out of China, Chan’s businesses soured. He suffered an illness that left him physically paralyzed.
“Doctors declared he would spend a lifetime in a wheelchair,” the People’s Daily article recounted.
The bookish Chan, however, clawed his way back through intensive physiotherapy and learned to walk again, taking up writing while trying to salvage his businesses.
His nom de plume, Guan Zhong Lian, is derived from famous Chinese historical figures including political adviser Lu Zhonglian, who was known for his diplomatic and conflict resolution skills, he told the paper.
His second act came after the United Nations’ 1992 Earth Summit in Rio, which ignited his interest in forestry as a potential boom industry in China. Soon afterwards, Chan founded Sino Forest and succeeded in attracting investors of the caliber of Simon Murray, the chairman of Glencore, and billionaire hedge fund manager John Paulson.
A Hong Kong University graduate, Chan worked for the Hong Kong government in new town development and management programs earlier in his career.
Chan’s deep-rooted China connections have been vital to his forestry businesses on the mainland. A member of a top advisory committee to China’s parliament for heavily forested Jiangxi province, he’s also a vice president of the China National Forestry Industry Federation.
In the industry, Chan and Sino Forest kept a low profile, said a senior executive at a rival Chinese forestry firm who asked not to be named.
“They were just like a fund manager. They raised money and bought land and other people managed it for them,” he said.
The latest turn doesn’t signal the end of Chan’s links to Sino Forest. His resignation is pending the completion of the investigation into Muddy Waters’ allegations. Sino Forest said in the same press release announcing his resignation that he “will be fully available” to assist with operational matters.
($1 = 0.989 Canadian dollars)
Editing by Brian Rhoads and Matt Driskill