In October, short-seller Muddy Waters Research accused Sino-Forest of exaggerating its land holdings and profits. As a result, the timber company, which is listed on the Toronto Stock Exchange, faced investigation by the Ontario Securities Commission and a criminal investigation by the Royal Canadian Mounted Police. Now, Sino-Forest has released the results of an independent investigation which they say clears them of fraud charges. From the Globe and Mail:

The report found that Sino-Forest’s cash balance matches what it disclosed to investors. It also said the independent committee has “confirmed to its satisfaction” that the company has title or other contractual rights to more than 800,000 hectares of forest land, as the company had claimed. The report also offers some insight into Chinese financial reporting methods that explain the discrepancies between Sino-Forest’s and its suppliers’ filings.

“We can categorically say Sino-Forest is not the ‘near total fraud’ and ‘Ponzi scheme’ as alleged by Muddy Waters,” chief executive officer Judson Martin said in a statement on the interim report.

But the report also pinpoints central concerns that must still be probed. These include the value the company’s timber holdings, Sino-Forest’s relationships with “authorized intermediaries” – or brokers who sells its timber – and its close ties to its suppliers and officials in China’s forestry bureaus.

Because so many questions still exist, the company’s third and final report, scheduled for release before year-end, is expected to provide more answers. However, some parties, particularly the brokers, have not been co-operative.

However, Muddy Waters has countered that the report is inconclusive and that the committee may not have been so independent. From The Star:

Muddy Waters research director Carson Block questioned the credibility of the independent committee’s report Tuesday.

“The timing of Sino-Forest’s press release makes clear that the directors and officers are responding to the criminal investigation announced last week by the integrated market enforcement team of the Royal Canadian Mounted Police,” Block said in a statement.

“It should be noted that all three directors who oversaw the investigation are defendants in shareholder lawsuits, and one of the three resigned just prior to this release.”

Globe and Mail has published several reports investigating Sino-Forest, including a chronology of events. See previous CDT posts on the topic including, “The Roots of the Sino-Forest Mystery” and “Fraud and Farmers: How Sino-Forest Built an Empire.”