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|FOR IMMEDIATE RELEASE
September 30, 2014
OSC Approves Settlement Agreement with Ernst and Young
TORONTO – The Ontario Securities Commission (OSC) today approved a settlement agreement reached between Staff and Ernst & Young LLP, the auditor of the financial statements of both Sino-Forest Corporation for its 2007 to 2010 fiscal years, and Zungui Haixi Corporation for its 2009 initial public offering and for its 2010 fiscal year.
While neither admitting nor denying the accuracy of the facts and conclusions of Staff, Ernst & Young has agreed to the settlement and has made a payment of $8 million to advance the Commission’s mandate. Of this amount, $2.1 million will be allocated toward the cost of Staff’s extensive investigation into these matters.
“An OSC panel has reviewed the facts and circumstances of this matter and has approved, for the first time, a no-contest settlement,” said Howard Wetston, Q.C., Chair and CEO of the OSC. “Such settlements are an important component of our enforcement strategy, allowing for timely and appropriate resolutions in the public interest, while freeing OSC resources to pursue other activity.”
This settlement follows allegations by OSC Staff in 2012 and 2013 that Ernst & Young failed to conduct its audits of the financial statements of Sino-Forest and Zungui Haixi in accordance with generally accepted auditing standards, resulting in breaches of the Securities Act (Ontario) and that, in both cases, Ernst & Young’s audit failures were contrary to the public interest.
“This settlement sends a clear message of deterrence to the capital markets regarding our expectation that auditors exercise the appropriate level of scrutiny, professional scepticism and diligence in the performance of financial statement audits," said Tom Atkinson, Director of Enforcement at the OSC.
In reaching this settlement, Ernst & Young have advised the OSC that it has improved its policies and procedures and has implemented enhancements in its policies for auditing companies with significant operations in emerging markets.
Earlier this year, Ernst & Young settled class action lawsuits relating to its audits of Sino-Forest and Zungui Haixi by paying $119 million to shareholders and noteholders, and this payment to investors was considered an important factor by OSC Staff in reaching this settlement.
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.
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