Sino-Forest – Why Can’t They Buy Back Stock?

Last week, Muddy Waters, a firm “specializing” in uncovering fraudulent Chinese companies dropped a bombshell on long established Sino-Forest (SNOFF, TRE.TO).  The full report is available here.  The U.S. pink sheet version of the stock, SNOFF, plunged from around $17 to just over $7 on Thursday, then bottomed below $3 on Friday before closing at just over $5.  This morning, as I type this, Sino-Forest has released a “response,” and the stock is trading up over $8.

I have one question that I’m wondering if anyone can answer, and it’s the first question I’d ask if I were thinking about getting long this stock.  In their response, Sino-Forest wrote, emphasis mine:

“The Company has heard from many investors encouraging it to buy back shares given the current prices. The Company has been advised by counsel that it and its directors and officers are precluded from purchasing stock in the current circumstances.”

Why?  Why can’t they buy stock?  Is there any good legal reason?


I have no positions in Sino-Forest

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