By Tegan Valentine
Hello and welcome back to Top Five Friday Finds – the weekly series in which we share five of the business news stories that dominated the papers (and our conversations) this week.
On Wednesday Ontario Superior Court Justice Michael Penny handed down a judgement that found Allen Chan, co-founder and CEO of Sino-Forest Cop, guilty of fraud, breach of fiduciary duty and negligence. Penn awarded damages in the amount of US$2.63 billion, and punitive damages in the amount of US$5 million. Chan’s conviction is tied to one of the more dramatic Ponzi scheme’s to grace the Canadian court system. Founded in 1994, Sino-Forest claimed to be one of the largest commercial forest plantation operators in China. Prior to 2012 the company was the most valuable forestry company to be listed on the TSX, however it quickly fell from grace when Carson Block – a short-seller from Muddy Waters Research, called the company a Ponzi scheme. Overnight the company’s share value dropped by 66%, and the OSC jumped in to start an investigation. This is not the first legal action to penalize Chan – in 2017 the OSC found that Chan and other Sino-Forest executives had defrauded investors, misled investigators and engaged in deceitful and dishonest conduct. This weeks ruling is tied to a 2014 action against Chan by the appointed Trustee of the Sino-Forest Corp. Trust, who argued that corporate management had organized a massive fraud.
Continuing on with the fraud trend – on Wednesday, securities regulators in the United States forced Elizabeth Holmes to pay $500,000 and surrender control of Theranos Inc, the medical-testing startup that aimed to revolutionize the medical field by running critical tests using a single drop of blood. Theranos was founded when Holmes dropped out of Stanford University at the age of 19, after filing a patent application for a drug-delivery patch that could adjust dosage to suit patient’s blood types. The patch never made it to market, but Holmes quickly redirected the company with the creation of ‘Edison’ – a machine that could test for a variety of disease using a single pinprick of blood. This was Holmes’ multibillion dollar idea. Edison would not only make testing a more enjoyable experience for patients, but it had the potential to save the US government hundreds of billions of dollars in medical testing over the next decade. By 2014 Theranos was valued at approximately $9-billion, and Holmes was declared the youngest self-made female billionaire ever. Theranos imploded in 2015 when the U.S. Securities and Exchange Commission opened an investigation into the company, ultimately determining that the technology Holmes claimed to create didn’t exist. Holmes’s net value was quickly adjusted down from $4.5-billion to $0, and the SEC’s fraud investigation began – ultimately concluding this week when the visionary founder was charged with “massive fraud”.
The re-negotiation of the North American Free Trade Agreement continues to drag on, but with elections looming in Mexico and the United States, experts expect that a new sense of urgency should force a final agreement relatively soon. In light of this, on Thursday Moody’s Investors Service released a report commenting on the impact the collapse of the multi-national free trade agreement would have across the country. According to Moody’s, Canada’s resource rich provinces (Alberta, Saskatchewan, and Newfoundland and Labrador) should be relatively sheltered from any changes in regulation. Commodities are expected to be excluded from higher tariff plans should the agreement be scrapped, meaning the impact should be minimal. By comparison, Ontario and New Brunswick will see the largest hit to their provincial economy. Exports to the U.S. account for 29.5% of New Brunswick’s GDP and 26% of Ontario’s GDP. This is especially notable for Ontario, as the province’s sizeable manufacturing sector will be highly exposed to increased tariffs due to its integrated supply chain with the U.S. Analysts still expect the three countries will reach an agreement, however with the U.S. recent negotiation tactics (an example being the country’s recently implemented steel and aluminium tariffs) the outcome remains uncertain.
And finally, let’s take a moment to talk about a beautiful takeover. On Friday, French cosmetics company L’Oreal announced it was buying Canadian beauty technology company ModiFace as it looks to it’s digital services division. Based in Toronto, ModiFace specializes in in applying augmented reality and artificial intelligence to the beauty industry. The company employees nearly 70 engineers, researchers and scientists, and has more than 200 scientific publications and 30 patents under its belt. For L’Oreal, the world’s largest cosmetics company, growing it’s digital segment is a top priority. Currently, online sales constitute 8% of the company’s sales. While this is an increase over a mere 5% in 2015, the company knows the importance of attracting shoppers in the increasingly popular world of online shopping.