Ontario Superior Court Justice Michael Penny, in a 174-page judgment handed down late Wednesday, found that Chan engaged in fraud, breach of fiduciary duty, and negligence. He awarded damages in the amount of $2.63 billion. He also awarded $5 million in punitive damages.

Chan "abused his unique position" to "orchestrate an extremely large and complex fraud, resulting in the loss by Sino-Forest of billions of dollars", wrote Justice Penny.

Sino-Forest, the failed timber firm, was a publicly traded company listed on the Toronto Stock Exchange, before short seller Muddy Waters LLC published a report in 2011 accusing the company of being a Ponzi scheme riddled with fraud, theft and undisclosed related-party transactions.

Between 2007 and 2010, the company raised more than $2.1 billion and C$800 million in Canada’s debt and capital markets.

Sino-Forest's collapse became the symbol for a series of offshore-listed Chinese firms accused of similar fraud that subsequently collapsed, including most recently China Huishan Dairy Holdings.

Wednesday's judgment is the first to definitively state that Sino-Forest was a fraud headed by Chan.

"Mr. Chan, rather than directing Sino-Forest’s spending on legitimate business operations, poured hundreds of millions of dollars into fictitious or over-valued lines of business where he engaged in undisclosed related-party transactions and funneled funds to entities that he secretly controlled,” Justice Penny wrote.

The litigation was brought in 2014 by Cosimo Borrelli, who was appointed Trustee of the SFC Litigation Trust and argued that Chan and executives Albert Ip, Alfred Hung and George Ho organized a massive fraud.

Borrelli did not respond to a request to comment on Thursday. But a source close to the case said that the Canadian court decision would facilitate other legal claims against the auditors, valuers, and other directors of the company.

In 2012, accountancy Ernst & Young, one of the firm's auditors, agreed to pay C$117 million to settle its part in a shareholder class action involving the firm. It later agreed to pay an C$8 million penalty to the Ontario Securities Commission, but admitted no wrongdoing, for its audits of Sino-Forest.

Wednesday's decision followed a July ruling by the Ontario Securities Commission that Chan and his top executives “engaged in deceitful or dishonest conduct" that they knew constituted fraud and violated securities law.

(Reporting by Matthew Miller; Editing by Stephen Coates)

By Matthew Miller