* SEC: company lied about asset value, use of IPO proceeds
* CEO, ex-CFO are charged in connection with alleged fraud
* SinoTech chairman also accused of stealing $40 mln
* Latest in crackdown on accounting at Chinese companies
By Sarah N. Lynch
WASHINGTON, April 23 (Reuters) – U.S. securities regulators
charged China-based SinoTech Energy Ltd and its
senior executives with misleading investors on Monday, part of
an effort to crack down on accounting problems at Chinese
companies listed in the United States.
The Securities and Exchange Commission’s civil suit, filed in
a U.S. district court in Louisiana, alleges that the oil field
services company and its executives “continuously and
intentionally misled investors” about the value of its assets
and how it used the $120 million in proceeds from its November
2010 initial public offering.
The SEC alleges that SinoTech Chief Executive Officer
Guoqiang Xin, 47, and former Chief Financial Officer Boxun
Zhang, 35, were responsible for the alleged fraud.
The SEC also charged the company’s chairman, Qingzeng Liu,
50, saying that he stole $40 million from a SinoTech bank
account between June 30, 2011 and August 2011.
He then “stood by silently,” the SEC said, as the company
battled public accusations of fraud by claiming the company had
$93 million in its bank accounts.
He also “confessed” to making the $40 million withdrawal
from the company’s primary bank account with the Agricultural
Bank of China, the SEC alleges. The withdrawal never appeared in
the company’s books and records, and the company still retained
Liu as its chairman.
The investor protection agency is seeking financial
penalties and to bar the executives from serving as officers or
directors of U.S. public companies.
An attorney for the company declined to comment.
SEC PROBING CHINESE COMPANIES
For more than a year now, the SEC has been probing
accounting irregularities and other problems at Chinese
companies that are listed on U.S. stock exchanges. The
accounting issues have led auditors to many of the companies to
resign, and have also prompted U.S. stock exchanges to delist or
halt trading.
The SEC has brought at least six cases against Chinese
companies that listed in the U.S., including Longtop Financial
Technologies and Puda Coal. The SEC is also
trying to force a Chinese Unit of Deloitte & Touche to hand over
documents that may assist the SEC in its investigation of
Longtop.
SEC enforcement director Robert Khuzami has previously told
Reuters that the Justice Department is also investigating the
issue.
SinoTech used to be listed on the Nasdaq market, but its
shares were halted in August 2011, the SEC said.
The company’s auditor resigned in September 2011 and
withdrew its audit opinion. The auditor was not named in the
suit, but SEC filings show it was Ernest & Young Hua Ming.
Nasdaq then suspended trading in October 2011, and delisted
the stock on Jan. 6, 2012. The shares now trade
over-the-counter.
“SinoTech’s brief life as a public company in the U.S.
markets has been rife with falsehoods,” said David Woodcock, the
director of the SEC’s Fort Worth Regional Office. “Investors
deserve the utmost honesty and transparency from companies and
their officers when they tap public markets in the United
States.”
According to the SEC, SinoTech promised it would use money
from its IPO to acquire lateral hydraulic drilling units, but in
fact acquired far too few and then lied about the number it had
and how much the units were worth.
These alleged misrepresentations were then repeated over and
over again in numerous financial filings and press releases, the
SEC said.
The units were obtained through a sole supplier located in
Lake Charles, Louisiana. The SEC says the company contracted to
buy 15 units for $18.9 million, but SinoTech only paid $16
million. The supplier only delivered 11 units because the
company did not pay the full amount.
Afterwards, the SEC says the company continued to overstate
the value of its equipment. That in turn affected the company’s
earnings report.
