SEC Sues SinoTech Energy Chair for Misappropriating $40m

April 24, 2012 /

The US Securities and Exchange Commission has filed a suit against China-based SinoTech Energy Limited, its Chairman and controlling shareholder, Qingzeng Liu, its CEO, Guoqiang Xin, and its former CFO, Boxun Zhang, for securities fraud and other violations.

The SEC alleges that Liu misappropriated more than $40 million from SinoTech’s primary bank account during July and August 2011. According to the regulators, he then stood silently by in August 2011 as SinoTech attempted to counter public accusations of fraud by claiming the company held $93 million in its bank accounts – a statement Liu and SinoTech knew was false.

The SEC further alleges that, since its November 2010 IPO, SinoTech has intentionally misled investors about its use of IPO proceeds and the value of its assets, specifically the lateral hydraulic drilling (“LHD”) units that are central to its business.

According to the Commission, SinoTech’s IPO filings represented that the company would use the IPO proceeds to acquire up to 20 LHD units at an average price of $7.5 million each. Subsequent public filings made it appear that SinoTech had followed through on these representations and acquired units valued on its balance sheet at $94 million.

The SEC alleges, however, SinoTech had in fact only purchased 11 units with a total value of less than $17 million. As a result, the value of LHD units shown on SinoTech’s balance sheet was materially overstated.

The Commission seeks permanent injunctive relief and civil penalties against all defendants, as well as disgorgement of ill-gotten gains against SinoTech and Liu. The SEC also requests bars against the individual defendants from serving as officers or directors of U.S. public companies.

 

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