Accounting Fraud Prompts SEC to Issue Stop Order Proceedings Against 2 Firms
The registration statements of two companies may be suspended as the US Securities and Exchange Commission (SEC) has issued stop order proceedings against the firms.
China Intelligent Lighting and Electronics, Inc. (CIL) and China Century Dragon Media, Inc. (CDM) may face suspension in its registration statements with the SEC after the securities regulator instituted stop order proceedings against each company following the resignation of their auditors who withdrew their audit opinions on the financial reports included in the registration statements.
Kara Brockmeyer, Assistant Director of the SEC’s Division of Enforcement and co-head of the Cross Border Working Group, said: “The Division of Enforcement is seeking stop orders to protect investors by preventing any further sales under materially misleading and deficient offering documents.”
The Cross Border Working Group has representatives from each of the SEC’s major divisions and offices, and focuses on US companies with large foreign operations.
The stop order would prevent these companies or its shareholders from selling their privately-held stocks to the public under a registration statement that is “materially misleading or deficient.”
A stop order bans companies from entering new shares to the market pursuant to that registration statement until they have corrected the misleading statements in the prospectus.
According to the SEC, “CIL’s independent auditor resigned on March 24, 2011, due to accounting fraud at the company involving forged accounting records and bank statements.”
The proceedings instituted against CIL took place on June 10.
“The auditor also notified the company that it could no longer support its audit opinions relating to the company’s previously-issued financial statements – which were included in registration statements filed by CIL in June and December 2010 – and that the financial statements contained in the registration statements cannot be relied upon,” the SEC said.
In separate proceedings instituted against CDM on June 13, the SEC’s Division of Enforcement claimed that CDM’s independent auditor resigned on March 22, 2011 due to “discrepancies noted on customer confirmations and the auditor’s inability to directly verify the Company’s bank records,” indicating a material error in the company’s previously-issued financial statements.
“The auditor also notified the company that it could no longer support its audit opinions relating to the company’s previously-issued financial statements, which were included in a registration statement filed by CDM in February 2011, and that those financial statements cannot be relied upon,” the SEC added.
The Division of Enforcement concluded that CDM’s and CIL’s registration statements were both “materially misleading and deficient.”