Reuters: Regulatory News: UPDATE 2-US SEC charges SinoTech, execs with lying to investors

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UPDATE 2-US SEC charges SinoTech, execs with lying to investors Apr 23rd 2012, 21:26 Mon Apr 23, 2012 5:26pm EDT * 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. Link this Share this Digg this Email Reprints

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