Derivative Action Filed Over Hongli Delisting from NASDAQ

(CN) – Investors in Chinese coal producer Hongli Clean Energy Technologies Corp. filed a derivative suit against its executives after the company’s stock was delisted from the NASDAQ and its auditor raised questions about the valuation of $108 million worth of assets.

Justin Sylva filed a derivative action against CEO Jianhua LV and five other corporate executives in New York federal court.

Hongli, a China-based coal and coke processor, traded on the NASDAQ under the symbol CETC until April 11, 2017, when it was delisted and trading was suspended due to the company’s failure to file required reports with the Securities and Exchange Commission.

The company first received a delisting notification in September 2015 over its inability to maintain a minimum share price of $1 per share, and a second notice in October 2016 for failure to timely file its annual report.

After delisting, the action says Hongli executed a 1-for-10 reverse stock split, raising its share price, but falsely filed paperwork with the SEC that omitted mention of the company’s disagreement with its independent auditor, KSP Group.

In an amended filing, the company later admitted that KSP believed all Hongli’s prior financial statements should be revaluated due to an alleged impairment of $106 million worth of Hongli’s assets.

“The individual defendants breached their fiduciary duties by personally making and/or causing the company to make a series of materially false  and/or misleading statements regarding the Company’s business, operations, and prospects,” the 52-page complaint states. “Specifically, the individual defendants willfully or recklessly made and/or caused the company to make false and/or misleading statements and/or omissions of material fact to the investing public that failed to disclose that the Company: (1) failed to properly record the impairment of assets; (2) filed false and misleading statements with the SEC, with respect to both the opinions of its independent auditor and the value of its assets; and (3) failed to maintain internal controls.”

This alleged misconduct has also forced the company to defend itself in a securities fraud class action filed in New Jersey federal court.

Sylva seeks to recover restitution from the executives on behalf of Hongli and to put forward for shareholder vote a variety of resolutions to improve shareholder input on policies and the Board of Director’s supervision of operations.

He is represented by Timothy W. Brown with the Brown Law Firm in Oyster Bay, New York.


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