Loosey-Goosey With $134 Million, SEC Says

WASHINGTON (CN) - China-based jewelry company Fuqi International and its CEO fraudulently failed to disclose $134 million in cash transfers to "purportedly unknown third parties," the SEC claims in court.

The SEC sued Fuqi and Yu Kwai Chong, in Federal Court.

Chong claimed he transferred the cash "to maintain [a] good relationship with bank officers," the SEC in the complaint.

The complaint states: "This matter concerns the fraudulent failure to disclose over 50 cash transfers totaling approximately $134 million to purportedly unknown third parties by a China-based jewelry company, Fuqi International, Inc. ('Fuqi'), and its Chairman of the Board and former Chief Executive Officer and President, Yu Kwai Chong ('Chong'). Chong authorized and directed the cash transfers from Fuqi's corporate bank accounts to three purportedly unrelated, unknown entities between September 11, 2009, and November 24, 2010.

"Chong made the transfers without written agreements or repayment terms. Fuqi's board of directors was not aware of and did not approve the cash transfers.

"Chong maintains that he directed the transfers from corporate accounts at the request of a local branch manager at a bank at which Fuqi maintained numerous accounts with significant activity and balances. Chong claims that he directed the cash transfers based on information provided by the bank branch manager 'to maintain [a] good relationship with bank officers bas[ed] on bank officer's requests with bank's internal guarantee of fund safety.'

"Chong claims and internal company records reflect that all funds transferred to the third parties were returned to Fuqi throughout the same period of September 2009 through November 2010. Not all of the funds, however, were returned to the same bank accounts or in the same amounts as the initial transfers of cash from Fuqi.

For a significant portion of the funds transferred in and out of the company, Chong and Fuqi have been unable to provide reliable third-party verification for the information found in Fuqi's internal records or representations made by Chong. Fuqi has not provided audited financial statements for the relevant period of time and, thus, has not filed any required periodic reports since it filed its quarterly report on Form 10-Q on November 9, 2009, for the period ended September 30, 2009. Fuqi, therefore, is at least three years delinquent in meeting its filing obligations with the Commission." (Brackets in complaint.)

The SEC seeks penalties for securities violations and aiding and abetting, and wants Chong barred from being an officer or director of a registered securities firm for 5 years.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit