MANHATTAN (CN) – No longer on the hook for securities fraud charges, financial consultant Benjamin Wey shot back in court Monday against the Nasdaq, saying the exchange lied to the FBI to deflect blame after Chinese listings drew regulatory scrutiny.
Represented by the Lupkin law firm in Manhattan Supreme Court, Wey claims that Nasdaq manipulated investigators after the exchange failed to properly vet many of its newly listed Chinese companies, then used Wey as a scapegoat when regulators launched an investigation into the listings.
“This case illustrates the lengths to which some avaricious, for-profit, multibillion dollar public companies will go to maximize shareholder value and advance their own interests,” the 55-page complaint states, calling Nasdaq’s actions “the apex of hypocrisy.”
As laid out in a criminal indictment and parallel Securities and Exchange Commission case, Wey was accused in 2015 of manipulating stock prices using reverse-merger transactions between Chinese corporations and U.S. shell companies.
Prosecutors said Wey owned more than 5 percent of the shell companies at issue but failed to disclose his position in trades that netted him tens of millions of dollars.
But prosecutors dropped charges against Wey last summer after U.S. District Judge Alison Nathan ruled the raids of his apartment and office were improperly authorized and based on “essentially limitless” warrants.
The SEC dismissed its civil suit shortly thereafter.
Wey, who was born in China and founded New York Global Group, refers to himself his 55-page complaint as “an American success story.”
Seeking more than $650 million in damages, including $50 million to be donated to the Legal Aid Society, the lawsuit names as defendants the Nasdaq and a number of current and former Nasdaq officials, including former CEO Robert Greifeld and current CEO Adena Friedman.
The complaint states that Nasdaq began to target Chinese companies for public listings after the financial crisis of 2007, vying to compete with other stock exchanges and boost listing fees. To do this, Nasdaq opened a new office in Beijing and used Wey as a bridge to entice Chinese companies to list on the exchange, the complaint states.
But Wey says the exchange failed to properly vet many of those companies and then panicked when in 2010 the SEC began to investigate potential accounting fraud among newly listed Chinese companies.
The scrutiny at the time led to a number of news reports about Chinese listings not receiving their due diligence by Nasdaq, resulting in American investors losing tens of billions of dollars.
After the scrutiny reached a fever pitch, according to the complaint, Nasdaq shifted into “damage control mode” and used various investment bankers, auditors and others — including Wey, who had been featured in an August 2010 Barron’s feature on dangerous reverse mergers — as “scapegoats.”
The exchange told the FBI and other investigators that Wey had violated one of the exchange’s listing rules. That rule, now known as 5505(a)(3), requires listing companies to have no fewer than 300 shareholders holding a minimum of a “round lot” stock positition of at least 100 shares.
Nasdaq had falsely claimed that Wey had broken the so-called “300 Round Lot Rule” by gifting shares to friends and family to inflate the number of shareholders in a number of companies, the lawsuit states.
“The problem was that the rule prohibition Nasdaq accused Mr. Wey of conspiring to evade did not exist,” the complaint states.
Wey says Nasdaq never explained during its meetings with investigators that that its rules do not prohibit gifting shares.
“To this day, the Nasdaq ‘300 Round Lot Rule’ still does not impose such restriction, and moreover, Nasdaq has never issued any formal interpretive guidance for this rule,” the complaint states.
Wey says these and other misrepresentations led FBI agents to storm his apartment and threaten his family when they couldn’t find bogus stock certificates they thought they would find at his home.
The FBI never found any such stock certificates, but the complaint says Nasdaq’s General Counsel Ed Knight was “jumping up and down cheering” when Wey indicted.
Wey would spend the next two years wearing an ankle bracelet and spending more than $10 million in legal fees and other expenses until the charges against him were dropped.
“The incalculable harm, both intended and actualized, was the decimation of Mr. Wey’s once thriving business and professional life,” according to the complaint, which also cites comments by Nasdaq China Head Yeeli Hua Zheng that Wey’s “career is over” and that Nasdaq had permanently blacklisted him.
Nasdaq spokesman Allan Schoenberg declined comment on the suit.
Wey’s attorney, Jonathan Lupkin, has not returned a request for comment.
Wey had also been sued for sexual harassment against a former employee, for which he ended up paying about $5.65 million in damages.