Oil Execs Charged With Fraud Tied to IPO

     WASHINGTON (CN) – Federal prosecutors charged former executives of a Chinese oil and gas company with defrauding investors in connection with public offerings of stock.
     China North East Petroleum allegedly registered a shelf offering with the SEC in June 2009, proposing to sell up to $40 million of its common stock in the United States on the New York Stock Exchange.
     In September and December 2009, the company made two separate offerings pursuant to the June registration, according to the May 23 indictment, which the Justice Department made public Tuesday.
     Wang Hongjun served as the president and CEO of China North East Petroleum from 2009 to 2010, and as the chairman of the company’s board of directors beginning in 2010.
     From 2008 until approximately 2011, Chao Jiang served as the vice president of corporate finance and corporate secretary of the company, abbreviated as CNEP in the indictment.
     Prosecutors said Hongjun and Jiang informed investors via documents filed with the SEC and other public statements that CNEP intended to use the funds raised from the securities offerings for general corporate purposes and to repay a prior corporate debt.
     Instead of using the offering proceeds as represented to investors, however, Hongjun and Jiang misappropriated approximately $1,265,000 of the proceeds, according to the indictment.
     They allegedly wired the money to bank accounts in the name of their family members – approximately $965,000 to Jiang’s father and approximately $300,000 to Hongjun’s wife – which was used, in part, to purchase a home in California, jewelry and a Mercedes-Benz.
     Prosecutors said Jiang also lied under oath about the transactions to the Securities and Exchange Commission. In that testimony, Jiang allegedly said none of his family members had received anything of value over $500 from CNEP, despite having wired $965,000 from CNEP’s bank account to the account of his father. Jiang also testified falsely regarding the use of proceeds from the securities offerings, according to the indictment.
     Hongjun, 41, and Jiang, 32, both Chinese citizens residing in California and New York, respectively, each face one count of conspiracy to commit wire and securities fraud and four counts of securities fraud.
     The charges carry a maximum penalty of 25 years in prison.
     Jiang is also charged with two counts of false statements to the SEC during sworn testimony, which each carry a maximum penalty of five years in prison.
     The SEC previously filed a related civil enforcement action against Hongjun, Jiang and others in the Southern District of New York.
     Assistant U.S. Attorney David Johnson is prosecuting the government’s case in Washington with help from trial attorneys Daniel Kahn and Kevin Muhlendorf.

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