MANHATTAN (CN) – Financial author Peter Siris and two of his companies committed “wide-ranging misconduct” for 3 years, including “improper sales of unregistered securities, unregistered broker-dealer activity, illegal insider trading, [and] material misrepresentations and omissions,” the SEC says in Federal Court.
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The SEC sued Siris, his company Guerrilla Capital, a Hua Mei, a consultancy Siris created aimed at Chinese reverse mergers.
In a reverse merger, a company buys an empty corporate shell; it’s a common way to avoid SEC registration requirements. Numerous lawsuits involving Chinese companies involved in reverse mergers have been filed in recent years.
In its complaint, the SEC says Sir is “an author of several books (including ‘Guerrilla Investing: Winning Strategies for Beating the Wall Street Professionals’) and former author of a monthly investment column for a New York-based publication (where he frequently wrote about companies in which his funds invested), manages two New York-based funds, including one of the relatively few, and larger, funds dedicated to U.S. listed Chinese companies. As of year-end 2010, Siris’s assets under management totaled approximately $160 million.” (Parentheses in complaint.)
The complaint continues: “Siris and his firm Hua Mei acted as paid consultants to numerous Chinese companies in which his funds invested, including China Yingxia International, Inc. (‘China Yingxia’ or the ‘Company’), a purported nutritional foods company and one of the many Chinese companies in recent years that have gained access to the U.S. capital markets via reverse merger. Hua Mei received both cash and shares – including shares received through a person directly or indirectly controlled by the issuer, in a transaction that operated as an end-run around
registration provisions of the federal securities laws, and which Siris sold for illicit proceeds of approximately $24,600 – for performing due diligence on China Yingxia; raising over $2 million for an $8.7 million China Yingxia ‘PIPE’ transaction, in which Siris acted as an unregistered broker and received payment of $107,500 in transaction-based compensation; and reviewing and advising on Commission filings, press releases, and hiring decisions, among other things.
“During the time Siris worked and had a relationship of trust and confidence with
China Yingxia, he received and traded on material, non-public information concerning the Company. Specifically, on or around February 19, 2009, Siris learned of problems at China Yingxia directly from the Company’s chief executive officer, including that she had engaged in illegal fundraising activities in China, and that a Company factory had shut down. In response, Siris began selling hundreds of thousands of shares of China Yingxia stock prior to any public disclosure by China Yingxia concerning these issues that threatened to, and indeed later did, shutter the Company. Siris learned additional material, non-public information during the late
afternoon of March 3, 2009, when he received a draft press release and notice that China Yingxia planned to publicly disclose the problems. Siris increased his orders to sell over the next couple of days before China Yingxia issued its press release publicly disclosing the problems on March 6, 2009. In all, Siris, through his funds, sold 1,143,660 China Yingxia shares in a matter of weeks, for ill-gotten gains (profits and/or losses avoided) of approximately $172,000.
“China Yingxia’s stock price plummeted on the first trading day after it issued the
press release of March 6, 2009. The Company’s directors resigned that same day and, within roughly a month, the chief financial officer also resigned, effectively ending China Yingxia’s operations. Reports indicate that Chinese officials have sentenced the Company’s CEO to death for illegal fundraising activities, similar to a Ponzi scheme, involving Chinese citizens.
“Around the time of China Yingxia’s collapse, Siris made material misrepresentations and omissions to investors in his funds concerning his dealings with China Yingxia. Siris wrote to his investors and placed blame on others he claimed were responsible for the Company’s Commission filings and key hiring decisions, among other things, and against whom he wanted to initiate legal action. Siris omitted from disclosure, however, his significant role in those very same tasks.
“Siris also engaged in illegal insider trading ahead of ten offering announcements
for other Chinese issuers, resulting in a total of approximately $162,000 in ill-gotten gains. After expressly agreeing to go ‘over-the-wall,’ which included a prohibition on trading, Siris traded ahead of the offering announcements, in breach of his duty not to trade on such information.
” Further, to induce at least one issuer to sell securities to his funds, Siris falsely
represented in a securities purchase agreement that his funds had not engaged in any trading after being contacted in confidence about a particular deal, when in fact his funds had effected sales in that issuer’s securities.
” Finally, Siris directed short sales in the securities of at least two Chinese companies in violation of restrictions prohibiting such sales prior to his funds’ participation in
firm commitment public offerings involving those two companies. In connection therewith, Siris’s funds made ill-gotten gains of approximately $127,000.”
The SEC seeks disgorgement, penalties and an injunction.