WASHINGTON (CN) – China Valves Technology’s share price fell from $13.60 to 60 cents after its straw-man dealings, bribes and intellectual theft became known, the SEC claims in court.
The SEC sued China Valves Technology and its founder and former CEO Siping Fang, former CEO Jianbao Wang, and former controller and CFO Renrui Tang, all of Zhengzhou, Henan Province, on Monday in Federal Court.
The lawsuit is replete with allegations of shady business.
The SEC claims, inter alia, that defendants’ wholly owned subsidiary, Hanwei Valve, “purchased a valve with the plan to reverse engineer the product but because of intellectual property concerns, intentionally disguised the payments for the valve in its books and records as value added tax (‘VAT’) payments purportedly made to the local tax authorities.”
Two well-placed sources in the U.S. auto industry told Courthouse News that reverse engineering of U.S. products is a common method of intellectual theft in China.
The SEC claims that China Valve became a U.S. stock-issuer in December 2007 through a reverse merger with (nonparty) Intercontinental Resources, a Nevada shell corporation.
Reverse mergers are common ways that Chinese companies move into the United States. They purchase an empty corporate shell as a way to avoid some SEC registration requirements.
The SEC claims the defendants formed a Hong Kong company, Able Delight, also a shell, for the sole purpose of acting as a straw man to purchase another valve company, Changsha Valve.
Changsha regularly paid off state-owned entities to favor its products, which payments are illegal in China, the SEC says.
The SEC caught on and investigated, and China Valve’s stock price has fallen from $13.60 in March 2010 to 60 cents on Sept. 26 this year, the SEC says.
It seeks an injunction and civil penalties for securities violations.
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