SEC Sues Chinese Coal Executives

MANHATTAN (CN) - The SEC claims the chairman of the board and the CEO of Puda Coal duped investors into investing in an empty shell after swiping the company's assets in a reverse merger.

In a reverse merger, companies buy an empty corporate shell and use it to short-circuit the public registration process.

The SEC says in its federal complaint that Puda Coal Chairman Ming Zhao colluded with former CEO Liping Zhu to steal and sell Puda Coal's only revenue-producing asset, the Shanxi Puda Coal Group.

"Zhao secretly transferred Puda Coal's controlling interest in Shanxi Coal to himself and then sold a substantial portion to a fund controlled by what is reported to be China's largest state-owned financial firm," the SEC said in a statement announcing its lawsuit. "The scheme enabled Zhao rather than Puda Coal's public shareholders to profit from a lucrative business opportunity."

The SEC added: "The SEC alleges that Zhao and Zhu failed to disclose these transactions in Puda Coal's periodic reports to the SEC, and continued to raise funds from U.S. investors by conducting two public offerings to purportedly raise capital to enable Shanxi Coal to acquire coal mines. Unbeknownst to investors, Puda Coal no longer had an ownership stake in that company after Zhao's secret maneuvers. After the SEC began investigating, Zhao and Zhu further schemed to forge a letter from the Chinese financial firm purporting that Puda Coal investors weren't harmed by the asset transfers. In reality, the scheme left Puda Coal as a shell company with no ongoing business operations."

Puda Coal was listed on the New York Stock Exchange from September 2009 to August 2011.

The SEC seeks disgorgement and penalties from Ming and Liping.

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