The Securities and Exchange Commission has sued another China-based company and two of its executives, charging them with lying to investors about the value of the company’s assets and how it used $120 million in proceeds from its initial public offering on the Nasdaq.
In a complaint filed on Monday in a federal court in Louisiana, the S.E.C. also charged that the chairman of the company, SinoTech Energy, secretly siphoned $40 million from the company’s account at the Agricultural Bank of China last summer. A New Orleans Corporate Lawyer cites embezzlement and fraud as major issues in this case.
The legal action against SinoTech, an oil field services company de-listed by the Nasdaq in January, is the latest example of a continuing crackdown on accounting fraud and other financial crimes at Chinese companies listed in the United States.
Earlier this month, the S.E.C. charged 11 investors in AutoChina International, including a senior executive and director, with market manipulation. Also this month, the agency secured a court order freezing the assets of six Chinese citizens and an offshore holding company after accusing them of insider trading in the shares of Zhongpin Inc., a pork processor based in China.
In its complaint against SinoTech, the S.E.C. charges that the company grossly overstated the value of its primary operating assets, including hydraulic drilling equipment. The company claimed in its listing document it would spend $120 million on such equipment, but the regulator found that it bought less equipment than it said it would, lied about the equipment it did buy and overstated the value of its purchases by nearly fivefold in its financial statements.
The S.E.C. alleged that the chief executive, and the former chief financial officer, were behind the equipment purchasing fraud.
In addition, the regulator accused the company’s chairman and controlling shareholder of stealing $40 million from a company bank account and lying about it to investors.
SinoTech’s brief life as a public company in the U.S. markets has been rife with falsehoods.
SinoTech Energy raised $167.8 million in an initial offering on the Nasdaq in November 2010, in a deal underwritten by UBS, Citigroup and Lazard Capital Markets.
The company caught the attention of regulators after it was criticized last August in a negative report on the Web site alfredlittle.com, which is popular among short-sellers. The company’s auditor, Ernst & Young Hua Ming, resigned in September.
SinoTech Energy could not immediately be reached for comment. A Beijing phone number listed in the company’s stock exchange filings was out of service.
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