A China-based natural gas company and its chairman were charged with fraud by the U.S. Securities and Exchange Commission for concealing loans designed to benefit the chairman's family.
The chairman and former chief executive of China Natural Gas Inc in January 2010 arranged for two improper loans totaling $14.3 million, and then lied about them to the company's board, investors and auditors.
The SEC has for more than a year probed accounting irregularities and other problems at Chinese companies listed on U.S. stock exchanges. Accounting issues and China Supplier Quality Management issues have led to the resignations of many of these companies' auditors, and prompted the exchanges to delist or halt trading of the companies' shares.
According to the SEC, the chairman had concealed a $9.9 million loan made through a sham borrower to a real estate firm, Demaoxing Real Estate Co, owned by his son and nephew.
It said he also concealed a $4.4 million loan to Shaanxi Juntai Housing Purchase Co, a business partner of Demaoxing and whose general manager was a friend.
The SEC said the chairman told China Natural Gas directors that the loans involved senior Chinese government officers in charge of a liquid natural gas project, and repeated this lie to investors on a May 10, 2010, quarterly earnings conference call.
It also said China Natural Gas did not properly report a $19.6 million acquisition made in the fourth quarter of 2008.
His misconduct caused China Natural Gas to file a series of false reports with the SEC and showed total disregard for his obligations as an officer and director of a company whose stock trades in the U.S.
The SEC has brought at least seven cases against U.S.-listed Chinese companies, including Longtop Financial Technologies Ltd and Puda Coal Inc.
Last week it filed administrative proceedings against Deloitte Touche Tohmatsu CPA Ltd of Shanghai for refusing to provide audit work papers related to a Chinese company being investigated for accounting fraud.
The China Natural Gas lawsuit seeks civil fines and a ban on the chairman from acting as an officer and director of a public company.
In September, China Natural Gas announced his resignation as chief executive, and said it would restate some financial results because of the loans.
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