The Securities and Exchange Commission said Puda Coal chairman Ming Zhao schemed with former chief executive officer Liping Zhua to steal and sell Puda’s sole revenue-producing asset, Shanxi Puda Coal Group.
Zhao is alleged to have transferred Puda Coal’s 90% interest in Shanxi Coal to himself and then in July 2010 sold a 49% equity interest in Shanxi Coal to CITIC Trust.
CITIC Trust placed its stake in Shanxi Coal in a trust and then sold interests in the trust to Chinese investors.
SEC said CITIC Trust gave Zhao $1.212 billion preferred shares in the trust.
While CITIC was selling shares in Shanxi Coal to Chinese investors, the SEC has alleged Puda executives were leading US investors on by conducting two public offerings to “raise funds” from them to enable Shanxi Coal to acquire coal mines.
At this stage the executives had already sold off Shanxi Coal.
SEC said the transactions were not approved by Puda’s board or shareholders.
The transaction was also not disclosed in Puda’s SEC filings.
SEC’s Division of Enforcement director Robert Khuzami said the scheme left Puda without any ongoing business operations.
“Zhao and Zhu duped investors with promises that their money would be invested in a Chinese coal company when in fact the company was an empty shell that had been looted by the defendants,” Khuzami said.
“This enforcement action reflects our continuing commitment to hold accountable officers and directors of issuers who misuse their access to the US capital markets to commit fraud for personal gain.”
Puda Coal’s common stock was listed and traded on the NYSE from September 2009 to August 2011.
Zhao is believed to have joined Zhu with the scheme in September 2009.
The SES said the fraud had “wiped out hundreds of millions of dollars in shareholder value.”
Zhao and Zhu are charged with violations of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5.
They have also been charged with violating the proxy solicitation rules and various corporate reporting, recordkeeping and internal controls provisions of the Exchange Act.
The investigation is continuing.
In the past year the SEC has revoked the securities registration of at least a dozen US issuers based in China and is considering suspending or revoking the registrations of 27 more issuers.