SEC Charges Underwriter of Fraudulent Chinese Firm

“If a company’s financial reports seem too good to be true, they probably are, particularly for Chinese reverse merger companies,” wrote Norman Goldberger.
SEC Charges Underwriter of Fraudulent Chinese Firm
A trader checks share prices at a security firm in Hangzhou, east China's Zhejiang province, on Dec. 30, 2014. China's stock rally will likely see intense turbulence in the near future. STR/AFP/Getty Images
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Brokerage firm Macquarie Capital allegedly cost investors millions of dollars by underwriting the public offering of a fraudulent China-based company, according to charges announced March 27 by the U.S. Securities and Exchange Commission (SEC).

Macquarie had received a due diligence report revealing the China-based Puda Coal to be a shell company, the charges alleged. Former junior investment banker William Fang sent out an email 29 minutes after reading the report stating “No red flags were identified.”

The brokerage firm continued with the equity raising, selling $108 million in Puda shares.

Shares Worthless

The complaint and charges come three years after the SEC charged Puda CEO Ming Zhao for taking Puda’s 90 percent stake in Shanxi Coal, Puda’s sole source of revenue. Zhao, a wealthy businessman with connections to Beijing, then gave half of Shanxi Coal in equity interest to a private equity fund controlled by a state-owned Chinese investment firm.

Shannon Liao
Shannon Liao
Author
Shannon Liao is a native New Yorker who attended Vassar College and the Bronx High School of Science. She writes business and tech news and is an aspiring novelist.
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