ENFORCEMENT PROCEEDINGS - District Court Denies China-based Company's Motion to Dismiss SEC Enforcement Action
Jan 24, 2013 (Menafn - SECURITIES AND EXCHANGE COMMISSION RELEASE/ContentWorks via COMTEX) --The Securities and Exchange Commission announced today that on January 24, 2013 the U.S. District Court for the District of Massachusetts denied AutoChina International Limited's motion to dismiss an SEC enforcement action filed in April 2012 for lack of proper venue, or in the alternative, to transfer venue to a federal court in New York. The SEC's complaint, filed April 11, 2012, alleges that AutoChina, a company based in the People's Republic of China, two Virgin Island companies, and nine individuals residing in China fraudulently traded AutoChina's stock to boost its daily trading volume.
Determining that "[t]he proper question is not just where the defendants acted, but whether the defendants knew or had reason to know that the misleading manipulation would be communicated to and relied upon by market participants within the forum," the Court found that the defendants' trading scheme, as alleged by the SEC, had a significant relationship to Massachusetts, and therefore, denied AutoChina's motion to dismiss. In the alternative, AutoChina also moved to transfer the case to the U.S. District Court for the Southern District of New York, which the Court also denied.
According to the SEC's complaint, the defendants and others deposited more than 60 million into U.S.-based brokerage accounts and engaged in hundreds of fraudulent trades over the next three months through these accounts and accounts with a Hong Kong-based broker-dealer. The fraudulent trades included matched orders, where one account sold shares to another account at the same time and for the same price, and wash trades, which resulted in no change of beneficial ownership of the shares. According to the complaint, AutoChina and the other defendants engaged in the scheme after lenders offered AutoChina unfavorable terms for a stock-backed loan due to low trading volume in its stock.
The SEC complaint further alleges that in the three months before the defendants opened the U.S.-based brokerage accounts, the average daily trading volume of AutoChina's stock was approximately 18,000 shares. From November 1, 2010 through January 31, 2011, the average daily trading volume increased to more than 139,000 shares. On some days, the defendants and related accounts' trading accounted for as much as 70% of the trading of AutoChina's stock.
According to the SEC's complaint, several of the defendants are related to AutoChina's Chairman and Chief Executive Officer, who at the time of the scheme owned more than 57% of the company. Three of the defendants are siblings of AutoChina's Chairman and Chief Executive Officer and another is married to one his siblings.
The SEC's complaint charges AutoChina; Hui Kai Yan; Rui Ge Dong; Victory First Limited; Rainbow Yield Limited; Yong Qi Li; Ai Xi Ji; Ye Wang; Zhong Wen Zhang; Li Xin Ma; Yong Li Li; and Shu Ling Li with violating Section 17(a) of the Securities Act of 1933, Sections 9(a) and 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint further alleges that Rui Ge Dong; Victory First Limited; Rainbow Yield Limited; Yong Qi Li; Ai Xi Ji; Ye Wang; Zhong Wen Zhang; Li Xin Ma; Yong Li Li; and Shu Ling Li aided and abetted AutoChina's violations of Section 17(a) of the Securities Act of 1933, Sections 9(a) and 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.
The complaint seeks a final judgment permanently enjoining the defendants from committing future violations of these provisions, ordering them to disgorge their ill-gotten gains plus prejudgment interest, imposing financial penalties and barring Hui Kai Yan them from acting as an officer or director of a public company. [SEC v. AutoChina International Limited, Hui Kai Yan, Rui Ge Dong, Victory First Limited, Rainbow Yield Limited, Yong Qi Li, Ai Xi Ji, Ye Wang, Zhong Wen Zhang, Li Xin Ma, Yong Li Li, and Shu Ling Li 1:12-CV-10643-GAO (District of Massachusetts)] (LR-22600)
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