Federal regulators have filed civil fraud charges against the chairman and the former CEO of a Chinese company, accusing them of duping people to invest in a coal company that was an empty shell.
The Securities and Exchange Commission announced the charges Wednesday against Ming Zhao, chairman of Puda Coal Inc., and its former CEO, Liping Zhu. The SEC said they conspired to "loot" and sell the company's main asset, a coal mining firm.
Puda Coal's stock traded on the New York Stock Exchange from September 2009 to August 2011. The SEC said Zhao and Zhu raised money from U.S. investors in two public stock offerings.
The SEC has been investigating Chinese companies that trade in the U.S. - there are hundreds of them - and their accounting practices. The agency also has been looking to expand its oversight of the companies.
Zhao and Zhu, who are Chinese citizens and live there, couldn't be located for comment. The SEC said they didn't appear to be represented by attorneys.
Because Zhao and Zhu failed to disclose their moves in regulatory filings, the investors were unaware that Puda Coal no longer owned the coal mining firm and was a shell company with no business operations, the SEC said in a lawsuit filed in federal court in Manhattan.
Their "massive fraud ... wiped out hundreds of millions of dollars in shareholder value," George Canellos, director of the SEC's New York regional office, said in a statement.
The agency also alleged that Zhao and Zhu obstructed its investigation of Puda Coal, forging a letter from a large Chinese state-owned financial firm attesting that the coal company's investors weren't harmed by the sale of the mining firm.
The SEC is seeking unspecified fines and restitution from Zhao and Zhu, and a ban against them serving as officers or directors of any public company.
In November the SEC charged a Chinese software company, Longtop Financial Technologies Ltd., with violating disclosure rules by failing to file accurate financial reports. Longtop denied any wrongdoing. The agency also went to court to compel Longtop's auditor, Deloitte Touche Tohmatsu, to turn over documents.
There have been troubles at several other Chinese companies, most of which went public in the U.S. through a back-door procedure known as a reverse merger that doesn't require an initial public offering. A private company can access the public markets by buying a shell company that is already listed.
Longtop, however, went through the IPO process in the U.S., going public in October 2007.