UPDATE 1-China-based Keyuan settles U.S. SEC accounting charges

Thu Feb 28, 2013 3:00pm EST

WASHINGTON Feb 28 (Reuters) - Keyuan Petrochemicals Inc , a China-based petrochemical company, agreed to pay $1 million to settle securities fraud charges in the United States, as regulators have stepped up efforts after misconduct at U.S.-listed Chinese companies.

The Securities and Exchange Commission accused the company, whose shares traded in the U.S. through a so-called reverse merger, of failing to disclose to investors related-party transactions involving its chief executive and others.

The SEC also accused the company of maintaining an off-balance-sheet account to pay bonuses to senior officers and fund other expenses.

The company's former finance chief, Aichun Li, agreed to pay a related $25,000 penalty. Neither Keyuan nor Li admitted or denied the charges, the SEC said.

Lawyers for the company and for Li did not immediately respond to requests for comment.

In the past two years the SEC has launched probes into possible accounting fraud at dozens of Chinese companies, many of which tapped the U.S. public markets through the backdoor route of merging with a shell company, a process known as a reverse merger.

But the agency has struggled to develop the cases as it faces difficulties in obtaining documents related to the potential frauds.

In December, the SEC charged the Chinese arms of the five largest accounting firms with securities violations over their failure to produce related audit work papers. The firms have said they are prevented from doing so by Chinese state secrecy laws.

Other securities fraud cases the SEC has filed against China-based companies remain pending, and most have not yet resulted in settlements.

Nasdaq suspended trading in Keyuan shares in October 2011, and delisted them in April 2012. The company's shares continue to trade in the over-the-counter market.

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