Executives at Chinese reverse merger company settle with US SEC
WASHINGTON May 15 (Reuters) - A husband and wife executive team at a China-based company agreed to settle civil charges on Wednesday alleging they overstated revenue and used some of the money for personal expenses, the U.S. Securities and Exchange Commission said.
The SEC's case against RINO International Corp's Chief Executive Officer Dejun "David" Zou and Chairman Jianping "Amy" Qiu marks the latest in an enforcement crackdown by the agency on disclosure and accounting irregularities at U.S.-listed Chinese companies.
RINO, provider of various services to China's iron and steel industry, is one of many so-called "reverse mergers" that has been scrutinized by the SEC. A reverse merger is a backdoor method of entering the U.S. marketplace in which a company merges with a U.S. shell company.
RINO was suspended from trading in 2011, based on questionable public filings.
Many backdoor merger companies with accounting troubles have been delisted from U.S. exchanges and faced resignations by their auditors.
In this case, the SEC alleged that Zou and Qiu diverted $3.5 million in company funds to buy a home in California, without telling investors.
The company's auditor was also not given a straight answer after inquiring about the expenditure, the SEC said.
"Executives grossly abuse their positions of trust when they divert corporate funds for their personal spending," Antonia Chion, the associate director of the SEC's Division of Enforcement, said in a statement.
"When making their investment decisions, RINO's investors did not have the benefit of knowing that Zou and Qiu were diverting money and the company's revenues were greatly exaggerated," said Chion.
The SEC said Zou and Qiu agreed to pay $150,000 and $100,000, respectively, without admitting or denying the charges. They also will be barred from serving as officers or directors of a public company for 10 years.
The pair paid $3.5 million in disgorgement in a related class action settlement.
The settlement proposal must still be approved by a federal court.
Attorneys for Zou, Qiu and the company did not return calls seeking comment.