May 5 A Toronto consultant has agreed to pay $6.22 million (C$6.81 million) to settle U.S. regulatory charges that he helped bring two Chinese companies into U.S. markets through so-called reverse mergers so that he and his associates could manipulate trading and reap millions of dollars of illegal profit.
The U.S. Securities and Exchange Commission said the consultant, S. Paul Kelley, and co-defendants Roger Lockhart, Robert Agriogianis and George Tazbaz schemed in 2008 and 2009 to drive up the price of China Auto Logistics Inc and Guanwei Recycling Corp, and then dump their shares.
According to the SEC, the four acquired controlling stakes in two shell companies to engineer reverse mergers in exchange for 30 percent to 40 percent of the resulting stock, with their stakes concealed through at least nine Hong Kong companies.
It said a fifth defendant, stock promoter Shawn Becker, and others would then tout the Chinese companies' unregistered shares to investors.
In a typical reverse merger, a Chinese company buys a U.S. shell company and takes over its stock ticker, allowing it to raise money without the regulatory reviews that newly public companies normally get.
Kelley's settlement calls for him to pay a $2.83 million fine, give up $2.83 million of gains, pay $560,812 in interest, and accept a ban from the U.S. securities industry.
Lockhart, of Holiday Island, Arkansas, reached a $3.15 million (C$3.45 million) settlement with the SEC. Agriogianis, of Florham Park, New Jersey, cooperated with the regulator, and any financial penalty will be determined later.
The SEC said its litigation continues against Tazbaz, of Oakville, Ontario, and Becker, of Overland Park, Kansas.
Michael MacPhail, a lawyer for Kelley, declined to comment. Justin Joseph D'Elia, a lawyer for Agriogianis, declined to comment. Lawyers for the other defendants did not immediately respond to requests for comment. (US$1 = C$1.095) (Reporting by Jonathan Stempel in New York; Editing by Mohammad Zargham)