Friday, December 14, 2012

SEC Charges New Jersey-Based Consultant to Chinese Reverse Merger Companies with Violating Securities Laws

Seal of the United States District Court for t...

The SEC charged a New Jersey-based consultant with violating securities laws and defrauding some investors while helping Chinese companiesgain access to the U.S. capital markets.

The SEC alleges that the consultant and his consulting firm Warner Technology and Investment Corporation located more than 20 private companies in China to bring public in the U.S. through reverse mergers, and then committed various securities laws violations in the course of advising those companies and later assuming operational roles at some of them.  After earning millions of dollars in consulting fees, the consultant and his firm have left several failed Chinese companies in their wake in the U.S. markets including China Yingxia International, whose registration was revoked after the company collapsed amid fraud allegations. The SEC has previously charged several individuals and firms with misconduct related to China Yingxia, including the consultant’s son.

The SEC alleges that the consultant engaged in varied misconduct ranging from non-disclosure of certain holdings and transactions to outright fraud.  For instance, he failed to disclose to investors in one company that he engaged in questionable wire transfers of their money to evade Chinese currency regulations, and he orchestrated an elaborate scheme to meet the requirements necessary to list a purported Chinese real estate developer on a national securities exchange. The consultant also stole $271,500 in investment proceeds from a capital raise to make mortgage payments on a million-dollar condo where his son lives in New York City. 

“[The consultant] and his firm sought to take advantage of our financial markets by propping up some Chinese issuers with the sole purpose of enriching themselves at the expense of U.S. investors,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Warner Technology and Investment Corporation advertises itself on its website as the first U.S. consulting firm that successfully brought a Chinese private company public in the U.S. through a reverse merger with an OTCBB trading company. The consultant’s misconduct occurred from at least 2007 to 2010. After completing the reverse mergers, he strongly influenced or even directed many of his clients’ newfound U.S. presence and obligations as public companies. He opened and controlled U.S. bank accounts for many of his clients to pay for services rendered and receive any proceeds from fundraising done in the U.S. This enabled the consultant to control how and when offering proceeds were wired to China, and gave him the ability to direct money to himself purportedly to collect fees or repay loans made to the companies.

The attorneys at Beam & Astarita, LLC have been representing witnesses, subjects, targets in securities law investigations for decades. The attorneys affiliated with our firm include former SEC Staff Attorneys, former criminal prosecutors, and experienced counsel in FINRA and SEC litigation. For more information about how we can help you avoid securities investigations, or to defend yourself in such an investigation, call our securities defense attorneys at our New York number - 212-509-6544. We defend nationwide.

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