After Casey Urges SEC to Address Chinese Shell Companies, Two China-Based Executives Charged With Securities Fraud

Press Release

Today, following U.S. Senator Bob Casey's (D-PA) call to address illegal practices by companies from China, the Securities and Exchange Commission (SEC) has announced charges against two Chinese executives who allegedly set up a shell corporation to scheme U.S. investors out of their money.

"The SEC is taking a step in the right direction by cracking down on China-based shell companies, but this effort is just the beginning of what's needed to protect U.S. investors and the energy industry," Senator Casey said. "American energy businesses and workers can compete with anyone in China as long as they play by same the rules. We have a long way to go to level the playing field but this is a step in the right direction."

This week, the Securities and Exchange Commission charged two China-based executives with defrauding investors into believing they were investing in a Chinese coal business when in fact they were investing in an empty shell company.

The SEC alleges that Puda Coal Inc.'s chairman Ming Zhao schemed with former CEO Liping Zhu to steal and sell Puda Coal's sole revenue-producing asset, a coal mining company named Shanxi Puda Coal Group. Zhao secretly transferred Puda Coal's controlling interest in Shanxi Coal to himself and then sold a substantial portion to a fund controlled by what is reported to be China's largest state-owned financial firm. The scheme enabled Zhao rather than Puda Coal's public shareholders to profit from a lucrative business opportunity.

The SEC alleges that Zhao and Zhu failed to disclose these transactions in Puda Coal's periodic reports to the SEC, and continued to raise funds from U.S. investors by conducting two public offerings to purportedly raise capital to enable Shanxi Coal to acquire coal mines. Unbeknownst to investors, Puda Coal no longer had an ownership stake in that company after Zhao's secret maneuvers. After the SEC began investigating, Zhao and Zhu further schemed to forge a letter from the Chinese financial firm purporting that Puda Coal investors weren't harmed by the asset transfers. In reality, the scheme left Puda Coal as a shell company with no ongoing business operations.

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