U.S. SEC charges China MediaExpress, CEO with fraud
By Sarah N. Lynch
WASHINGTON, June 20 (Reuters) - The U.S. Securities and Exchange Commission charged defunct company China MediaExpress and its chief executive officer on Thursday with misleading investors, the agency's latest case alleging fraud at a U.S.-listed China-based company.
The SEC alleges that China MediaExpress falsely reported increases in its business operations, profits and overall financial condition as soon as it became a publicly traded company in October 2009 through a backdoor method known as a "reverse merger."
Its chairman and chief executive, Zheng Cheng, also signed and attested to the accuracy of false public filings, and later tried to pay off a senior accountant who was investigating possible fraud at the company, the SEC alleged.
An attorney for the company did not immediately return a call or email seeking comment.
Nasdaq delisted the company's stock In May of 2011. The SEC deregistered its securities in March 2012.
The China MediaExpress case is the latest in a long-running crackdown by the SEC into accounting fraud at China-based companies that are listed on U.S. stock exchanges. Often the companies listed through reverse mergers with dormant shell companies.
Accounting scandals at many of these companies have prompted auditor resignations, and led the SEC to launch investigations into the companies, their executives and their auditors.
To date, the SEC said its Cross-Border Working Group has filed more than 65 fraud cases against companies or executives, and deregistered the securities of more than 50 companies.
The SEC in December charged the Chinese affiliates of Deloitte, KPMG, PricewaterhouseCoopers , BDO and Ernst & Young with violating the law by refusing to hand over documents to aid the agency's investigations.
That case is still pending, and a hearing in the SEC's administrative court on the matter is slated for July 8.
In this latest case, the SEC said China MediaExpress falsely claimed in its 2009 annual report that it had $57 million in cash on hand when it only had a cash balance of $141,000. It also misrepresented its cash balances in press releases as well.
After it misrepresented its financial condition, the SEC said the stock price tripled to more than $20 a share. The company's auditor resigned in March 2011.
The company's audit committee launched an internal investigation and hired a Hong Kong forensic accounting firm. The SEC said Zheng tried to bribe the accountant handling the probe with $1.5 million, but the accountant refused.
Story Copyright © 1999-2014 Reuters HedgeWorld All rights reserved.