David Zhou and the reverse merger frauds

reverse merger frauds

Huakang “David” Zhou and his firm, Warner Technology and Investment Corporation identified more than 20 private companies in China and helped them gain access to U.S. capital markets. Zhou then turned around and violated a slew of securities laws ranging from failing to disclose certain holdings to outright fraud.David imigrated to the U.S. from China in 1983 and earned a Ph.D. in Operations Research from Polytechnic University of New York in 1989.

Peter Zhou, Son of David was engaged in insider-trading and sold unregistered securities while assisting in the company’s reverse merger. He agreed to pay more than $73,000 to settle the charges in the case of China Yingxia.

The Securities Exchange Comission is investigating accounting irregularities at U.S. listed Chinese companies as many US listed Chinese companies started disclosing auditor resignations or bookkeeping problems.

Some were involved in reverse mergers in which the Chinese companies merged with U.S. shell companies. Others entered the public markets through initial public offerings.

Modus Operandi of Reverse Merger Frauds

Zhou would identify private companies in China through various sources (including government contacts), perform some due diligence (which was, on occasion, outsourced to individuals in China), and enter into an agreement with the private Chinese company to conduct a reverse merger, raise capital, and facilitate listing on a US stock exchanges. After completing the reverse mergers, Zhou strongly influenced, many of his clients’ to be a public company and have a U.S. presence.
Zhou facilitated the hiring of U.S. service providers, including accountants and lawyers; as well, he facilitated the appointment of senior officers and directors; and he assisted with the companies’ filings with the Commission.

Further, Zhou opened and controlled U.S. bank accounts for many of his clients to pay for services rendered and to receive any proceeds from fundraising done in the U.S.
Zhou, and to a lesser extent his wife, were typically the only persons with signatory authority on his corporate clients’ bank accounts.

Company A, a supposed refiner and producer of high purity tellurium for the solar industry, is a Delaware corporation with purported operations in China. Its stock was quoted on the OTC Bulletin Board. Zhou and Warner Investment brought Company A.

The Holding Company was incorporated in late 2007 in Delaware with Zhou’s wife as its sole stockholder. The Holding Company became the holding company of a private Chinese company, which Zhou merged into the Holding Company.
Zhou subsequently merged the Holding Company with a shell company, and eventually Company A, the post-reverse merger company, soon became publicly traded in the U.S.

Accounting fraud in TheStreet

The Securities and Exchange Commission today charged TheStreet, Inc. and three executives in connection with a 2008 accounting fraud at a former subsidiary of TheStreet, Inc. The fraud allowed TheStreet to report artificially inflated revenue and misstated operating income or loss in each period of 2008.

The SEC alleges that throughout 2008, Eric Ashman, TheStreet’s former Chief Financial Officer, aided and abetted the fraud by improperly and prematurely recognizing revenue based on several of the former subsidiary’s transactions. According to the complaint, Ashman caused TheStreet to recognize revenue when he knew or recklessly disregarded that there was no basis for revenue recognition.

Gregg Alwine and David Barnett, co-presidents of the subsidiary, are alleged to have aided and abetted the fraud by entering into sham transactions, and fabricating and backdating contracts and other documents. In addition, Barnett is charged with leading TheStreet’s auditor to believe that the subsidiary had performed services and thereby earned revenue on a specific transaction when in fact it had not performed those services.

For its part, TheStreet is charged with lacking appropriate internal controls over its subsidiary’s revenue and with violating books and records and reporting provisions of the securities laws.

Source url: SEC


Swiss Bank swallowed $1.5 Billion fine for fraud

The Libor is an average interest rate calculated through submissions of interest rates by major banks in London. The London Interbank Offered Rate (Libor) is a flagship instrument used all over the world, affecting what banks, businesses and homeowners pay to borrow money.

The scandal arose when it was discovered that banks were falsely inflating or deflating their rates so as to profit from trades, or to give the impression that they were more creditworthy than they were

Swiss bank UBS swallowed a $1.5 billion fine and admitted to fraud on Wednesday after a global probe revealed its staff orchestrated the manipulation of benchmark interest rates over three continents. UBS traders colluded with brokers to rig the Libor rate, which is used to price trillions of dollars worth of loans worldwide, rewarding them for their help. They also teamed up with traders at other banks.

Libor is used in U.S. derivatives markets, an attempt to manipulate Libor is an attempt to manipulate U.S. derivatives markets, and thus a violation of American law.

The penalty agreed was not agreed with only U.S. but also with UK and Swiss regulators and is more than three times the $450 million fine levied on Britain’s Barclays in June for rigging the Libor benchmark rate used to price financial contracts around the globe.

It is the second-largest fine paid by a bank and comes a week after Britain’s HSBC agreed to pay the biggest ever penalty – $1.92 billion – to settle a probe in the United States into laundering money for drug cartels.

Rolls Royce connection with President Suharto

rolls royce

The U.K. Serious Fraud Office may be investigating an alleged $20 million payment from Rolls Royce to the son of the former Indonesian ruler who helped the company win an order for aircraft engines.

Last week, the company confirmed that it was in talks with the SFO regarding payments to intermediaries in Indonesia and China.

The whistleblower in this case ‘claimed that Tommy Suharto – a son of the late President Suharto – received $20 million and a Rolls Royce car to persuade the national airline, Garuda, to order Rolls Royce Trent 700 engines in 1990.

In a prepared statement, the company said last week, “It is too early to predict the outcomes [of the investigation], but these could include the prosecution of individuals and of the company.” Read Our previous Coverage

President Suharto held office for 31 years until he was forced out by rioting in 1998.

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Serious Fraud office investigate Rolls Royce

rolls royce

British aerospace and defence firm Rolls Royce is co-operating with fraud investigators over allegations of bribery and corruption involving intermediaries in China and Indonesia, the company says.

Rolls Royce said it had passed on the results of an internal investigation to the Serious Fraud Office (SFO), an independent government body that investigates and prosecutes serious or complex fraud and corruption.

The company, which is the world’s second-largest maker of aircraft engines behind US group General Electric, said the investigation followed a request for information from the SFO about allegations of malpractice in Indonesia and China.