SEC filed a complaint yesterday alleging fraud against China Natural Gas and its Chairman Qinan Ji, (formerly NASDAQ: CHNG). This marks the 3rd complaint in the past 3 months filed by the SEC against Chinese frauds first exposed by Jon Carnes, the owner of A*L. On February 22nd, the SEC charged Ming Zhao, Chairman of Puda Coal, with fraud (link here). On April 23rd, the SEC charged SinoTech Energy and its Chairman with fraud (link here). The SEC’s press release and complaint against CHNG can be found here.
Mr. Carnes was the first to publicly accuse CHNG of fraud in an anonymous report published February 12, 2010 in an online blog. An archive of the original report is available here. Mr. Carnes removed the reports from the blog after being threatened by an agent of CHNG Chairman Qinan Ji.
In the SEC’s press release accompanying the complaint, John M. McCoy III, Associate Director of SEC’s Los Angeles Regional Office, stated:
“Ji betrayed China Natural Gas investors by misusing company funds to benefit his family and repeatedly lying about it. Ji’s misconduct caused China Natural Gas to file a series of false reports with the SEC and showed total disregard for his obligations as an officer and director of a company whose stock trades in the U.S.”
The SEC’s complaint focuses on two events:
1) Qinan Ji loaned over $14 million to friends and relatives without disclosing it and later lying to cover it up.
2) Qinan Ji acquired Lingbao Yuxi for $19.6 million without board approval or properly disclosing the transaction.
Importantly, the SEC noted that its investigation of CHNG is continuing.
A*L commends the SEC’s actions and hopes the agency will continue pursuing fraudulent Chinese companies despite the inherent difficulty the SEC (and investors) face collecting settlements from Chinese entities.