by T. GormanPosted on Posted in SECActions

The Commission resolved a Reg FD case with the former CEO of Presstek, Inc., Edward Marino. The case has been in litigation since March 2010. SEC v. Presstek, Inc., Civil Action No. 10-1058 (E.D.N.Y. Filed March 9, 2010).

Presstek is a company engaged in designing, manufacturing, selling and servicing high tech digital imaging equipment in the graphics arts industry. Mr. Marino formerly served as a member of the board of directors, the chairman of the audit committee and as CEO.

The allegations against Mr. Marino center on his conversations about company performance on September 28, 2006 with a registered investment adviser whose funds held a large block. Shortly before that conversation Mr. Marino received an e-mail from the company controller. It stated that company performance in North America and Europe for August was weak and had a negative impact on margin and operating income relative to plan. Several days later Mr. Marino told certain senior personnel about the difficult results in an e-mail. No announcement of financial performance was planned before early October.

On September 28, 2006, Mr. Marino received a telephone call from Michael Barone, a managing partner of Sidus, a registered investment adviser. The funds managed by the adviser owned almost half a million shares of Presstek. During the telephone call, Mr. Marino told the adviser that the summer had not been as vibrant as expected in North America and Europe, according to notes of the conversation prepared by Mr. Barone. The notes go on to record Mr. Marino as saying, in substance, that overall a mixed picture for the company emerged for the quarter.

Mr. Barone began selling Presstek shares immediately, sending an e-mail during the call. By the end of the day he liquidated most of the funds’ holdings. The share price closed down about 19%.

The next day Presstek issued a preliminary announcement. It reported that quarterly financial performance was below prior estimates.

The Commission’s complaint named Mr. Marino and the company as defendants. It alleges violations of Exchange Act Section 13(a) and Regulation FD. The prayer for relief requested an injunction against both defendants and a penalty.

The company settled at the time the complaint was filed, consenting to the entry of a permanent injunction prohibiting future violations of the sections cited in the complaint. As part of the settlement the company agreed to pay a $400,000 civil penalty. In an unusual step the Commission, in its complaint, acknowledged the cooperation of the company citing its remedial measures. Those included revising its corporate communications policies and governance principles, replacing its management team, appointing new independent board members and creating a whistleblower’s hotline.

This week Mr. Marino settled with the Commission. In the civil injunctive action he agreed to the entry of a final judgment which imposed a $50,000 civil penalty. The settlement did not include an injunction. Rather, a separate administrative proceeding was instituted based on the same allegations as the civil injunctive action. To resolve that action Mr. Marino consented to the entry of a cease and desist order based on Exchange Act Section 13(a). In the Matter of Edward J. Marino, Adm. Proc. File No. 3-14879 (May 15, 2012).

Tagged with: ,

by T. GormanPosted on Posted in SECActions

Actions involving Chinese issuers have been a focus of the SEC and the class action bar. The Commission has brought a number of actions involving those issuers, their officers and their auditors. Last month, for example, the agency brought a case against PRC based SinoTechEnergy Ltd and certain of its officers alleging that they mislead investors about the use of the IPO proceeds and falsified the financial statements. SEC v. SinoTechEnergy Ltd., Civil Action No. 2:12-cv-00960 (W.D. La. Filed April 23, 2012). Others, such as SEC v. AutoChina International Ltd., 1:12-CV-01643 (D. Mass. Filed April 11, 2012), involve claims centered on the manipulation of the company’s shares or the misuse of its assets as in SEC v. Ming Zhao, Case No. 12 CV 1316 (S.D.N.Y. Filed Feb. 22, 2012). Still others involve efforts by the Commission to obtain audit work papers to investigate the finances of the company. See, e.g., In the Matter of Deloitte Thouche Tohmatsu Certified Public accountants, Ltd., Adm. Proc. File No. 3-14872 (May 9, 2012). A number of actions have sought to revoke the issuer’s registration. See, e.g., In the Matter of Longtop Financial Technologies, Ltd., Adm. Proc. File No. 3-14622 (Filed Nov. 10, 2011)(Initial Decision revoking registration filed Dec. 14, 2011).

The action against China Natural Gas, Inc., and its former Chairman and CEO, Qinan Ji, is another in this line of cases. SEC v. China Natural Gas, Inc., Civil Action No. 12-cv-3824 (Filed May 14, 2012). The company is a Delaware corporation with its headquarters in Xi’an, Shaanxi Province, China. It entered the U.S. capital markets through a reverse merger in 2005. China Natural Gas distributes and sells natural gas through fueling stations. Its shares were suspended by NASDAQ in September 2011 based on the matters in this action. Defendant Qinan Ji served as chairman of the board and was the CEO of the company. He beneficially owns about 14% of the shares of the company while his son has 3.39%.

The case centers on the concealment of two related party transactions involving Mr. Ji and his son and the failure of the company to properly report a material acquisition in a timely manner. In January 2010 China Natural Gas made two short term loans totaling $14.3 million. The transactions were listed in filings made with the Commission as loans to third parties. One for $9.9 million was listed as being extended to Taoxiang Wang. The other, in the amount of $4.4 million, was recorded as having been extended to real estate company Shaanxi Junta Housing Purchase Co. Ltd.

In fact the loans were for the benefit of a real estate company, Xi’an Demaoxing Real Estate Co., Ltd. That company is 90% owned by Mr. Ji’s son. The remaining 10% is owned by his nephew. The purported borrower for one loan, Mr. Wang, was a straw man designed to conceal the true nature of the transaction, according to the complaint. The real estate company listed as the borrower on the other is in fact the business partner of Xi’an and borrowed the money to fund a joint venture between the two companies.

The loans were arranged with the approval of the board of directors and the assistance of the internal audit chief who is the husband of Mr. Ji’s niece. The board was told by Mr. Ji that the loans were made to senior Chinese government officials who were in charge of the company’s natural gas project, not that they were for the benefit of his son’s company. That fabrication was later repeated to the investing public in a conference call. When the board subsequently ordered an internal investigation, Mr. Ji lied to the investigators and also the auditors.

During the fourth quarter of 2008 the China Natural Gas acquired a natural gas company. Mr. Ji approved the transaction without consulting the board of directors. The transaction was not reported timely and properly in the filings for the company. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 14(a). The case is in litigation.

Tagged with: , , ,