U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21272 / October 30, 2009
Accounting and Auditing Enforcement Release No. 3063 / October 30, 2009
SEC v. China Holdings, Inc. and Julianna Lu (a.k.a. Jenny XueJian Lu), Civil Action No. 1:09-CV-02045 (JDB) (D.D.C.)
SEC CHARGES CHINA HOLDINGS, INC. AND ITS CEO WITH FRAUD FOR FILING UNAUTHORIZED AUDIT REPORTS
The Securities and Exchange Commission today filed civil fraud charges in the U.S. District Court for the District of Columbia against China Holdings, Inc. ("CHHL") and Julianna Lu ("Lu"), who is described in CHHL's public filings as the company's "Chief Executive Officer, Principal Financial Officer, Principal Accounting Officer, Treasurer and Chairwoman of the Board of Directors."
The Commission's complaint alleges that from April 15, 2008 through April 17, 2009, CHHL and Lu made material misrepresentations in nine public filings. In April 2008, Lu filed a Form 10-KSB and two Forms 10-KSB/A for CHHL's fiscal year 2007 which improperly included audit reports from CHHL's then-current and former auditors. As alleged in the complaint, Lu knew that neither auditor authorized her to use its audit report in the filings because she had not made necessary corrections to the filings, and because she did not give the auditors the opportunity to review and approve the filings. As a result, the filings fraudulently misrepresented that CHHL's fiscal year 2007 financial statements were audited and that CHHL's auditors certified that the financial statements and related disclosures in the filings fairly presented the financial position of CHHL and its subsidiaries.
As further alleged in the complaint, in April and May 2008, Lu filed a Form 8-K and two Forms 8-K/A which fraudulently misrepresented that CHHL dismissed its then-current auditor (who had in fact resigned), and that CHHL and the auditor had no disagreements over matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedures. Lu attached to the second Form 8-K/A a fabricated letter purportedly from the dismissed auditor which falsely stated that the auditor agreed with CHHL's misrepresentations. As the complaint alleges, Lu and CHHL repeated all of the above misrepresentations in March and April 2009, when Lu filed a Form 10-K and two Forms 10-K/A for CHHL's fiscal year 2008. Lu again included audit reports from CHHL's two previous auditors despite knowing that neither firm authorized her to use its report.
The complaint charges CHHL and Lu with violating Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The complaint also charges Lu with aiding and abetting CHHL's violations of Exchange Act Section 10(b) and Rule 10b-5. The Commission seeks a permanent injunction and civil monetary penalties against both defendants, and an officer and director bar against Lu.