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U.S. Securities and Exchange Commission

Litigation Release No. 22174 / December 2, 2011

Accounting and Auditing Enforcement Release No. 3341 / November 16, 2011

SEC v. Nancy S.W. Chu et al., Civil Action No. CV11-09859 (C.D. Cal., filed November 29, 2011)

SEC Charges Soyo Group, Inc.'s Former CFO and Two Members of Her Accounting Staff for Their Role in Financial Fraud

The Securities and Exchange Commission (“Commission”) announced today that it filed charges against three individuals who participated in a securities fraud scheme at Soyo Group, Inc. (“Soyo”), a now defunct California-based consumer electronics and computer parts company.

The Commission’s civil injunctive complaint, filed in the U.S. District Court for the Central District of California on November 29, 2011, alleges that between January 2007 and November 2008, Soyo, through the actions of its chief financial officer, Nancy Shao Wen Chu, and members of her accounting staff, Elizabeth Tsang and Eric Jon Strasser, misled Soyo’s investors, primary lending bank, and auditor by materially overstating Soyo’s net revenues and understating its liabilities. According to the complaint, Chu and Tsang caused Soyo to book over $47 million in fraudulent sales revenues arising from at least 120 fictitious transactions with 21 customers, resulting in Soyo materially overstating its net revenues in its periodic filings by amounts ranging from 14.4 to 76.8 percent. The complaint also alleges that in order to obtain additional bank financing for Soyo and keep its existing line of credit from defaulting, Chu misled Soyo’s investors, primary lending bank, and auditor regarding a $6 million debt-for-equity transaction with a Soyo vendor that was never completed. The complaint further alleges that Strasser, a consultant who prepared Soyo’s filings with the Commission, was alerted to the falsity of the debt-for-equity transaction disclosures, but he failed to correct the misstatements or inform Soyo’s auditor prior to the next quarter’s filing.

The Commission’s complaint alleges that, as a result of their conduct, Chu and Tsang violated, and unless enjoined, will continue to violate, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and that Strasser aided and abetted an antifraud violation. The complaint also alleges that Chu violated, and unless enjoined, will continue to violate Section 17(a) of the Securities Act of 1933, and is liable as a control person for Soyo’s antifraud violations. As part of this action, the Commission seeks against each of the defendants an injunction against future violations of the provisions set forth above, disgorgement, pre-judgment interest, third tier civil money penalties and, as to Chu, an officer and director bar.

http://www.sec.gov/litigation/litreleases/2011/lr22174.htm


Modified: 12/02/2011