U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23121 / October 28, 2014
Securities and Exchange Commission v. AutoChina International Limited, Hui Kai Yan, Rui Ge Dong, Victory First Limited, Rainbow Yield Limited, Yong Qi Li, Ai Xi Ji, Ye Wang, Zhong Wen Zhang, Li Xin Ma, Yong Li Li, and Shu Ling Li, Civil Action No. 1:12-CV-10643-GAO (District of Massachusetts, Complaint filed April 11, 2012)
Court Enters Judgments Against Ten Defendants in Market Manipulation Scheme Involving Stock in China-Based Company
The Securities and Exchange Commission announced today that on October 27, 2014, a Massachusetts federal court entered final judgments against Rui Ge Dong, Victory First Limited, Rainbow Yield Limited, Yong Qi Li, Ai Xi Ji, Ye Wang, Zhong Wen Zhang, Li Xin Ma, Yong Li Li, and Shu Ling Li, defendants in a fraud action filed by the Commission in 2012. The Commission alleged in its complaint that AutoChina International Limited, a China-based company whose stock traded in the U.S., and others, including the above ten against whom judgments were recently entered, orchestrated a market manipulation scheme to create the false appearance of a liquid and active market for AutoChina's stock. Among other things, each of these ten defendants has been ordered to pay a penalty of $150,000.
The Commission's enforcement action, filed April 11, 2012, alleged that AutoChina senior executive and director Hui Kai Yan and others, including the ten defendants against whom judgments were just entered, fraudulently traded AutoChina's stock to boost its daily trading volume in order to create the appearance of liquidity of AutoChina's stock and thereby enhance the company's ability to get much-needed financing. Starting in October 2010, the defendants and others deposited more than $60 million into U.S.-based brokerage accounts and engaged in hundreds of fraudulent trades over the next three months through these accounts and accounts with a Hong Kong-based broker-dealer. The complaint alleged that the fraudulent trades included matched orders, where one account sold shares to another account at the same time and for the same price, and wash trades, which resulted in no change of beneficial ownership of the shares. According to the complaint, AutoChina and the other defendants engaged in the scheme after lenders offered AutoChina unfavorable terms for a stock-backed loan due to low trading volume in its stock.
The SEC complaint alleged that in the three months before the defendants opened the U.S.-based brokerage accounts, the average daily trading volume of AutoChina's stock was approximately 18,000 shares. From November 1, 2010 through January 31, 2011, the average daily trading volume increased to more than 139,000 shares. On some days, the defendants and related accounts' trading accounted for as much as 70% of the trading of AutoChina's stock.
The U.S. District Court for the District of Massachusetts entered the final judgments by default against ten defendants on October 27, 2014. The final judgments enjoin Rui Ge Dong, Victory First Limited, Rainbow Yield Limited, Yong Qi Li, Ai Xi Ji, Ye Wang, Zhong Wen Zhang, Li Xin Ma, Yong Li Li, and Shu Ling Li from violations of Section 17(a) of the Securities Act of 1933 and Sections 9(a)(1), 9(a)(2), and 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and orders each of them to pay a civil penalty of $150,000.
The judgments entered on October 27, 2014 bring the Commission's case to a conclusion against all defendants in this case. The court previously entered final judgments by consent against defendants AutoChina and Hui Kai Yan in June 2014 that, among other things, ordered AutoChina to pay a civil penalty of $4.35 million and Yan to pay a civil penalty of $150,000, and barred Yan permanently from acting an officer or director of a public company.
For further information, see Lit. Release No. 22326 (April 11, 2012) [Complaint filed] and Lit Release No. 23033 (June 27, 2014) [Judgments entered as to AutoChina International Limited and Hui Kai Yan].