SEC v. AgFeed Industries, Inc., et al
Case No. 3:14-cv-00663-WDC-BDH (M.D.T.N.)
The SEC charged an animal feed company, AgFeed Industries, Inc. (“AgFeed”) and top executives with conducting a massive accounting fraud. On March 11, 2014, the SEC filed a complaint against former executive chairman, Songyan Li; former CEO, Junhong Xiong; former CFO, Selina Jin; former controller, Shaobo Ouyang (collectively, “Chinese Defendants”); AgFeed; K. Ivan Gothner (“Gothner”); and, Edward Pazdro (“Pazdro”). The complaint alleged that, from 2008 through June 30, 2011 (“Relevant Period”), AgFeed reported fictitious revenues from its China operations and the fraud caused AgFeed’s publicly-reported revenues to be inflated by approximately $239 million during the Relevant Period. The Chinese Defendants were AgFeed’s senior management during most of the Relevant Period, and used a variety of methods to inflate revenue, including fake invoices for the sale of feed and purported sales of nonexistent hogs. The SEC also charged audit committee chair, Gothner, and Jin’s replacement as CFO, Pazdro, both located in the United States, with scheming to avoid or delay disclosure of the accounting fraud once they learned about it in 2011. See Complaint.
On October 6, 2014, pursuant to its consent and without admitting or denying the allegations against it, the Court entered a final judgment as to AgFeed. The final judgment permanently enjoined AgFeed from violating Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The final judgment required AgFeed to pay $18,000,000.00 in disgorgement, and ordered that it be satisfied by paying $12,500,000.00 pro rata to holders of Class 5B equity interests, as defined in AgFeed’s July 22, 2014 Second Amended Chapter 11 Plan of Liquidation Supported by the Official Committee of Equity Security Holders in In re AgFeed Industries, Inc., Chapter 11 Case No. 13-11762 (BLS) (Bankr. D. Del.), and by paying the remaining $5,500,000.00 to the SEC, pursuant to a confirmed Chapter 11 Plan of liquidation in the Bankruptcy Case. See AgFeed’s Final Judgment.
AgFeed paid a total of $5,500,000.00 on November 28, 2014 (the “Distribution Fund”). Additional funds may be added to the Distribution Fund, if so ordered by the Court at the resolution of the remaining defendants’ litigation.
On October 6, 2015, the Court appointed Damasco & Associates LLP as the Tax Administrator to fulfill the tax obligations of the Distribution Fund.
On October 6, 2015, the Court appointed Epiq Systems, Inc. as the Distribution Agent to oversee the distribution of the Distribution Fund to injured investors. See Order Appointing Distribution Agent.
On September 28, 2016, the SEC filed a motion to approve a distribution plan, together with the distribution plan (“Distribution Plan”). See Motion to Approve Distribution Plan. See also the Distribution Plan.
On October 18, 2016, the Court approved the Distribution Plan. See the Court’s Order.
The Distribution Plan provides for the distribution of the Distribution Fund to investors who were harmed by the improper conduct alleged in the SEC’s underlying lawsuit. The Distribution Agent will determine each Eligible Claimant’s pro rata share based upon each Eligible Claimant’s total Eligible Loss Amount divided by the aggregate total Eligible Loss Amount of all Eligible Claimants in accordance with the terms of the Distribution Plan.
Claim forms can be found at: www.SECvAgFeedDistributionFund.com and must be postmarked by March 31, 2017.
On March 7, 2018, the Commission filed a motion to turn over funds on deposit with the Commission to the Distribution Agent and authorize payment of the Distribution Agent’s fees. See the Commission’s Motion.
On April 3, 2018, the Court granted the Commission’s motion and entered an order to turn over funds on deposit with the Commission to the Distribution Agent for distribution to Eligible Claimants in accordance with the Plan; authorized payment of the Distribution Agent’s fees; and authorized the Distribution Agent to pay future taxes and fees and expenses of Tax Administrator and Distribution Agent, upon approval by Commission staff, without further Court order. See the Court’s Order.
For more information, please contact the Distribution Agent: