U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22475 / September 10, 2012
Securities and Exchange Commission v. Worldwide Energy and Manufacturing USA, Inc. et al., Civil Action No. C 12-4651 (U.S. District Court for the Northern District of California, filed September 6, 2012)
On September 6, 2012 the Securities and Exchange Commission charged a solar panel manufacturer headquartered in South San Francisco and three of its former executives with defrauding investors by concealing the transfer of nearly half of the ownership stake in its Chinese subsidiary to three individuals in China who manage the subsidiary.
The SEC alleges that Worldwide Energy and Manufacturing USA Inc. (WEMU) raised nearly $9 million from U.S. investors in early 2010 in order to expand its solar subsidiary based in Rugao City, China. The Chinese subsidiary represented the bulk of WEMU's operations and generated 77 percent of the company's revenue the previous year. In a power point presentation at road shows and in other communications with investors, the company's founder and chairman of the board Jimmy Wang and the company's president Jeffrey Watson touted the solar subsidiary's success as the primary growth area for the company and represented that the company fully owned its Chinese subsidiary. They neglected to tell investors that WEMU actually was set to transfer 49 percent of the equity in the Chinese subsidiary to its three managers. This critical ownership deal was not disclosed in the company's filings or offering documents. Later, Wang and his wife Mindy Wang, who served as the company's vice president, secretary and treasurer, went so far as to sign additional agreements to effectuate the transfer that were concealed from WEMU's board and auditors.
WEMU, the Wangs, and Watson agreed to settle the SEC's charges.
According to the SEC's complaint filed in federal court in San Francisco, because the company's future success depended on the technical expertise and sales connections of the three Chinese solar managers, WEMU entered into a stock option agreement with them in January 2008 that included consideration for a future change in organizational structure. The Chinese subsidiary grew dramatically over the next year and quickly became WEMU's most profitable subsidiary. In February 2009, Jimmy Wang signed two key agreements on behalf of WEMU to share 49 percent of the Chinese subsidiary's net profits with the solar managers and to transfer 49 percent of the subsidiary's equity to them in February 2010. Failure to disclose these agreements resulted in WEMU filing false and misleading quarterly reports for the first three quarters of 2009 and first quarter of 2010.
According to the SEC's complaint, WEMU management began planning a capital raise in the fall of 2009 so it could expand its solar operations by building a factory in China to manufacture solar panels. When Jimmy Wang and Watson went out to raise money from investors in early 2010, there was no mention of the agreement to transfer an ownership stake. Instead, in order to avoid informing investors about the profit sharing arrangement and contractual obligation to transfer equity to the Chinese subsidiary's managers, Jimmy and Mindy Wang traveled to China in March 2010 to secretly sign a set of side agreements that allowed the solar managers to begin the registration process with the Chinese government to effectuate the transfer. Both Jimmy and Mindy Wang concealed these side agreements from WEMU's auditors, other executives, and its board of directors. The company's failure to report the transfer of the solar subsidiary resulted in a material overstatement of net income to WEMU's reported financial statements.
The SEC's complaint charges all defendants with violating Sections 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The SEC further charges WEMU with violating Sections 13(a) and 13(b)(2)(A) and (B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The SEC charges the individual defendants with falsifying books and records and making false or misleading statements to auditors in violation of Exchange Act Rules 13b2-1 and 13b2-2, and with aiding and abetting WEMU's violations of Sections 13(a), 13(b)(2)(A) and (B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13. The SEC further charges Jimmy Wang and Watson with filing false certifications in violation of Rule 13a-14 of the Exchange Act and Section 906 of the Sarbanes-Oxley Act of 2002.
Without admitting or denying the SEC's allegations, WEMU agreed to pay a $100,000 penalty and be permanently enjoined from future violations of antifraud, reporting, books and records and internal controls provisions of the federal securities laws. The Wangs and Watson consented to permanent bars from serving as officers or directors of a public company and agreed to be permanently enjoined from future violations of the antifraud and other provisions of the federal securities laws. Mindy Wang and Watson each agreed to pay penalties of $50,000. The terms of the settlement with Jimmy Wang reflect credit given to him by the Commission for his substantial assistance in the investigation and the fact that he has entered into a cooperation agreement to assist in the ongoing investigation.
The SEC's investigation was conducted by staff accountant Adrienne F. Miller, staff attorney Alice L. Jensen, and Assistant Regional Director Jina L. Choi in the SEC's San Francisco Regional Office.
The SEC acknowledges the assistance of the Department of Labor in this matter.
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