U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23033 / June 27, 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 China-Based Company and Senior Executive in Market Manipulation Scheme; Company Ordered to Pay $4.35 Million Penalty
The Securities and Exchange Commission announced today that on June 25, 2014, a Massachusetts federal court entered final judgments against China-based AutoChina International Limited and its senior executive Hui Kai Yan, defendants in a fraud action filed by the Commission in 2012. The Commission alleged in its complaint that AutoChina and eleven investors, including Yan, orchestrated a market manipulation scheme to create the false appearance of a liquid and active market for AutoChina's stock. Among other things, AutoChina has been ordered to pay a penalty of $4.35 million. Yan has been ordered to pay a penalty of $150,000 and is barred from serving as an officer or director of a public company. AutoChina and Yan each agreed to the entry of the final judgments.
The Commission's enforcement action, filed April 11, 2012, alleged that AutoChina senior executive and director Yan and others 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 final judgment in the Commission's enforcement action enjoins AutoChina and Hui Kai Yan 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 AutoChina to pay a civil penalty of $4.35 million and Yan to pay a civil penalty of $150,000. Yan was also barred permanently from acting an officer or director of a public company.
The Commission's action remains pending against ten other defendants.
For further information, see Lit. Release No. 22326 (April 11, 2012) [Complaint filed].