U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22430 / July 30, 2012
Securities and Exchange Commission v. Siris, et al., Civil Action No. 12-CV-5810 (S.D.N.Y.)
Securities and Exchange Commission v. Hu, et al., Civil Action No. 12-CV-5811 (S.D.N.Y.)
In the Matter of Peter Dong Zhou, Administrative Proceedings File No. 3-14964
In the Matter of Steve Mazur, Administrative Proceedings File No. 3-14965
In the Matter of James Fuld, Jr., Administrative Proceedings File No. 3-14966
SEC CHARGES MULTIPLE INDIVIDUALS AND ENTITIES IN THE U.S. FOR WIDESPREAD MISCONDUCT IN CONNECTION WITH CHINESE REVERSE MERGER COMPANY
The Securities and Exchange Commission today filed settled fraud charges, among others, against New York-based fund adviser Peter Siris (Siris) in connection with its investigation into China Yingxia International, Inc. (China Yingxia), a now defunct Chinese reverse merger company. The illicit conduct by Siris and/or his associated entities â" Guerrilla Capital Management, LLC (Guerrilla Capital), and Hua Mei 21st Century, LLC (Hua Mei) â" included insider trading, trading in violation of Rule 105 of Regulation M, fraudulent representations in a securities purchase agreement, misstatements to investors in pooled investment vehicles, acting as an unregistered securities broker, and unregistered sales of securities.
In a separate action, the SEC charged Ren Hu (Hu), former chief financial officer of China Yingxia, for fraudulent representations in Sarbanes-Oxley (SOX) certifications, lying to auditors, failure to implement internal accounting controls, and aiding and abetting China Yingxia's failure to implement internal controls; and Alan Sheinwald (Sheinwald), and his investor relations firm Alliance Advisors, LLC (Alliance), for acting as unregistered securities brokers.
Additionally, the SEC reached settlements with several other individuals connected to China Yingxia, including Peter Dong Zhou (Zhou) for insider trading, unregistered sales of securities, and aiding and abetting unregistered broker activity; Steve Mazur (Mazur) for acting as an unregistered securities broker; and James Fuld, Jr. (Fuld) for unregistered sales of securities.
Siris and His Entities
The SEC alleges that Siris, a well-known fund manager and active investor in Chinese companies, engaged in a broad range of misconduct. Siris, who has authored one book concerning investing, and until recently was a financial columnist for a New York publication, manages two New York-based hedge funds through which he invested $1.5 million in China Yingxia. Along with being one of three "consultants" that raised money for China Yingxia, Siris and his consulting firm Hua Mei, acted as advisers to China Yingxia, which included review of China Yingxia's Commission filings and press releases, among other things. Hua Mei received cash and shares, which were received from the CEO's father and were improperly sold without any registration statement in effect.
Further, in February and March 2009, Siris sold China Yingxia stock while in possession of material, non-public information centered on its CEO's illegal activity, status of operations at China Yingxia, and a press release concerning the same. Siris, on behalf of his funds, sold over 1.1 million shares in a matter of weeks before China Yingxia's press release, realizing more than $172,000 in ill-gotten gains. Siris also omitted material information and made material misrepresentations to investors in his funds concerning his role with China Yingxia, depriving his investors of information material to their continued investment decisions with Siris's funds.
In addition, after agreeing to go "over-the-wall" in connection with ten confidentially marketed offerings for Chinese companies, Siris engaged in insider trading in breach of his duty to not trade on the information. And Siris sold short the securities of two Chinese companies prior to participating in firm-commitment offerings in violation of Rule 105. Further, Siris fraudulently represented in one securities purchase agreement that he had not traded the issuer's securities, but he had in fact sold short the issuer's stock. As a result of these violations, Siris generated almost $289,000 in ill-gotten gains.
The SEC filed action in the U.S. District Court for the Southern District of New York against Siris and his entities, alleging violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 (Exchange Act), Rule 10b-5 thereunder, Rule 105 of Regulation M, and Section 206(4) of the Investment Advisers Act of 1940 (Advisers Act), and Rule 206(4)-8 thereunder. Without admitting or denying the allegations of the complaint, these defendants have agreed to pay disgorgement in the amount of $592,942.39, prejudgment interest of $70,488.83, and Siris has agreed to pay a civil penalty in the amount of $464,011.93. Defendants Siris, Guerrilla Capital, and Hua Mei, also have consented to the entry of a judgment enjoining them from violations of the respective provisions of the Securities Act, Exchange Act, and Advisers Act. The proposed settlement is subject to approval by the court.
Hu, Sheinwald, and Alliance Advisors
The SEC also filed fraud charges against China Yingxia's former CFO, Hu, for material misrepresentations concerning his role in designing disclosure and internal controls. In several SOX certifications, the SEC alleges that Hu misrepresented that he had designed or caused to be designed such controls, when he had not done so. The SEC also alleges that Hu knowingly failed to implement internal accounting controls, aided and abetted China Yingxia's failure to do so, and lied to auditors concerning controls and fraud by the CEO, who has reportedly been convicted by Chinese authorities for illegal fundraising activities, similar to a Ponzi scheme.
In addition, the SEC alleges that Sheinwald and his investor relations firm Alliance Advisors, who were also retained as "consultants," acted as unregistered securities brokers in connection with raising money for China Yingxia and at least one other issuer.
The SEC filed action in the U.S. District Court for the Southern District of New York against Hu alleging violations of Section 10(b) of the Exchange Act, and Rules 10b-5, 13a-14, and 13b2-2 thereunder, and further aided and abetted violations of Section 13(b)(2)(B) of the Exchange Act. The SEC's action against Sheinwald and Alliance Advisors alleges violations of Section 15(a) of the Exchange Act.
Administrative and/or Cease-and-Desist Proceedings
Finally, today the SEC issued administrative and cease-and-desist orders against Zhou and Mazur, and a cease-and-desist order against Fuld. The order against Zhou, who assisted China Yingxia with its reverse merger and virtually all of its public company tasks, finds that he willfully engaged in insider trading in the securities of China Yingxia, unregistered sales of securities, and aided and abetted unregistered broker-dealer activity. Zhou agreed to pay disgorgement in the amount of $20,900, prejudgment interest of $2,463.39, and a civil monetary penalty in the amount of $50,000. Zhou further agreed to a collateral bar, penny stock bar, and investment company bar, with the right to apply for reentry after three years. The order involving Mazur, whose firm was also retained as a "consultant" to China Yingxia, finds that he willfully acted as an unregistered broker by selling away from the firm with which he was associated in connection with China Yingxia and at least one other issuer. Mazur agreed to pay disgorgement in the amount of $126,800, prejudgment interest of $25,550.01, and a civil monetary penalty in the amount of $25,000. Mazur further agreed to a collateral bar, penny stock bar, and investment company bar, with the right to apply for reentry after two years. The cease-and-desist order against Fuld finds that he engaged in unregistered sales of securities, and he agreed to pay disgorgement of $178,594.85, and $38,096.70 in prejudgment interest.
The New York Regional Office's Celeste A. Chase, Eduardo A. Santiago-Acevedo, and Osman E. Nawaz conducted the investigation, which is continuing, with assistance from Frank Milewski. The SEC thanks the Financial Industry Regulatory Authority (FINRA) for its assistance in this matter.
- Order as to Peter Dong Zhou
- Order as to Stephen Mazuchowski (a/k/a Steve Mazur)
- Order as to James Fuld, Jr.