U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22699 / May 15, 2013
Accounting and Auditing Enforcement Release No. 3482 / May 15, 2013
Securities and Exchange Commission v. RINO International Corporation, Dejun "David" Zou, and Jianping "Amy" Qiu, Civil Action No. 1:13-cv-00711
SEC Charges RINO, Its CEO, and Its Chairman of the Board with Scheme to Overstate Revenues and Divert Money for Personal Use
The Securities and Exchange Commission today charged RINO International Corporation, its Chief Executive Officer, Dejun "David" Zou, and its Chairman of the Board, Jianping "Amy" Qiu with engaging in a scheme to overstate RINO's revenues and divert proceeds from a securities offering for their personal use in violation of the anti-fraud, reporting, books and records, and internal control provisions of the federal securities laws. RINO, Zou, and Qiu have agreed to settle the SEC's claims against them.
RINO, a holding company for subsidiaries that manufacture, install, and service equipment for the Chinese steel industry, became a China-based U.S. issuer through a reverse merger in October 2007. According to the SEC's complaint, Zou, a Chinese national living in China, and Qiu, a Chinese national living in California, diverted some of the proceeds from an offering of securities by RINO in December 2009. Zou and Qiu are alleged to have used the proceeds to purchase a $3.5 million family home for personal use. RINO, Zou, and Qiu initially failed to disclose this diversion, and conflicting information was provided to RINO's outside auditor about the expenditure. Zou and Qiu also used offering proceeds to pay for automobiles as well as designer clothing and accessories without recording them as personal expenses or otherwise disclosing them in RINO's public filings.
The Commission further alleges that RINO's SEC filings contained materially false and misleading statements and omissions concerning RINO's revenue and operations between 2008 and 2010. According to the complaint, RINO maintained two conflicting sets of financial records â" one set of books for filings in China and another set of books for filings in the U.S. The Chinese books reflected sales of approximately $31 million from the first quarter of 2008 through the first three quarters of 2010. But the U.S. books that formed the basis for RINO's SEC filings contained false contracts and portrayed sales revenues of approximately $491 million during that same time period â" more than 15 times greater than the revenues recorded in the Chinese books. The complaint alleges that Zou and Qiu knew or were reckless in not knowing that the U.S. books were supported by false contracts and, nonetheless, signed and certified RINO's public filings containing false and misleading statements and omissions about RINO's revenue and operations.
The Commission's complaint, which was filed in federal court in Washington, D.C., charges RINO with violations of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder; Section 17(a) of the Securities Act of 1933 ("Securities Act"); Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. The SEC's complaint charges Zou and Qiu with violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; Section 17(a) of the Securities Act; Sections 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder; Exchange Act Rule 13a-14; and aiding and abetting RINO's violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder.
Without admitting or denying the claims against them, RINO, Zou, and Qiu consented to the entry of a judgment permanently enjoining them from violations of the respective provisions of the Securities Act and Exchange Act. Zou and Qiu agreed to pay civil penalties of $150,000 and $100,000, respectively. Zou and Qiu also agreed to pay $3.5 million disgorgement into a related class action settlement. In addition, Zou and Qiu consented to entry of an order prohibiting them from serving as officers and directors of a public company for a period of ten years. The proposed settlement is subject to approval by the court.
The SEC's investigation was primarily conducted by Tom Swiers, Sarah Nilson, Kam Lee, and Melissa Hodgman.