Guanwei Recycling Corp. and Kandi Technologies Group Inc.: The Rui Wang Connection

A Chinese businessman who figures into a fraud case involving Guanwei Recycling Corp. (Nasdaq: GPRC) also has an intriguing connection to Kandi Technologies Group Inc. (Nasdaq: KNDI), whose shares were allegedly manipulated by the same group.

Securities and Exchange Commission filings show that the man, Rui Wang, is a member of Guanwei Recycling’s board of directors and was a consultant to Kandi.

The SEC brought charges last month against stock promoter S. Paul Kelley and four associates, saying they engaged in illegal schemes to bring Gaunwei Recycling and China Auto Logistics Inc. (Nasdaq: CALI) public in the United States.  The SEC said in its complaint that they concealed large ownership stakes they received through reverse-merger transactions, artificially inflated share prices through manipulative trading, then reaped millions by selling stock on the open market and in private transactions.

Kelley also helped Kandi go public, through a similarly structured reverse-merger deal that put large blocks of stock in the hands of undisclosed parties. He and another defendant, Roger D. Lockhart, already have settled the charges against them, agreeing to pay a combined $9.3 million in disgorgement, penalties and interest.

Guanwei Recycling and China Auto Logistics emphasized that they have not been accused of wrongdoing. But the SEC complaint, along with our additional research, raises further questions about their involvement in the Kelley group’s schemes.

For example:

–  The complaint said Kelley had “de facto control” over Chenxin International Ltd., which paid the U.S. legal, accounting, listing and investor-relations expenses for Guanwei Recycling, a plastics processor based in Fuqing.  Guanwei Recycling, however, has always said in its SEC filings that Chenxin International was controlled by Wang. The company described him as a longtime friend of its chairman and chief executive, Chen Min.

– The complaint said Lockhart and another defendant met with Kandi’s chief executive, Xiaoming Hu, in September 2009 and agreed to pay promoters to tout the company, and to boost its stock price through manipulative trading. Hu allegedly agreed that Kandi would provide an additional 350,000 shares to pay for the program. SEC filings show that a few weeks later, Kandi awarded a business-development contract to Wang and another man. They were to be paid with options to buy 350,000 shares of Kandi’s stock.

– The complaint said Kelley controlled Sino Peace Ltd., which covered the U.S. expenses for China Auto Logistics, a vehicle importer with headquarters in Tianjin. The complaint said Kelley also controlled another company, Easy Fame Asia Ltd. Sharesleuth previously reported that Easy Fame Asia got an unexplained distribution of stock in 2011 from an entity that held millions of shares for China Auto Logistics’ chief executive, Tong Shiping, and his wife, Cheng Weihong, also a senior executive and board member.

The timing of Kandi’s contract with Wang, and the number of shares involved, could be a coincidence. But given the charges against Kelly and his associates — and Kelley’s link to Wang at Guanwei Recycling — the deal might deserve additional regulatory scrutiny.

(Mark Cuban, majority owner of LLC, has no position, short or long, in any of the companies mentioned in this story. Chris Carey, editor of, does not invest in individual stocks and has no position in any of the companies.)


According to the SEC’s complaint, Kelley covered Guanwei Recycling’s U.S. expenses after it went public in November 2009. But the company attributed those payments to Wang, who joined its board of directors at the time of the reverse merger and currently sits on its audit, corporate governance and compensation committees.

The allegations in the fraud complaint raise the question of whether Wang was acting as a front for Kelley, and whether Min or other members of Guanwei Recycling’s management helped to conceal the source of the funds.

Gaunwei Recycling said in an April 2012 SEC filing it issued 815,684 shares to Wang to repay nearly $1.5 million that Chenxin International had spent on its behalf. The share total was halved later that year, when the company did a reverse stock split to lift its share price above $1, the minimum required for continued listing on the Nasdaq exchange.

Wang said in a subsequent filing that he sold all of the shares over an eight-month period in 2013, collecting $850,000 in proceeds. He submitted that form in January of this year, well past the SEC’s time window for disclosing those changes in ownership.


Kandi, which makes go-karts, electric cars and other vehicles, awarded a business-development contract to Wang and another person, Li Qiwen, in October 2009. According to SEC filings, they received options to buy 350,000 shares of stock, at $1.50 a share.

That was the month before Guanwei Recycling’s reverse merger. It also was the month after the SEC alleges that Lockhart and another of the defendants, George Tazbaz, met with Kandi’s chief executive, Hu, and agreed to orchestrate a scheme to lift the company’s share price to at least $3 a share within three months.

According to the complaint, Hu said the company would provide Lockhart and Tazbaz with 350,000 shares of stock to assist with the plan. The SEC said that Tazbaz later distributed that same number of shares — free of charge — to three stock promoters. The recipients included another of the defendants in the case, Shawn A Becker.

The complaint said Lockhart and Becker repeatedly engaged in manipulative trading to raise the price of Kandi’s stock. It said the two men, along with Tazbaz, profited by selling Kandi shares at inflated prices.

Kandi never disclosed any issuance of shares to Lockhart and Tazbaz. Under SEC rules, companies that provide stock to promoters are supposed to provide details of those transactions in their periodic filings.

Kandi did say it awarded a management and advisory services contract to an unidentified consultant on Sept. 21, 2009. The compensation for the one-year deal was warrants to buy 200,000 shares of stock, with half exercisable at $2 and half exercisable at $2.50.

That agreement was separate from the business-development contract awarded to Wang and Qiwen a few weeks later.  By our calculations, the 350,000 options issued under the contract could have been worth more than $2 million to the recipients.

Kandi never explained what services Wang and Qiwen were supposed to perform, or whether their efforts produced any tangible benefits to the company.

The biographical summary for Wang in Guanwei Recycling’s most recent proxy filing describes him as the founder and president of Tianjin Yuanchuang Shuntian Architect Design & Consulting Inc.


The SEC’s complaint against Kelley and his associates did not name any of the Chinese companies as defendants. Nor did it name any officers, directors or key employees.

Guanwei Recycling, whose shares have fallen more than 20 percent since the fraud case was announced, said in a press release that it had not been accused of any improprieties.

“We firmly believe that any wrongdoings that have harmed or possibly could bring harm to our shareholders should be pursued by the Securities and Exchange Commission and fully support all of their efforts in this regard,’’ it said.

China Auto Logistics’ chief executive, Shiping, said in a conference call with investors on May 19 that his company had not been accused of wrongdoing and strongly supported the SEC’s efforts.

Neither Guanwei nor China Auto Logistics responded to questions we submitted to their U.S.-based investor relations firm. Both are represented by DGI Investor Relations Inc., which previously represented Kandi and all of the other Chinese companies taken public by Kelley and his associates.

Kandi disclosed in March that it was the subject of an SEC investigation. It said the agency subpoenaed documents and other information late last year. We believe that investigation is separate from last month’s case against Kelley and his associates.

Kandi did not respond to questions we sent to its American law firm.


Sharesleuth previously noted Wang’s ties to Guanwei Recycling and Kandi in a December 2012 story that raised questions about who really wound up with millions of shares of their stock issued in connection with the reverse-merger deals.

The SEC said in its complaint that Kelley and his associates secretly acquired control of the shell company that merged with Guanwei Recycling. They came away from the deal with 6.7 million shares, which represented nearly 35 percent of the combined company and nearly all of the public float..

Sharesleuth had noted discrepancies in the number of shares that certain individual were listed as holding in the shell company prior to the deal, and the number they were listed as holding afterwards.

For example, Guanwei Recycling said in SEC filings in 2009 that Marshall Davis, the chief executive of the shell company it merged with, received 1.1 million shares of the combined company, or just 5.6 percent of the total outstanding.

But Davis, reported in a separate filing that he no longer held shares after the merger. The SEC complaint suggests those shares instead wound up with Kelley and his associates.


The SEC said the Kelley group also amassed more than 6 million shares of China Auto Logistics via the shell company used in its reverse merger, which was completed in November 2008.

According to the complaint, on the day after the deal closed, Kelley and some of the other defendants artificially doubled the share price by selling stock to one another at increasingly higher prices.

The SEC said the manipulative trading continued through 2011, if not longer. It also said that Kelley and his associates transferred at least 700,000 shares of China Auto Logistics’ stock to promoters as part of the scheme.

China Auto Logistics noted in its annual SEC filing for 2008 that Sino Peace, which it described simply as a shareholder, had paid $486,375 in expenses on behalf of the company that year. The SEC said in its complaint that Kelley controlled that entity.

China Auto Logistics reported that its debt to Sino Peace grew to roughly $976,000 by end of 2009,  $1.6 million by the end of 2010 and $2.2 million by the end of 2011.  It said in its most recent 10-K filing that the debt remains unpaid.

As we mentioned before, the SEC’s complaint said Kelley also controlled another entity called Easy Fame Asia, which had ties to China Auto Logistics.

We previously reported that Easy Fame Asia got an unexplained distribution of 362,232 shares of China Auto Logistics in June 2011 from Bright Praise Enterprises Inc., which was the company’s biggest stockholder.

Two other entities got nearly 1.5 million shares from Bright Praise. The SEC filing covering the distribution said that China Auto Logistics’ chief executive and his wife were the beneficial owners of the remaining 9.9 million shares held by Bright Praise.

Less than a month after the distribution, China Auto Logistics announced that certain undisclosed parties had purchased 3 million shares of new stock at an above-market price of $1.75. Shipping characterized the investment as a vote of confidence in the company.

China Auto Logistics’ share price surged over the next two days, reaching a high of $3.60. Volume soared as well, with more than 3.3 million shares changing hands.

The SEC’s complaint against Kelley did not specifically mention any trading by Easy Fame Asia. But if that entity took advantage of the surge to unload the shares it received from Bright Praise, it could have collected more than $1 million.


Kandi’s SEC filings show that 250,000 of the 350,000 options issued to Wang and Qiwen under their consulting contact were exercised in the second quarter of 2010. The company’s stock hit a high of $7.25 in November of that year.

If, at that point, Wang and Qiwen were still holding all of the shares they received through the option exercise, they could have sold them for more than $1 million in gains.

Kandi’s stock fell below $2 in mid-2011, but recovered by the end of that year. It traded in a range of $3 to $5 for much of 2012 and part of 2013. Then, last June, the price doubled, to $8.50, in part because its promoters were likening it to a mass-market version of Telsa Motors Inc. (Nasdaq: TSLA), whose shares were soaring.

Kandi’s stock ended last year at $11.79. The price surged to a record $22.40 a share in March of this year, after the company announced that revenue for 2013 rose 46 percent, and gross profits rose nearly 70 percent.

However, Kandi’s stock fell back below $12 over the next four weeks, after the company announced a private placement of stock at a discount to the market price.

According to Kandi’s most recent quarterly SEC filing, the remaining 100,000 options granted to Wang and Qiwen had not been exercised as of March 31. At the current share price, they have an in-the-money value of roughly $1 million.

Based on the above figures, it appears that the options Kandi issued under the consulting contract could have been worth more than $2 million to the recipients.


The SEC said Kelley and his associates used a vast network of companies in the United States, Canada and Hong Kong to conceal their control over Guanwei Recycling and China Auto Logistics.

According to the complaint, they reached secret agreements with the management of the Chinese companies to cover all of the costs of going public in the United States in return for 30 percent to 40 percent of their stock.

Kelley and his associates then acquired controlling interests in two U.S.-listed shell companies. Next, they lined up auditors, attorneys and stock promoters to prepare Guanwei Recycling and China Auto Logistics for the public market.

Guanwei Recycling and China Auto Logistics merged into those shells, thus becoming publicly traded companies.

The SEC charged Kelley with fraud, market manipulation, selling unregistered securities, and failure to disclose the beneficial ownership of 5 percent and 10 percent of a company’s stock.

Kelley settled the charges against last month, and agreed to pay more than $6.2 million in disgorgement, penalties and interest. Lockhart also settled, and agreed to pay more than $3.1 million. A federal judge signed the final judgments against both men on May 12.

Tazbaz has not settled charges against him. Becker’s attorney has been quoted in news stories as saying his client is hoping to settle. The SEC said the fifth defendant, former stock broker Robert Agriogianis, has agreed to settle the charges against him and is cooperating with the agency in its investigation.

We will continue to monitor the case and report on any interesting developments.


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