The Securities and Exchange Commission brought fraud charges against S. Paul Kelley, a stock promoter who orchestrated a series of reverse mergers between Chinese companies and U.S.-listed shells.
The SEC said in its complaint that Kelley and certain associates secretly acquired control of the shell companies used in two of the reverse mergers, concealed their holdings in the post-merger companies, manipulated the share prices and then sold millions of dollars of stock at inflated prices.
The two companies that were used as vehicles for the schemes are China Auto Logistics Inc. (Nasdaq: CALI), an automobile importer based in Tiajin, and Guanwei Recycling Corp. (Nasdaq: GPRC), a plastics recycler in Fuqing.
The SEC said some of the defendants also engaged in a scheme to artificially inflate the share price and trading volume for a third Chinese company that Kelley helped bring public – Kandi Technologies Group Inc. (Nasdaq: KNDI).
The SEC’s complaint implicated Kandi’s chairman and chief executive officer, Xiaoming Hu, in that scheme, which began in late 2009. It said he provided 350,000 shares of stock to two of the defendants, who agreed to pay stock promoters to tout Kandi and to orchestrate a manipulation campaign to lift the shares to a predetermined price.
Over the next few months, Kandi’s stock quadrupled, and volume also soared.
Kelley, a Canadian who lives in the suburbs of Toronto, agreed to settle the charges related to China Auto Logistics and Guanwei Recycling and will pay more than $6 million in disgorgement, penalties and interest.
The SEC said that a second defendant, a former stockbroker from Arkansas named Roger D. Lockhart, also agreed to a settlement that calls for him to pay more than $3 million.