The Ontario Securities Commission (OSC) has approved a settlement with emerging markets issuer Boyuan Construction Group, Inc. concerning internal control failures and misleading statements about a related party transaction it engaged in.
The China-based construction firm announced that the OSC issued an order approving a settlement agreement, which requires it to pay a $200,000 penalty and $100,000 towards the OSC’s costs to resolve allegations of internal control failures at the company, and making misleading statements. It’s also required to hire a consultant to review its internal controls and financial reporting procedures. The consultant is required to report its recommendations to the OSC within three months, and the company has nine months to implement those recommendations.
The settlement stems from OSC allegations that the firm didn’t properly disclose a related party transaction involving a $7 million interest-free loan arranged by the CEO to a developer for a construction project that the company expected to participate in. The project didn’t happen and the loan was repaid, but the nature of the transaction wasn’t fully disclosed to either the firm’s auditors, or the regulator; both of whom were told it was an arm’s length deal, rather than a related-party transaction. As such, the OSC alleged that the firm violated the public interest by making misleading statements and failing to establish adequate internal controls.
The firm notes that the settlement fully resolves all issues between Boyuan and the OSC, and that it acknowledges Boyuan’s co-operation, and its efforts to strengthen the company through the improvement of financial processes and controls.
“Today’s decision recognizes the extensive efforts made by Boyuan’s senior management and board of directors to be forthcoming and transparent in addressing staff’s concerns on related party transactions and internal control issues,” said Boyuan president and CEO, Cai Liang Shou. “Boyuan is committed to improving its internal control policies and procedures and will endeavour to reach a higher standard as a reporting issuer in Canada.”
It also notes that the related party loan in question, “was entered into further to a legitimate business interest, was fully repaid and no officer or director of Boyaun or parties related to them realized any personal benefit.”