U.S. securities regulators Thursday charged two executives of a Chinese company that was listed in the U.S. with fraud and insider trading.

The U.S. Securities and Exchange Commission (SEC) says it has charged the former CEO of ChinaCast Education Corp., an education services provider based in China, with diverting millions of dollars from the firm following a U.S. public offering; and, it charged another executive with illegally dumping his stock in the company.

According to the SEC’s complaint, which was filed in federal court in Manhattan, ChinaCast entered the U.S. capital markets through a reverse takeover in December 2006, and conducted multiple stock offerings in the U.S. The SEC alleges that the company’s former CEO and chairman, Chan Tze Ngon, illicitly transferred US$41 million out of US$43.8 million raised from investors to a purported subsidiary in which he secretly held a controlling stake. From there, it says he transferred the funds to another entity outside ChinaCast’s control. Additionally, the commission says that Chan secretly pledged US$30.4 million of ChinaCast’s cash to secure the debts of entities unrelated to the company. None of these transactions were disclosed in financial reports signed by Chan and filed with the SEC, it says.

The regulator also charges that ChinaCast’s former president for operations in China, Jiang Xiangyuan, avoided more than US$200,000 in losses by illegally selling approximately 50,000 ChinaCast shares after participating in the process of selling one of the company’s revenue-generating colleges before it was publicly disclosed by a new management team.

The allegations have not been proven. The SEC seeks disgorgement of ill-gotten gains plus prejudgment interest, financial penalties, permanent injunctions, and officer-and-director bars.

“The massive fraud perpetrated by Chan destroyed hundreds of millions of dollars in market value, and Jiang’s brazen insider trading allowed him to profit by dumping his own shares on the market before the fraud was exposed,” said Andrew Calamari, director of the SEC’s New York regional office.