A Toronto-based consultant has agreed to pay more than US$6 million in a settlement with U.S. regulators amid allegations that he helped engineer a market manipulation scheme that involved Chinese companies listing on U.S. markets through reverse takeovers.
The U.S. Securities and Exchange Commission (SEC) said Monday that it charged S. Paul Kelley, and four associates with conducting illegal reverse takeovers in order to list a couple of China-based companies on the U.S. markets “so they could manipulate trading and reap millions of dollars in illicit profits.”
The SEC alleges that Kelley and three associates acquired controlling interests in two U.S. shell companies in order to orchestrate reverse mergers with the Chinese firms, China Auto Logistics Inc. and Guanwei Recycling Corp. It says that they then hired a U.S. stock promoter, Shawn Becker, and others to tout the two companies’ unregistered stock to investors.
“Kelley and his associates engaged in various forms of manipulative trading in order to further drive up the price and volume of China Auto and Guanwei Recycling stock, and they profited when they dumped their shares into the inflated market they created,” the SEC says.
The SEC says that the men concealed their controlling interest in the shell companies and the reverse merger transactions by having others create at least nine Hong Kong-based companies to hold their shares. “Despite their concealment efforts, the SEC was able to obtain documents and testimony to corroborate the suspected conduct with assistance from the Ontario Securities Commission (OSC),” it notes.
The SEC’s complaint charges them with various violations of the antifraud, securities registration, and securities ownership reporting provisions of U.S. securities laws, and it seeks disgorgement of ill-gotten gains, plus prejudgment interest and financial penalties, as well as penny stock bars.
Kelley and two U.S. men, Roger Lockhart and Robert Agriogianis, have agreed to settle the SEC’s charges, consenting to the entry of final judgments including permanent injunctions without admitting or denying the allegations, the regulator reports. The settlements are subject to court approval.
Under his deal, Kelley agreed to pay more than $6 million, comprised of more than $2.8 million in disgorgement, a $2.8 million penalty, and $560,000 in prejudgement interest; he will also be barred from the securities industry and from participating in penny stock offerings. Lockhart agreed to pay more than $3 million and a ban on penny stock dealing; and Agriogianis entered into a cooperation agreement that includes a penny stock ban, and financial sanctions that will be determined by a court at a later date.
The SEC is still pursuing litigation against Becker and another Canadian resident, George Tazbaz, also of Oakville, Ont. The allegations against them have not been proven.
“Kelley and his associates concealed their acquisition and control of public shell companies, and they manipulated trading in two China-based companies following reverse mergers with those shells,” said Julie Lutz, director of the SEC’s Denver Regional Office. “The SEC has exposed their scheme with persistence and the help of fellow regulators.”