MANHATTAN (CN) - Top officers at China Northeast Petroleum swiped millions of dollars during and after the company's 2009 IPO, the SEC claims in Federal Court.
The SEC sued China Northeast Petroleum Holdings, its CEO Wang Hongjun, its co-founder/Wang's mother Ju Guizhu, and Jiang Chao, a Chinese citizen who lives in New Jersey and is the company's vice president of finance.
The agency also sued Wang's wife and Jiang's father, both of whom allegedly received money from the deals.
China Northeast Petroleum was formed by a reverse merger, the SEC says in its 27-page complaint. It is, or was, "purportedly engaged in oil exploration, drilling, and production in the People's Republic of China," the complaint states.
Reverse mergers have been much favored by questionable Chinese companies in recent years. They allow a company to buy an empty shell as a way to avoid U.S. registration.
Wang and Jiang, the lead defendants, made "at least 176 undisclosed, related-party transactions" after the two 2009 IPOs, which raised $31.9 million in the United States, according to the complaint.
"The related-party activity was comprised of approximately $28 million of transactions directly or indirectly from CNEP to Wang or Ju; approximately $11 million purportedly loaned to CNEP or paid to third parties on behalf of CNEP by Wang or Ju; and $20 million of post-year-end adjustments that purportedly reduced the debt owed by Wang and Ju to CNEP. Together, these transactions totaled approximately $59 million of related-party activity during 2009. Neither the magnitude nor the volume of these related-party transaction has been fully disclosed to the investing public," the complaint states.
According to the complaint:
Wang's wife, Jishuang Sun, got $300,000 from CNEP and used it to buy a house in California;
Jian Chao sent $910,000 from CNEP to his father's personal bank account;
And Ju got $5.85 million from CNEP.
All this money was taken from CNEP's U.S. bank accounts, the SEC says.
On Dec. 31, 2009, CNEP had a putative market cap of $258 million and traded on the NYSE Amex at $9.25 a share.
This week, its stock "remained de-listed," its alleged market cap was less than $8 million, and it traded over the counter at 22 cents a share.
The SEC seeks disgorgement, penalties and injunctions.