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Tuesday, October 15, 2019

SEC charges Chinese company executive with concealing loans

By Michael P. Tremoglie | May 16, 2012

WASHINGTON (Legal Newsline) - The Securities and Exchange Commission on Monday charged a Chinese natural gas company and Qinan Ji, the former CEO who remains chairman of China Natural Gas Inc., for defrauding investors.

He allegedly secretly loaned company funds for the benefit of his son and nephew. The SEC alleges Ji made one loan to a real estate firm co-owned by Ji's son and nephew, and another loan went to a business partner of the real estate firm.

The loan was allegedly routed through a sham borrower. The two loans were made in January 2010 and totaled more than $14 million, the SEC says.

Ji falsely signed the company's SEC filings stating the loans were made to third parties, the SEC says. Ji then lied about the true borrower to China Natural Gas's board, investors, and auditors as well as during the company's internal investigation, the SEC says.

"Ji betrayed China Natural Gas investors by misusing company funds to benefit his family and repeatedly lying about it," said John M. McCoy III, Associate Director of the SEC's Los Angeles Regional Office.

"Ji's misconduct caused China Natural Gas to file a series of false reports with the SEC and showed total disregard for his obligations as an officer and director of a company whose stock trades in the U.S."

According to the complaint filed in U.S. District Court for the Southern District of New York, Ji's nephew approached China Natural Gas in late 2009 to obtain a loan for a large real estate development project being run by Demaoxing Real Estate Co. The firm was owned by Ji's son and nephew. Since Ji knew it was inappropriate for China Natural Gas to loan money directly to his nephew, he asked his niece's husband, who was the company's internal audit chief, to use a sham borrower.

The SEC alleges that the internal audit chief used Taoxiang Wang - who signed a loan agreement for $9.9 million. The money was allegedly sent directly to a Demaoxing bank account with a comment that it was for "raw material expenses."

China Natural Gas made another $4.4 million loan to Shaanxi Juntai Housing Purchase Co. Shaanxi Juntai's then-general manager was Ji's friend, the SEC says. The internal audit chief talked with Ji's nephew about the project when arranging the loan, which directly benefitted Demaoxing, the SEC says.

According to the SEC's complaint, Ji was the company CEO until he resigned in October 2011. He approved both loans without obtaining prior authorization from the board or informing the CFO, the SEC says.

Ji allegedly repeatedly lied to conceal the related party nature of both loans. When questioned about the loans by the China Natural Gas board, Ji allegedly stated that the loans involved senior Chinese government officers who were in charge of the company's liquid natural gas project.

The SEC also alleges that in the fourth quarter of 2008, China Natural Gas paid $19.6 million to acquire a natural gas company but did not timely and properly report the transaction in its SEC filings. As with the loans, Ji approved the acquisition without obtaining prior authorization from the board, the SEC says.

The SEC is seeking financial penalties, barring Ji from acting as an officer or director of a public company, and permanently enjoins Ji and China Natural Gas from future violations of these provisions.

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