LOS ANGELES (Legal Newsline) - The Securities and Exchange Commission on Tuesday accused a Chinese weight loss company and its top executive of fraud.
A suit was filed in U.S. District Court for the Central District of California. The SEC claims that the China-based China Sky One Medical and its CEO and chairman Yan-qing Liu fraudulently recorded fake sales of a weight loss product to pump up earnings by millions of dollars for the company's financial statements.
The SEC also alleged the company falsely stated in 2007 financial reports that it entered into a distribution agreement with a Malaysian company and would be the "exclusive" Malaysia distributor of CSKI's "slim patch."
But there was allegedly no such agreement. CSKI instead created approximately $19.8 million in phony export sales to Malaysia that were recorded as revenue in its financial results for 2007 and 2008, the SEC says.
Liu certified the overstated financial results, which appear in CSKI's financial statements through 2010 and continue to impact the company's retained earnings on its balance sheet, the SEC says.
It is alleged that the bogus distribution agreement was concocted with Takasima Industries - a Malaysian fitness equipment manufacturer and retailer. CSKI allegedly falsely reported export sales to Malaysia of more than $12.2 million for 2007, which constituted 25 percent of its total revenues. According to the SEC, virtually all of CSKI's reported sales to Malaysia via Takasima were bogus.