A Toronto-based consultant and four associates were charged this week by the U.S. Securities and Exchange Commission with engaging in illegal reverse merger schemes to enable China-based companies enter the U.S. markets. Allegedly, the conspirators wanted to reap millions in illicit profits by manipulating trading activities.
According to the SEC’s complaint, S. Paul Kelley and three of his associates gained controlling interests in two U.S. public shell companies with the intent to conduct reverse mergers with China Auto Logistics Inc., and Guanwei Recycling Corp. To further their interests, they hired stock promoter Shawn A. Becker of Overland Park, Kan., and others to push the unregistered stock to investors.
Kelley and his associates are accused of having engaged in different forms of manipulative trading to drive up the price and volume of the stocks of the two Chinese companies, and they made huge profits when they dumped their shares into the artificially inflated market, they themselves had helped to create.
The SEC alleges that Kelley and his associates reached secret oral agreements with the management at China Auto and Guanwei Recycling, and they agreed to cover all the costs of making the Chinese companies go public in the U.S. in return for 30 to 40 percent of the resulting stock. After acquiring controlling interests in the U.S. public shell companies, they concealed their interests and reverse merger transactions by having third parties create at least nine Hong Kong based companies to hold the shares.
Two of Kelley’s associates, Roger D. Lockhart and Robert S. Agriogianis, along with Kelly, have agreed to settle the charges brought by the SEC. Kelley agreed to be barred from the securities industry as well as from any penny stock offering, while also paying more than $6 million. Lockhart has agreed to similar conditions and will be paying more than $3 million, while Agriogianis has agreed to enter into a cooperation agreement. The investigation is ongoing against other parties to the conspiracy.
Julie Lutz, director of the SEC’s Denver Regional Office, said, “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.”
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