Stock Manipulation Scheme

There was recently a fraud case of stock manipulation happened in US, where the parties came from HK and PRC.

On 4 Dec 06 SEC filed an emergency action against China Energy Savings Technology, Inc., several of its former officers, its controlling shareholder, and others, alleging that they orchestrated an elaborate stock manipulation scheme.

It was alleged that China Energy and the company's undisclosed control person, Chiu Wing Chiu, with the assistance of the company's Corporate Secretary, Lai Fun ("Stella") Sim, devised a wide-ranging stock manipulation scheme to fraudulently obtain Nasdaq National Market System ("NMS") listing, artificially inflate China Energy's stock price, and sell millions of China Energy shares into the US capital markets.

Chiu and Sim formed China Energy through a transaction with a Nevada shell corporation called Rim Holdings, Inc. and the subsequent acquisition of a BVI holding company called Starway Management Ltd.

The defendants:

• caused China Energy to purchase Starway at an excessive price to facilitate the issuance of large quantities of China Energy shares to entities controlled by Chiu;
• caused China Energy to obtain a NMS listing by artificially creating a shareholder base and falsely representing to Nasdaq that the company had met its minimum shareholder requirement;
• issued false press releases concerning China Energy's NMS listing;
• created artificial demand for China Energy stock by engaging in manipulative trading and entering into secret deals to give free China Energy stock to shareholders willing to purchase China Energy in the open market; and
• concealed the fact that Chiu controlled both the company and the company's public float.

In addition, China Energy, Chiu, and others engaged in illegal unregistered sales by gifting shares to more than 400 persons as part of the fraudulent Nasdaq listing scheme and by improperly issuing S-8 stock to promoters engaged in capital raising activities and consultants who performed no services.

SEC acknowledged the assistance afforded by HK SFC in this matter. I am interested to know what SFC has done to assist SEC. Under SFO, market manipulation conducted in overseas markets by HK residents may also be captured. This case is a regulatory cooperation to fight against cross-border financial crime.