A complaint against a Chinese commercial vehicle dealer for alleged stock manipulation offers insights into practices being uncovered as U.S. market regulators tighten scrutiny of China-based companies that are traded on Wall Street.
AutoChina International Ltd., which is based in the northern Chinese city of Shijiazhuang, rejected the accusations raised in a civil lawsuit filed Wednesday by the U.S. Securities and Exchange Commission, saying the case was "without merit."
The SEC alleges that AutoChina and 11 investors made hundreds of false trades between October 2010 and February 2012, aiming to boost trading volume in the company's shares to help improve its prospects for obtaining financing.
The case is the third in less than two months as the SEC probes accounting and other practices by hundreds of Chinese companies that trade in the U.S.
Staff who answered the phone at AutoChina's headquarters in China on Thursday did not immediately respond to requests for comment.
"The company intends to defend against the claims vigorously and believes that all of the evidence it is aware of contradicts the SEC's allegations," AutoChina said in a statement.
Last week, a U.S. court froze the accounts of six Chinese citizens accused of illegally trading shares of a Chinese food processor Zhongpin Inc.
The SEC insider trading complaint alleges the defendants made more than $9 million by trading in Zhongpin ahead of the company's announcement of an offer to take it private.
In late February, the SEC filed civil fraud charges against the chairman and the former CEO of Puda Coal Inc., accusing them of duping people to invest in a coal company that actually was an empty shell.
Unlike some companies that have been delisted for being defunct or lacking an actual operating business, AutoChina International says it is a leading commercial vehicle sales and leasing company and passenger car dealer, with a national network.
It reported $490.7 million in revenue in the first nine months of 2011, with net profit of $19.3 million, compared to a net loss of $58.7 million in the same period the year before.
"AutoChina's operations are real," the company said in a release last September, when it announced that it was dismissing its auditor, PricewaterhouseCoopers Zhong Tian CPAs Ltd. due to differences over the timing for filing overdue financial reports.
"We have always held steadfast to the belief that AutoChina would weather the storm created by the unfortunate coincidence that there have been instances of fraud in certain other U.S.-listed, China-based companies," it said.
According to SEC documents filed with the U.S. District Court of Massachusetts, the company and 11 investors made hundreds of false trades starting in October 2010, using more than $60 million that had been deposited into U.S. brokerage accounts.
The SEC said the bad trades included matched orders, where accounts sold shares to each other at the same time and for the same price. They also included wash trades which resulted in no real change of ownership of the shares, it said.
Many of the trades were done through the same computers or computer networks, it said.
Several of the defendants named in the SEC lawsuit are relatives of AutoChina's chairman and founder, Yong Huili, who was not named in the lawsuit. The SEC said several others are AutoChina employees, according to trading account registrations.
The SEC said stock trading accounts of the defendants made up to 70 percent of trading in AutoChina's shares, raising the average number of shares changing hands each day from about 18,000 to 139,000.
The SEC crackdown on market abuses and shady accounting practices is prompting some companies to withdraw from the U.S. market or refrain from share offerings, while others battle to contain the damage.
Chinese timberland company Sino-Forest Corp., which is being investigated for fraud, filed last month for bankruptcy protection, putting itself up for sale.
It also is pursuing a lawsuit against short-seller Muddy Waters Research and its research director Carson Block, as well as others who have accused the company of fraud.
Allegations Sino-Forest exaggerated its timber holdings in China, helped set off a slew of complaints over foreign-based companies.
In a report released Thursday, PwC U.S. said it found that the number of class action lawsuits filed against foreign issuers of securities rose 126 percent in 2011 over the year before, with 61 percent against China-based companies.
Most involved companies that listed shares through reverse takeovers, a backdoor procedure that enables a company to list shares by buying a shell company that is already listed, without going through the more rigorous process of an initial public offering.
The report also said China-based companies were the target of 39 percent of accounting-related cases in 2011.
Researcher Fu Ting contributed to this report.