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Business Associations Keyed to LoPucki, 2nd Ed.
In re Puda Coal Securities Inc., Litigation
Citation:
30 F. Supp. 3d 230 (2014)Facts
Puda Coal Inc. was a U.S. public company that purportedly owned 90% of Shanxi Coal, a Chinese coal supplier. In September 2009, Puda’s chairman, Ming Zhao, and his brother, Yao Zhao, secretly arranged to transfer Puda’s entire interest in Shanxi Coal to Ming Zhao personally, leaving Puda as a shell company without operations or revenue. This transfer was documented in Chinese government filings but not disclosed to Puda’s board or shareholders. In July 2010, Ming Zhao transferred 49% of Shanxi Coal to CITIC, a Chinese state-owned private equity fund, and pledged the remaining 51% to CITIC. Moore Stephens Hong Kong audited Puda throughout this period, with Moore Stephens, P.C. performing an “Appendix K” review. The auditors issued clean opinions on Puda’s 2009 and 2010 financial statements, which continued to consolidate Shanxi Coal’s operations. In April 2011, a research report revealed the fraudulent transfers, causing Puda’s shares to decline 34% before trading was halted by the SEC.
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