SEC CHARGES CHINESE ISSUER, 2 OFFICERS WITH FRAUD

U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23214 / March 4, 2015
Securities and Exchange Commission v. China Infrastructure Investment Corp., et al., Civil Action No. 1:15-cv-00307 (D.C.D.C., filed March 3, 2015)
SEC Charges Chinese Issuer and Two Officers with Fraud

The Securities and Exchange Commission filed a civil injunctive action on March 3, 2015, in the United States District Court for the District of Columbia in connection with a fraudulent scheme to file false and forged SEC reports. China Infrastructure Investment Corp.'s 2011 SEC Forms 10-K and 10-K/A and its first quarter 2012 SEC Form 10-Q contained material omissions and misrepresentations, including multiple forged signatures and certifications of CIIC's former chief financial officer. CIIC is a company incorporated in Nevada and engaged in the construction and operation of a toll road in China. The company and its chief executive officer and corporate secretary filed the false reports with the SEC to conceal the fact that the company's CFO had resigned and that CIIC had no CFO at the time of the filings.

The SEC's complaint alleges that CIIC hired Li Lei as CFO on June 27, 2011. On September 21, 2011, less than three month later, Lei resigned effective immediately. Within the week following Lei's resignation, the company's corporate secretary, Wang Feng, falsely reported that the Lei had decided to continue as CFO for a transition period. CEO Li Xipeng and Feng knew at the time of Lei's resignation that NASDAQ had decided to delist CIIC for failure to maintain a minimum share price of at least $1.00, and CIIC was appealing the delisting decision. As the complaint further alleges, Feng believed that public disclosure of the resignation of the CFO could have a negative impact on CIIC's share price, and thus forged Lei's signatures on the filings as part of a scheme to create the false impression that CIIC continued to have a CFO. In furtherance of the scheme, CIIC sent correspondence to NASDAQ and its auditors bearing Lei's forged signature.

The SEC's complaint alleges that all three defendants violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; that CIIC violated Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder by filing materially false annual and quarterly reports, and that Xipeng is also liable for these violations as a control person of CIIC, and that Xipeng and Feng aided and abetted these violations; that Xipeng and Feng violated Rule 13b2-2 by making materially false statements to CIIC's auditors in connection with required reports; and, that Xipeng violated Rule 13a-14 by falsely certifying that CIIC's reports contained no untrue statements of material fact, and that Feng aided and abetted this violation. The SEC's complaint seeks permanent injunctions and civil money penalties against all three defendants and officer-and-director bars against Xipeng and Feng. In related actions, the SEC issued an Order suspending trading in the securities of CIIC and issued an Order instituting proceedings to determine if the registration of CIIC's securities should be suspended or revoked.

The SEC's investigation was conducted by Nancy Singer and Andrew Shirley under the supervision of Conway Dodge. The SEC's litigation will be led by Stephan Schlegelmilch and Melissa Armstrong.

FORMER GATEWAY CFO SETTLES SEC FRAUD ACTION

FROM:  SEC
April 18, 2012
On April 10, 2012, a final judgment was entered against John J. Todd, a former CFO of Gateway, Inc. Todd consented to entry of the final judgment without admitting or denying the allegations made by the Securities and Exchange Commission that he engaged in fraud and other violations of the federal securities laws in connection with Gateway’s recognition of revenue in the third quarter of 2000. This concludes the litigation of this action, brought in 2003 against three former officers of Gateway.

The SEC alleged that Todd falsely represented Gateway’s financial condition in the third quarter of 2000 in order to meet financial analysts’ earnings and revenue expectations. Among other transactions, the SEC alleged that Todd caused Gateway to record $47.2 million in revenue from a one-time sale of fixed assets to Gateway’s third-party information technology services provider in violation of Generally Accepted Accounting Principles (GAAP), and that Todd, then Gateway’s CFO, caused Gateway to recognize an additional $21 million in revenue from an incomplete sale of computers to a second entity, also in violation of GAAP. The SEC alleged that absent either of these transactions, Gateway would not have met analysts’ expectations with regard to its third quarter revenue.

Todd consented to a final judgment permanently enjoining him from violations of the antifraud provisions of Section 10(b) and Rule 10b-5 thereunder, and from violations of SEC Rule 13b2-2, which prohibits making misrepresentations and omissions of material fact to company auditors, as well as from aiding and abetting the issuer reporting provisions of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. Todd further consented to be barred for ten years from acting as an officer or director of a public company, and to pay disgorgement of $165,000, constituting his salary and bonus for the relevant quarter, together with prejudgment interest thereon of $138,162.24 totaling $303,162.24, and a $110,000 penalty.

Previously, on March 7, 2007, a jury had rendered a unanimous verdict finding Todd and defendant Robert D. Manza, Gateway’s former controller, liable for fraud, making false representations to auditors, aiding and abetting issuer reporting violations and other violations following a three week trial. On May 30, 2007, the Honorable Roger T. Benitez overturned the jury verdict as to the fraud and certain other claims. The SEC appealed that ruling, as well as the District Court’s prior August 1, 2006, grant of summary judgment to Gateway’s former CEO, Jeffrey Weitzen, dismissing the SEC’s case as to Weitzen. On June 23, 2011, the Ninth Circuit reversed those rulings and remanded the matter to the District Court. On January 25, 2012, the Court entered final judgments against Weitzen and Manza pursuant to their consents. [LR 22244 (January 31, 2012.]