Investors Sue China Natural Gas Chairman Over Family Loans

China Natural Gas Inc. (CHNG)’s board and chairman were sued by investors who claim he wrongly loaned $14.3 million in company money to family members.

The lawsuit was filed against Qinan Ji eight days after the U.S. Securities and Exchange Commission sued the Xi’an, China- based company over the loans, which were also cited when China Natural Gas was delisted by the Nasdaq Stock Market last month.

The loans and “numerous other instances of unauthorized transactions by management, self-dealing and violations of generally accepted accounting principles under Ji’s leadership caused analysts to repeatedly question the company’s governance,” according to the complaint filed in Delaware Chancery Court yesterday.

China-based companies listed on U.S. exchanges have faced increased scrutiny over the past two years from regulators concerned about the accuracy of financial statements given to investors.

Many of the companies, like China Natural Gas, entered the U.S. capital markets through so-called reverse mergers, in which a private company buys a shell that is already listed on an exchange. The transaction allows the company to sell shares without the scrutiny that comes with an initial public offering.

‘Financial Impropriety’

Jackie Shi, head of the company’s investor relations department, didn’t immediately respond to an e-mail requesting comment on the suit.

The three investors who sued asked the court to grant the case class-action status on behalf of other shareholders. The investors claim “self-dealing and financial impropriety” caused the company’s stock price to drop by more than 85 percent.

The investors are seeking unspecified damages. In its lawsuit filed in New York, the SEC is also seeking damages and to bar Ji from acting as an officer or director of a public company.

The case is Kousa v. Ji, 7559, Delaware Chancery Court (Wilmington).

To contact the reporter on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net

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