Keyuan Petrochemicals Settles SEC Suit Over ‘Secret’ Fund

Keyuan Petrochemicals Inc. (KEYP) settled a U.S. Securities and Exchange Commission lawsuit over accounting violations that included a secret cash account, paying a $1 million fine without admitting or denying the allegations.

The Ningbo, China-based company was accused of operating “a secret off balance-sheet” account used to make cash and non-cash gifts to Chinese government officials, according to a complaint filed today in federal court in Washington. The account also allegedly funded travel, entertainment and an apartment rental for Chief Executive Officer Chunfeng Tao.

Keyuan “systemically failed” to disclose in SEC filings transactions between management-controlled entities or their family members, according to the complaint. The transactions, taking place from May 2010 to January 2011 during the company’s first year trading in the U.S., involved purchases of raw materials, loan guarantees and short-term cash transfers.

“By omitting related party transactions from its financial statements, Keyuan deprived investors of a true representation of the company’s business dealings,” Stephen L. Cohen, an associate director in the SEC’s Division of Enforcement, said in an e-mailed statement.

Mark Hunter, a lawyer for Keyuan at Hunter Taubman Weiss LLP in Coral Gables, Florida, didn’t immediately respond to an e-mail message seeking comment on the settlement.

The proposed deal requires approval by a federal judge.

Aichun Li, Keyuan’s former chief financial officer, agreed to pay $25,000 to resolve allegations that she ignored indications that the company wasn’t properly disclosing related- party transactions.

The case is Securities and Exchange Commission v. Keyuan Petrochemicals Inc., 13-cv-00263, U.S. District Court, District of Columbia (Washington).

To contact the reporter on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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