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SEC Suspends Trades in Rino International Amid Fraud Allegations

April 11 (Bloomberg) -- The U.S. Securities and Exchange Commission suspended trading in Rino International Corp., the Dalian, China-based maker of water-treatment equipment, amid concerns the company’s financial statements may be false.

Rino failed to disclose that an outside law firm and forensic accountants hired to investigate allegations of financial fraud resigned on March 31, the SEC said today in an e-mail statement. The company also failed to tell investors that the head of the audit committee and all the remaining independent directors also quit, the SEC said.

The company disclosed last year that the SEC had opened an investigation into possible fraud after Muddy Waters Research, a Hong Kong-based firm that analyzes Chinese companies, issued a November report saying Rino had falsified financial documents. Later that month, Rino said in a regulatory filing that audited financial statements for fiscal years 2008 and 2009 shouldn’t be relied upon because the company didn’t enter into two contracts for which sales were recorded.

The SEC launched a probe last year of China-based firms listed on U.S. exchanges, citing concerns that the companies might be doctoring financial statements to attract investors. The regulator said some U.S.-based auditors may be signing off on the disclosures without conducting adequate review.

Further questions have arisen about the size of Rino’s operations and workforce, the accuracy of customer contracts, and the existence of two materially different sets of corporate books and accounts, the SEC said.

The trading halt in Rino shares began at 9:30 a.m. today in New York and will remain in effect until 11:59 p.m. on April 25, according to the statement.

To contact the reporter on this story: Joshua Gallu in Washington at jgallu@bloomberg.net

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net

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