SEC Sues China Natural Gas Chairman for Secret Loans to Son

The U.S. Securities and Exchange Commission sued a China-based natural gas company over claims its chairman secretly used the firm’s money to make $14 million in loans to benefit his son’s real-estate business.

Qinan Ji, the former chief executive and current chairman of China Natural Gas Inc., arranged the two short-term loans, one through a sham borrower, in January 2010, the SEC said in a lawsuit filed today at U.S. District Court in Manhattan. Ji lied about the loans to the company’s board, investors and auditors, as well as during an internal investigation into the matter, the SEC said.

China-based companies listed on U.S. exchanges have faced increased scrutiny over the past two years after regulators became concerned that certain firms may not be providing accurate financial statements to investors. Many of the companies, like China Natural Gas, entered the U.S. capital markets through so-called reverse mergers, in which a closely held firm buys a shell company already listed on an exchange, allowing them to sell shares without the scrutiny that would surround a public offering.

“Ji’s misconduct caused China Natural Gas to file a series of false reports with the SEC and showed total disregard for his obligations as an officer and director of a company whose stock trades in the U.S.,” John McCoy, associate director of the SEC’s regional office in Los Angeles, said in a statement.

In a separate action today, the SEC halted trading in 379 shell companies that could be used for reverse mergers.

The SEC is seeking unspecified financial penalties and to bar Ji from acting as an officer or director of a public company, according to the complaint.

Ji, a resident of Shaanxi Province, China, could not be immediately located. A call to a telephone number listed on China Natural Gas’s website wasn’t answered.

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