A Puda Coal Inc. investor sued a unit of Citic Group Corp., one of China’s biggest state-owned companies, claiming it conspired with Puda’s chairman to transfer control of the company’s most-important asset to insiders, leaving Puda an empty shell company without operations or revenue.
After transferring the company, Shanxi Puda Coal Group Co., Puda sold shares to investors who lost hundreds of millions of dollars when the fraud became public, the investor, Thomas Tarsavage, said in a complaint filed April 8 in Manhattan federal court.
“Puda insiders improperly transferred the company’s only revenue-producing, operating subsidiary to Citic and then, with the assistance of Citic, falsely portrayed to investors in Puda that the company still possessed its operating subsidiary,” Tarsavage claimed.
Tarsavage seeks to represent a class of investors who acquired Puda stock and options from July 15, 2010, to Oct. 3, 2011. The suit also contains a so-called shareholder derivative claim on behalf of Puda.
The U.S. Securities and Exchange Commission last year sued Puda Chairman Ming Zhao and former Chief Financial Officer Liping Zhou over the transactions.
The SEC in 2011 cautioned investors about buying shares in companies that gain listings on U.S. exchanges through so-called reverse mergers, saying they may be prone to fraud.
A Citic Trust spokesman couldn’t be reached after regular business hours yesterday for comment on the lawsuit.
The case is Tarsavage v. Citic Trust Co., 13-cv-02312, U.S. District Court, Southern District of New York (Manhattan).