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Rino International Settles SEC Executive-Spending Lawsuit

May 15 (Bloomberg) -- Rino International Corp., whose market capitalization fell from about $500 million to $600,000, agreed to settle a U.S. Securities and Exchange Commission lawsuit that claimed two of its executives diverted $3.5 million in company funds to buy a home, luxury cars and designer clothing.

The agency opened an investigation of the China-based maker of water-treatment equipment after Muddy Waters Research, a Hong Kong-based firm that analyzes Chinese companies, issued a report saying Rino had falsified financial documents. Rino has fallen from a 52-week high of $20.74 in April 2010 to 5 cents a share.

Dejun Zou and Jianping Qiu, husband and wife, will pay investors at least $3.5 million to resolve allegations that they engaged in a scheme to overstate revenue, according to federak court filings today in Washington. Zou is Rino’s chief executive officer, and Qiu is chairman.

Without admitting or denying the SEC’s allegations, Zou and Qiu also agreed to pay civil penalties of $150,000 and $100,000, respectively, according to the court filings. The settlement needs a judge’s approval.

On the day the company completed a public offering in December 2009 that raised almost $100 million, Zou and Qiu used $3.5 million of company funds to purchase a home in Orange County, California, according to the complaint.

Corporate Card

They used a corporate credit card the following July to buy clothes from the from the Chanel and Valentino stores in Beverly Hills, California, the SEC alleged. Rino spent about $95,000 on two Mercedes Benz vehicles that were used by the couple and other employees in the U.S., according to the complaint.

Those expenses weren’t recorded as personal expenses or disclosed in Rino’s filings with the regulator, the agency said.

The case is Securities and Exchange Commission v. Rino International Corp., 13-cv-00711, U.S. District Court, District of Columbia (Washington).

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

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

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