Sept. 27 (Bloomberg) -- The U.S. Securities and Exchange Commission accused the former chairman and chief executive officer of ChinaCast Education Corp. of stealing tens of millions of dollars from investors in a U.S. public offering.
Chan Tze Ngon, 57, transferred $41 million out of the $43.8 million raised from investors to a purported subsidiary in which he secretly held a controlling 50 percent stake, the SEC said in a statement. Chan also secretly pledged $30.4 million of ChinaCast’s cash deposits to secure the debts of entities unrelated to the company, according to the agency.
The SEC also sued Jiang Xiangyuan, ChinaCast’s former president for operations in China, over claims he avoided more than $200,000 in losses by illegally selling shares in the company on confidential information. The agency is seeking disgorgement of ill-gotten gains and financial penalties, according to the statement released yesterday.
“The massive fraud perpetrated by Chan destroyed hundreds of millions of dollars in market value, and Jiang’s brazen insider trading allowed him to profit by dumping his own shares on the market before the fraud was exposed,” Andrew Calamari, director of the SEC’s New York office, said in the statement.
ChinaCast entered U.S. capital markets in 2006 through a reverse merger, in which a closely held firm buys a shell company already on an exchange in order to list shares without a public offering, the SEC said. Reverse mergers, particularly those involving China-based firms, have been under increased regulatory scrutiny for about two years.
The Hong Kong-based company had a market capitalization of more than $200 million before the alleged frauds came to light, the SEC said. After Chan and Jiang were terminated and their conduct was publicly disclosed by new management in December, the company’s market capitalization dropped to less than $5 million, according to the agency.
Chan and Jiang, who live in China, have no known defense counsel, the SEC said.
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