Universal Travel Group and two former executives agreed to pay $935,000 to settle a U.S. Securities and Exchange Commission lawsuit alleging that the company defrauded investors by failing to disclose the transfer of $41 million from stock offerings to unknown parties in China.
The company and the former officials “failed to properly account for the return of those funds” to Universal, according to the complaint and a companion proposed settlement filed today in federal court in Washington.
Jiangping Jiang, 52, Universal’s former chief executive officer, and Jing Xie, 32, the company’s former chief financial officer, would be barred from serving as officers or directors of U.S. publicly traded companies for five years under terms of the settlement, which is subject to court approval.
Universal, a travel services company, is a Nevada corporation headquartered in Shenzhen, according to the complaint. It was formed and became a public company in the U.S. in 2006 through a reverse merger of a Chinese business with a Nevada shell company.
In a reverse merger, a closely held firm buys a shell company already public on an exchange, allowing it to offer shares without the scrutiny of a public offering.
The SEC has been investigating reverse mergers since 2010 amid concerns that some Chinese companies that gained listings on U.S. exchanges were doctoring financial statements.
The complaint against Universal alleges that the company sent the proceeds from one public and two private stock offerings in the U.S. to a bank in Hong Kong, which dispersed it “through a complex series of cash transfers involving at least 36 different companies and individuals,” according to the SEC complaint.
By making the transfers, Universal exposed the offering proceeds to undisclosed risk such as possible theft and fraud, the SEC said in the suit.
While company records reflect the return of the money, Universal hasn’t provided a verifiable audit trail documenting that recovery, according to the suit.
Universal was listed on the New York Stock Exchange in October 2009 and voluntarily delisted in April 2012, the SEC said.
Under the terms of the proposed settlement, neither the company nor the officials admitted the wrongdoing alleged in the complaint.
Universal would pay $750,000 of the civil penalty, Jiang would pay $125,000 and Xie would pay $60,000, according to proposed final judgments in the case.
Michael Diver, an attorney for Universal, didn’t immediately return a phone call requesting comment on the settlement.
The case is SEC v. Universal Travel Group, 13-cv-1492, U.S. District Court, District of Columbia (Washington)>