Wednesday, April 11, 2012
The SEC charged AutoChina International Limited and 11 investors, including a senior executive and director at the China-based firm, with conducting a market manipulation scheme to create the false appearance of a liquid and active market for AutoChina’s stock. According to the SEC’s complaint, AutoChina senior executive and director Hui Kai Yan, a former AutoChina manager, and others fraudulently traded AutoChina’s stock to boost its daily trading volume. Starting in October 2010, the defendants and others deposited more than $60 million into U.S.-based brokerage accounts and engaged in hundreds of fraudulent trades over the next three months through these accounts and accounts with a Hong Kong-based broker-dealer. The fraudulent trades included matched orders, where one account sold shares to another account at the same time and for the same price, and wash trades, which resulted in no change of beneficial ownership of the shares. AutoChina and the other defendants engaged in the scheme after lenders offered AutoChina unfavorable terms for a stock-backed loan due to low trading volume in its stock.
The SEC complaint alleges that in the three months before the defendants opened the U.S.-based brokerage accounts, the average daily trading volume of AutoChina’s stock was approximately 18,000 shares. From Nov. 1, 2010 to Jan. 31, 2011, the average daily trading volume increased to more than 139,000 shares. On some days, the defendants and related accounts’ trading accounted for as much as 70 percent of the trading of AutoChina’s stock.
According to the SEC’s complaint, several of the defendants are related to AutoChina’s Chairman and Chief Executive Officer, who at the time of the scheme owned more than 57 percent of the company. Three of the defendants are siblings of AutoChina’s Chairman and Chief Executive Officer and another is married to one of his siblings.