Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, August 13, 2012

SEC Orders CFO to Pay $15.6 Million Penalty

The SEC ordered Nancy Shao Wen Chu, the former CFO of a defunct company, Soyo Group, Inc., to pay $15,600,000 in penalties for committing securities fraud.  Although it sounds like a astronomically large amount, it was imposed in a default judgment, so the SEC likely is not expecting payment anytime soon.   

The SEC alleged that between January 2007 and November 2008, Soyo, through the actions of Chu and another defendant, booked over $47 million in fraudulent sales revenues arising from at least 120 fictitious transactions. The scheme had the effect of nearly doubling Soyo’s net revenues for 2007 over the previous year. Soyo’s share price thus increased from a low of $.28/share in the first quarter of 2007, to a high of $1.80/share in the fourth quarter of 2007. The SEC alleged that Chu actively participated in the fraudulent sales transactions and took deliberate steps to hide the scheme from Soyo’s auditor.

Further, the SEC alleged that in order to obtain additional bank financing for Soyo and keep its existing line of credit from defaulting, Chu also misled Soyo’s investors, its primary lending bank, and its auditor regarding a six million dollar debt-for-equity transaction Soyo was negotiating with a vendor. Despite that fact that discussions with the vendor were not finalized and subject to cancelation, Chu signed and caused to be filed a Soyo Form 10-Q for the quarter ended June 30, 2008, reporting that the transaction was complete, eliminating an outstanding accounts payable of slightly over $6 million, and thereby reducing Soyo’s current liabilities by 14% and its accounts payable by 42%.

The Court ordered the maximum third-tier penalty of $130,000 against Chu for each of the 120 fictitious transactions she concocted.

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