Growth Capitalist (https://growthcapitalist.com/category/premium-articles/legal/page/37/)
Legal developments affecting capital formation by pre-IPO private and public emerging growth companies
Reverse merger company China Mobile Media (CHMO) ran into trouble with debt financing, according to a lender suit that says the company owes $35 million for defaulting on debt and triggering default covenants involving warrants and registration of the company's stock. Investors Abax Lotus Ltd. and Abax Nai Xin Ltd. filed the suit on Jan. 7 in the New York State Supreme Court.
AutoChina International (AUTCF) asked a Massachusetts federal court to toss out a complaint brought by the SEC in April 2012 alleging that the company used $60 million in cash to trade up its stock and create the appearance of liquidity, but the court rejected AutoChina’s venue arguments. The suit was filed in Boston’s U.S. District Court. China-based auto leasing and service provider AutoChina obtained $70 million in PIPE financing in March of 2010 according to PlacementTracker data. Rodman & Renshaw and co-agent Chardan Capital Markets placed the deal, which included investors Stratus Capital Management, Millennium Management and GCA Strategic Fund Ltd. Law firm Loeb & Loeb represented the issuer.
A naked short selling tale that has endured over a decade closed a chapter when regulators settled with parties accused of illegally selling short stock in Sedona Corp. (SDNA) in the spring of 2001. The Securities and Exchange Commission levied financial and administrative penalties against Andreas Badian, former principal of defunct hedge fund Rhino Advisors, along with two other individuals and Pond Securities Corp., which allegedly played a part in the short selling scheme. The settlement sanctions former Pond president Ezra Birnbaum and former Refco trader Jeffrey Graham, whom the SEC's suit alleges was part of an aggressive plan to beat down the price of Sedona stock. Refco traders Mottes Drillman and Jacob Spinner settled with the commission in 2011.
The misery afflicting Chinese issuers spread to the Chinese affiliates of big U.S. accounting firms this month when the Securities and Exchange Commission began administrative proceedings against the affiliates for violating the Securities Exchange and Sarbanes-Oxley acts. The action stemmed from the commission’s fruitless efforts to obtain documents from the firms related to nine China-based companies under investigation. Under Sarbanes-Oxley rules, foreign accounting firms are required to give the SEC “audit work papers” upon request for any company trading on U.S. markets. The commission cited BDO China Dahau CPA Co., Ernst & Young Hua Ming, KPMG Huazhen, Deloitte Touche Tohmatsu Certified Public Accountants and PricewaterhouseCoopers Zhong Tian CPAs in the complaint. The move is also part of the SEC’s larger initiative to “address concerns arising from reverse mergers and foreign issuers,” the commission said, which to date has resulted in deregistration of the securities of 50 companies and fraud cases against 40 foreign issuers and executives.
