Legal

China North East Petroleum PIPEs Diverted Millions, SEC Says

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Management of China North East Petroleum (CNEP) diverted over $6 million from two registered direct offerings to family members according to a suit filed by the Securities and Exchange Commission. Some $6.9 million diverted from two registered direct offerings in 2009 was part of a larger scheme of almost $60 million in illegal transfers, the SEC says. CEO Wang Hongjun and Wang's mother Ju Guizhi (and founder and former director) allegedly transferred funds in at least 176 related-party transactions. The commission's suit says the undisclosed activities included $28 million in payments to Wang and Ju, along with $11 million in loans and around $20 million in "unusual post-year-end adjustments that purported to eliminate the remaining debts owed by Wang and Ju to CNEP." The allegedly illegal transactions took place in 2009, when the company raised a total of $31.9 million in registered direct offerings in September ($18.4 million) and December ($13.5 million).

Legal

SEC Revokes China Agritech Registration

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Citing the company's repeated failure to file financial reports, the Securities and Exchange Commission has revoked the registration of shares in PIPE issuer China Agritech (CAGC). The maker of "green" fertilizers has raised $63 million through five PIPEs and one CMPO offering. In the most recent deal, investors in the 2010 CMPO included S.A.C. Capital Advisors, Highbridge International and Straus Capital Management. The offering was priced at $16.10 per share. The stock currently trades around $.15 cents.

Markets
EDU

New Oriental Education Making a Comeback?

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China-based shell merger company New Oriental Education & Technology Group (EDU) took an anvil ride in July, when a Muddy Waters report questioned many of the company's claims. The company's shares fell 35% when the report was released on July 18, but more recently positive news, including regulatory approval of consolidation accounting, has New Oriental on the uptick. Share prices moved up on Oct. 15, when New Oriental, which bills itself as the largest provider of private educational services in China, announced that Securities and Exchange Commission staff voiced no objection to the accounting behind merging some business units into the company's consolidated financial statements. The SEC's approval of accounting practices is, of course, hardly an endorsement of the company or its stock. But the news did bring on a flurry of trading after New Oriental shares opened at $19.34 on Oct.

Legal

China RTO Maven Siris Accused of Fraud

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Peter Siris and  Guerrilla Capital Management stand accused of fraudulent involvement in reverse mergers involving China-based companies, according to a Securities and Exchange Commission order that requires Siris to respond to the allegations this month. PlacementTracker data indicate that Guerrilla invested $52 million in 66 PIPEs, secondaries and Regulation S deals since 2000. The most recent of those investments was a 2010 CMPO offering from SmartHeat (HEAT), which is currently the defendant in at least two class action suits. One of those suits "alleges that, throughout the Class Period, SmartHeat's Chief Executive Officer, James Jun Wang, sold $23 million of his shares in violation of several SEC rules" according to a news release from the plaintiffs' law firm. "This rapid sale of SmartHeat's stock onto the market caused its stock price to plummet."