Global Investing Round Up: SEC Sues Chinese Company for Overstating Asset Values, 11th Circuit Reinstates Investor Claims Over Alleged Financial Scam in Involving India Entities, EC Calls for Delay in Imposing U.S. Swap Regulations, and Switzerland Propos

In SEC v. SinoTech Energy Ltd., Securities and Exchange Commission is suing SinoTech Energy Ltd. (CTESY), a Chinese oil field services company, for securities fraud. According to the Commission, SinoTech allegedly made misrepresentations about how its IPO proceeds were used, as well as misrepresented its assets’ value. The company also is accused of repeatedly deceiving both investors and the SEC, the latter with filings it submitted to the Commission in 2010 and 2011.

Per the SEC’s complaint, SinoTech claimed that $120 million of its IPO proceeds would be used to purchase lateral hydraulic drilling units when it spent less than $17 million to buy them. Also, its chairman, Qingzeng Liu, has admitted to skimming $40 million from a company bank account. This monetary withdrawal allegedly was not noted in SinoTech’s records or books. The Commission wants injunctive relief, disgorgement, and penalties from SinoTech and its chairman.

In other Global investment news, the 11th Circuit Appeals Court has decided to reinstate the unjust enrichment and racketeering claims made by investors over an alleged financial fraud involving City Group, which is based primarily in India, and the company’s affiliates in the US. The plaintiffs, Virendra Rajput and Mansingh Rajput, are claiming that they suffered financial losses after investing in a network of firms with ties to the Masood family. Rajput and Rajput are accusing the family of keeping the investments, running a financial racket, and never having intended to issue the payouts of high return rates that they promised investors. The two of them are also alleging that City Group’s US branches were set up to launder money from the scam in India.

The district court had dismissed the plaintiffs’ claims, but the appeals court vacated and remanded that decision. The 11th circuit found that dismissal of the claims is prevented by the plaintiffs’ pleadings, which “sufficiently” link the defendants to the alleged financial scam in India and their unjust enrichment.

Meantime, the European Commission wants to delay the implementation of new derivatives dealer registration rules over US swaps. According to the EC, the rules are causing confusion for European Union banks with operations in this country. The EC is seeking clarity regarding how the swap dealer registration rules would work with new EU rules that are pending. Concerns certain reforms potentially conflicting with one another and the potentially repercussions this might create.

Also in Europe, the Swiss government is looking to implement new rules regarding collective investment scams with the hope that these regulations will help brings its practices in alignment with the EU. The proposal would amend the country’s Collective Investment Schemes Act, which govern collective capital investment assets managers, and align them with the EU’s Directive on Alternative Investment Funds Managers.

The proposed amendments have been sent to Switzerland’s parliament. If all goes as planned, it would win lawmakers’ approval in the fall, be subject to a national referendum, and go into effect next year.

Contact Shepherd Smith Edwards and Kantas, LTD, LLP today to speak with an experienced institutional investment fraud lawyer.

SEC v. SinoTech Energy Ltd. (PDF)

Rajput v. City Trading LLC (PDF)

European Commission Calls for Delay in Implementation of U.S. Derivatives Regulations, Bloomberg/BNA, April 30, 2012

Amendment of the Collective Investment Schemes Act in response to the EU’s AIFM Directive, News.Admin.Ch, November 3, 2011

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Commodities/Futures Round Up: CFTC Cracks Down on Perpetrators of Securities Violations and Considers New Swap Market Definitions and Rules, Stockbroker Fraud Blog, April 20, 2012

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