FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
W
ashington, D.C., July 30, 2012 – The Securities and Exchange
Commission charged New York-based investment manager Peter Siris and two
of his firms with a host of securities law violations mostly related to his
activities with a Chinese reverse merger company, China Yingxia International
Inc.
The SEC alleges that Siris, an active investor in Chinese companies and
former newspaper money columnist, misled investors in his two hedge funds
through which he invested $1.5 million in China Yingxia. Siris understated his
involvement with the company particularly after it went out of business, and
used his insider status to make illegal trades based on nonpublic information as
he received it. In an attempt to circumvent the registration provisions of the
securities laws, Siris also received shares from the China Yingxia CEO’s father
and improperly sold them without any registration statement in effect. Siris
further engaged in insider trading ahead of 10 confidentially solicited
offerings for other Chinese issuers.
Siris and his firms agreed to pay more than $1.1 million to settle the SEC’s
charges. The SEC also separately charged five individuals and one firm for
securities law violations related to China Yingxia.
“Siris operated by his own set of rules in his dealings with China Yingxia
and other Chinese issuers,” said Andrew M. Calamari, Acting Director of the
SEC’s New York Regional Office. “He was the go-to person when Chinese reverse
merger companies wanted to raise capital or needed advice about operations, but
he used his prominence and reputation in this area to illegally game the system
to his advantage.”
According to the SEC’s complaint filed in U.S. District Court for the
Southern District of New York, Siris and his firms Guerrilla Capital Management
LLC and Hua Mei 21st Century LLC became involved with China Yingxia in 2007 and
their misconduct continued until 2010. Along with being one of three
“consultants” that improperly raised money for China Yingxia, Siris and Hua Mei
acted as advisers to the purported nutritional foods company.
Insider Trading and Illegal Short Selling
The SEC alleges that in February and March 2009, Siris sold China Yingxia
stock while in possession of material, nonpublic information about problems at
China Yingxia that he learned directly from the CEO. This confidential
information included that she had engaged in illegal fundraising activities in
China and that a company factory had shut down. Siris immediately began selling
hundreds of thousands of shares of China Yingxia stock prior to any public
disclosure by China Yingxia about these issues. Siris learned additional
material, nonpublic information during the late afternoon of March 3, 2009, when
he received a draft press release and notice that China Yingxia planned to
publicly disclose the problems. Siris increased his orders to sell over the next
couple of days before China Yingxia issued its press release publicly on March
6. Siris, through his funds, sold 1,143,660 China Yingxia shares in a matter of
weeks for ill-gotten gains of approximately $172,000.
According to the SEC’s complaint, Siris and Guerrilla Capital Management also
engaged in illegal insider trading ahead of 10 offering announcements for other
Chinese issuers and made approximately $162,000 in ill-gotten gains. After
expressly agreeing to go “over-the-wall,” which included a prohibition on
trading, Siris traded ahead of the offering announcements in breach of his duty
not to trade on such information.
The SEC further alleges that Siris sold short the securities of two Chinese
companies prior to participating in firm-commitment offerings.
Fraudulent Representations in a Securities Purchase Agreement
The SEC alleges that in order to induce at least one issuer to sell
securities to his funds, Siris falsely represented in a securities purchase
agreement that his funds had not engaged in any trading after being contacted in
confidence about a particular deal, when in fact his funds had effected sales in
that issuer’s securities. Siris directed short sales of a Chinese issuer on Dec.
9, 2009, despite going “over-the-wall” in original solicitation discussions, and
nevertheless Siris signed a securities purchase agreement later that afternoon
that misrepresented he had not traded in those securities. The following
morning, Siris directed additional sales of the company’s shares before the
public announcement of the offering. Siris realized illegal insider trading
gains.
Materially Misleading Disclosures to Fund Investors
The SEC alleges that Siris generally disclosed that he and his consulting
firm Hua Mei, may provide services to Chinese issuers, but he did not disclose
the depth of his involvement in China Yingxia. Investors were not informed that
Siris and his firm provided drafting assistance for press releases and SEC
filings, translation services, management preparation in advance of conference
calls, and officer recommendations. By omitting key facts and making
misrepresentations about his role with the company, Siris deprived his investors
of material information that could have impacted their continued investment
decisions with his funds. Furthermore, when China Yingxia later collapsed, Siris
wrote to his investors and placed blame on others he claimed were responsible
for the SEC filings and key hiring decisions while omitting his significant role
in these very same tasks.
Acting as an Unregistered Securities Broker
The SEC alleges that Siris, who was not registered as a broker or dealer nor
associated with a registered broker-dealer, acted as an unregistered broker
during China Yingxia’s second securities offering, as he raised more than $2
million worth of investments. In a backdated consulting agreement, Siris through
Hua Mei in fact received transaction-based fees for leading fundraising efforts
for China Yingxia and not for providing consulting services. No disclosures were
made to potential or actual investors concerning payments to three so-called
consultants including Siris, who sold China Yingxia securities.
Improper Unregistered Sale of Securities
The SEC alleges that Siris and Hua Mei improperly sold securities that Hua
Mei received from China Yingxia in a sham agreement intended to hide the fact
that they were shares from a person controlled by the company. China Yingxia
agreed to pay Siris for due diligence he conducted in connection with his lead
investment in the company’s July 2007 PIPE offering. The company transferred
shares to Siris with the appearance that they came from a shareholder to
reimburse him for services performed for that shareholder. In fact, the sham
agreement was simply a means for China Yingxia to provide Hua Mei with shares
believed to be immediately eligible for sale, because had the company issued the
shares directly to Hua Mei, they would have been restricted stock subject to
holding period and other requirements for resale. The shareholder and source of
the shares was later revealed to be the father of China Yingxia’s CEO – someone
who was in fact a person directly or indirectly controlled by the issuer.
The SEC’s complaint against Siris and his entities alleges violations of
Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Sections 10(b) and
15(a) of the Securities Exchange Act of 1934, Rule 10b-5 thereunder, Rule 105 of
Regulation M, and Section 206(4) of the Investment Advisers Act of 1940, and
Rule 206(4)-8 thereunder. Without admitting or denying the allegations, Siris
and his firms agreed to pay $592,942.39 in disgorgement and $70,488.83
prejudgment interest. Siris agreed to pay a penalty of $464,011.93. They also
consented to the entry of a judgment enjoining them from violations of the
respective provisions of the Securities Act, Exchange Act, and Advisers Act. The
settlement is subject to court approval.
Also charged for securities law violations related to China Yingxia:
- Ren Hu – the former CFO of China Yingxia made fraudulent
representations in Sarbanes-Oxley (SOX) certifications, lied to auditors, failed
to implement internal accounting controls, and aided and abetted China Yingxia’s
failure to implement internal controls.
- Peter Dong Zhou – engaged in insider trading and unregistered sales
of securities and aided and abetted unregistered broker-dealer activity while
assisting China Yingxia with its reverse merger and virtually all of its public
company tasks. Without admitting or denying the charges, Zhou agreed to pay
$20,900 in disgorgement, $2,463.39 in prejudgment interest, and a penalty
$50,000. He agreed to a three-year collateral bar, penny stock bar, and
investment company bar.
- Alan Sheinwald and his investor relations firm Alliance Advisors LLC
– were retained as “consultants” to China Yingxia and acted as unregistered
securities brokers while raising money for China Yingxia and at least one other
issuer.
- Steve Mazur – acted as an unregistered securities broker while
selling away from his firm the securities of China Yingxia and one other issuer.
Without admitting or denying the charges, Mazur agreed to pay $126,800 in
disgorgement, $25,550.01 in prejudgment interest, and a penalty of $25,000. He
agreed to a two-year collateral bar, penny stock bar, and investment company
bar.
- James Fuld, Jr. – involved in the unregistered sales of securities.
Without admitting or denying the charges, he agreed to pay $178,594.85 in
disgorgement and $38,096.70 in prejudgment interest.
Mr. Calamari said, “With these charges, the SEC continues to make good on its
commitment to hold accountable those who enable some Chinese reverse merger
firms to take unfair advantage of investors in the U.S. capital markets.”
The SEC’s investigation, which is continuing, was conducted in the New York
Regional Office by Celeste Chase, Eduardo A. Santiago-Acevedo, and Osman Nawaz,
with assistance from Frank Milewski. Paul Gizzi and Osman Nawaz will lead the
SEC’s litigation team. The SEC acknowledges the assistance of the Financial
Industry Regulatory Authority (FINRA) in this matter.
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