SEC Files Litigated Action Against China Natural Gas, Inc. and Its Chairman and Former CEO

SEC v. China Natural Gas, Inc. and Qinan Ji, Case No. 12-cv-3824 (PGG).  The SEC filed suit on May 14 in the U.S. District Court for the Southern District of New York against China-based China Natural Gas, Inc. and its chairman and former CEO, Qinan Ji, for fraudulently failing to disclose two related party loans and failure to properly report a material acquisition.  In January 2010, China Natural Gas made two short-term loans totaling more than $14 million.  In filings with the SEC, the company listed the loans as loans to third parties.  In fact, one loan went to a real estate firm co-owned by Ji’s son and nephew through a sham borrower, and the other loan went to a business partner of the real estate firm.  Ji then lied about the true borrower to the board, investors, and the company’s auditors as well as during the company’s internal investigation.  In addition, during the fourth quarter of 2008, China Natural Gas paid $19.6 million to acquire a natural gas company but did not timely and properly report the transaction in its SEC filings.  As with the loans, Ji approved the acquisition without obtaining prior authorization from the board.  The complaint alleges violations of Section 17(a) of the Securities Act, Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Exchange Act, and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, 13a-14, 13b2-1, 13b2-2 and 14a-9.  Ji is also charged with violating provisions of the Sarbanes-Oxley Act that require him to repay China Natural Gas the bonuses and stock sale profits he received after the company filed false reports with the SEC.

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