SEC v. Keyuan Petrochemicals, Inc. and Aichun Li, Case No. 1:13-cv-00263 (D.D.C.). On February 28, 2013, the SEC announced fraud charges against Keyuan Petrochemicals, Inc., a Chinese issuer formed through a reverse merger in April 2010. The SEC also charged the Company’s former CFO, Aichun Li, with aiding and abetting Keyuan’s books and records and internal controls violations. The SEC alleged that Keyuan routinely did not disclose in its SEC filings several related party transactions, as required by Generally Accepted Accounting Principles . The related parties included the company’s founding and controlling shareholders and its current CEO, among others. According to the SEC, Keyuan also operated a cash account that was kept off the company’s books. The account was used to pay for various items like cash bonuses for senior officers and gifts for Chinese government officials. Li was involved in the company’s non-disclosure of the related party transactions. She received information and saw red flags that should have indicated that the company was not properly identifying or disclosing related party transactions. Nevertheless, Li signed Keyuan’s registration statements and quarterly reports.
Keyuan and Li have agreed to settle the SEC’s charges without admitting or denying the allegations in the complaint. Keyuan has agreed to a final judgment enjoining it from violating Sections 17(a)(2) and 17(a)(3) of the Securities Act, Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20 and 13a-13 thereunder. Li has agreed to a final judgment enjoining her from violations of Section 13(b)(5) of the Exchange Act and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder. In addition, Keyuan will pay a civil monetary penalty of $1,000,000 and Li will pay $25,000. Li also agreed to an SEC order suspending her from appearing or practicing as an accountant before the Commission with the right to apply for reinstatement after two years.