SEC v. RINO International Corporation, et al., Case No. 1:13-cv-00711 (D.D.C).  On May 15, 2013, the SEC announced it filed fraud charges against China-based RINO, Corp., its former CEO, Dejun “David” Zou, and its chairman of the board, Jianping “Amy” Qiu.
The SEC alleges that RINO’s public filings contained false statements about the company’s revenue.  According to the SEC, RINO kept two sets of books – one set for filings in China and another for filings in the U.S.  The Chinese books reflected sales of approximately $31 million from the first quarter of 2008 through the first three quarters of 2010, whereas the U.S. books had sales revenues of approximately $491 million during the same period.  The false information in the U.S. books was incorporated in RINO’s public filings with the SEC.  The SEC alleges that RINO’s outside auditor discovered a $3.5 million diversion of money by Zou and Qiu.  When the auditor questioned management, the auditor was told that RINO planned to use the funds as a down payment for a joint venture opportunity.  Upon additional questioning, however, Zou said that he had authorized the use of the funds to buy property to be used as an office and housing for RINO’s employees visiting the U.S.  The auditor then went to RINO’s audit committee.  Zou and Qiu then agreed to reclassify the $3.5 million as a loan, and signed a promissory note bearing interest at current market rates.  Zou and Qiu purportedly repaid the loan on May 10, 2010 but then transferred the money back to an account in China.  The company, Zou and Qiu have settled.  Without admitting or denying the charges, Zou, and Qiu consented to the entry of a judgment permanently enjoining them from violations of the anti-fraud and books and records provisions of the federal securities laws.  They agreed to pay penalties of $150,000 and $100,000 respectively.  They also paid the disgorgement amount of $3.5 million into a related class action settlement.  Zou and Qiu also agreed to an order prohibiting them from serving as officers and directors of a public company for 10 years.