China Sky One sued by US SEC over fake sales

PUBLISHED : Thursday, 06 September, 2012, 12:00am
UPDATED : Thursday, 06 September, 2012, 8:45am

China Sky One Medical (CSKI) and its top executives have been sued by the US Securities and Exchange Commission over claims they inflated revenue by about US$20 million with fake sales of a weight-loss product.

The pharmaceutical products firm, which began trading on United States markets after a 2006 reverse merger, claimed in 2007 that a Malaysian company would become exclusive distributor of its "slim patch", generating US$1 million a month in sales, the SEC said yesterday in an action filed in California.

Chief executive Liu Yanqing certified the false statements, which appeared in company disclosures until 2010 and continued to affect its balance sheet, the SEC said.

The agency's action against CSKI is the latest in a series of regulatory moves targeting financial statements from mainland companies listed on US exchanges. Several firms have been delisted and the SEC has sued auditors for failing to produce information on companies.

"Accurate and reliable financial reporting is the bedrock of our capital markets," said John McCoy, an associate director of the SEC's regional office in Los Angeles. "CSKI made a mockery of that by blatantly fabricating sales and overstating its financial results."

The company recorded US$19.8 million in revenue from Malaysian sales in 2007 and 2008, while the distributor bought only US$167,542 in slim patches during that period.

The SEC is seeking financial penalties against CSKI and Liu, and also is asking the executive to surrender any gains from the actions.

CSKI issued a statement in February saying that Liu was being treated for a life-threatening illness and that the time he would spend working would be "substantially reduced".

The firm also said that 26 mid-level managers, including nine from its accounting unit and two from internal controls, had resigned.