Toronto man to pay SEC US$6.2m over pump and dump of Chinese firms’ shares

A Toronto consultant has agreed to pay US$6.22 million to settle US regulatory charges that he helped bring two Chinese companies into US markets through reverse mergers so that he and his associates could manipulate trading and reap millions of dollars of illegal profit.

The US Securities and Exchange Commission said the consultant, S. Paul Kelley, and co-defendants Roger Lockhart, Robert Agriogianis and George Tazbaz schemed in 2008 and 2009 to drive up the price of China Auto Logistics and Guanwei Recycling and then dump their shares.

The SEC said the four men acquired controlling stakes in two shell companies to engineer reverse mergers in exchange for 30 per cent to 40 per cent of the resulting stock, with their stakes concealed through at least nine Hong Kong companies.

It said a fifth defendant, stock promoter Shawn Becker, and others would then tout the Chinese companies’ unregistered shares to investors.

In a typical reverse merger, a Chinese company buys a US shell company and takes over its stock ticker, allowing it to raise money without the regulatory reviews that newly public companies normally get.

Kelley’s settlement calls for him to pay a US$2.83 million fine, give up US$2.83 million of gains, pay US$560,812 in interest, and accept a ban from the US securities industry.

Lockhart, of Arkansas, reached a US$3.15 million settlement with the SEC. Agriogianis, of New Jersey, co-operated with the regulator, and any financial penalty will be determined later.

The SEC said its litigation continues against Tazbaz, of Ontario, and Becker, of Kansas.