The Federal Bureau of Investigation (FBI) on May 28, 2013 released the following press release:
“WASHINGTON—The former president and CEO and the former vice president of corporate finance of China North East Petroleum Holdings Limited (CNEP), an oil and gas company whose stock is traded in the United States, have been charged with defrauding investors in connection with public offerings of stock.
Acting Assistant Attorney General Mythili Raman of the Criminal Division; U.S. Attorney for the District of Columbia Ronald C. Machen, Jr.; Assistant Director in Charge George Venizelos of the FBI’s New York Field Office; and Chief Richard Weber of the Internal Revenue Service’s Criminal Investigation (IRS-CI) made the announcement.
Wang Hongjun, 41, and Chao Jiang, 32, both Chinese citizens residing in California and New York, respectively, were indicted on May 23, 2013, with one count of conspiracy to commit wire and securities fraud and four counts of securities fraud, which each carry a maximum penalty of 25 years in prison. Jiang is also charged with two counts of false statements to the U.S. Securities and Exchange Commission (SEC) during sworn testimony, which each carry a maximum penalty of five years in prison. The indictment was made public today.
According to the indictment, Hongjun served as the president and CEO of CNEP from 2009 to 2010 and as the chairman of the Board of Directors beginning in 2010. Jiang served as the vice president of corporate finance and corporate secretary of CNEP from 2008 until approximately 2011. The charges allege that in June of 2009, CNEP registered a shelf offering with the SEC proposing to sell up to $40 million of CNEP common stock in the United States on the New York Stock Exchange. In September and December 2009, CNEP made two separate offerings pursuant to the June registration. In documents filed with the SEC related to the offerings, and in other public statements to investors, Hongjun and Jiang informed investors that CNEP intended to use the funds raised from the securities offerings for general corporate purposes and to repay a prior corporate debt.
The indictment alleges that, instead of using the offering proceeds as represented to CNEP’s investors, Hongjun and Jiang misappropriated approximately $1,265,000 of the proceeds by wiring the money to bank accounts in the name of their family members—approximately $965,000 to Jiang’s father and approximately $300,000 to Hongjun’s wife—which was used, in part, to purchase a home in California, jewelry, and a Mercedes-Benz.
In addition, the indictment alleges that Jiang testified falsely under oath to the SEC in Washington, D.C., about these transactions. In that testimony, Jiang stated that none of his family members had received anything of value over $500 from CNEP, despite having wired $965,000 from CNEP’s bank account to the account of his father. Jiang also testified falsely regarding the use of proceeds from the securities offerings.
An indictment is merely an accusation, and defendants are presumed innocent until proven guilty in a court of law.
In a related action, the SEC had previously filed a civil enforcement action against Hongjun, Jiang, and others in the Southern District of New York.
The case was investigated by the FBI’s New York Field Office and IRS-CI. The Department wishes to thank the SEC for its significant assistance in this case. The investigation is continuing.
This case is being prosecuted by Trial Attorneys Daniel Kahn and Kevin Muhlendorf of the Criminal Division’s Fraud Section and Assistant U.S. Attorney David Johnson for the District of Columbia.”
Douglas McNabb – McNabb Associates, P.C.’s
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