SEC Sues Chinese Oil Company

U.S. regulators filed a lawsuit Thursday against a Chinese oil company and two of its executives, alleging that they diverted millions of dollars in company funds to improperly benefit themselves and their families.

The Securities and Exchange Commission alleged in the suit, filed in federal court in Manhattan, that executives from China North East Petroleum Holdings Ltd. transferred funds the company raised in two public offerings in 2009 to the chief executive's wife and mother and the father of the company's vice president of corporate finance, even though the company had said the funds would be used for corporate purposes. The CEO's wife used $300,000 of the company funds to buy a house in California, the SEC said.

The transfers were consistent with a pattern in which the CEO, Wang Hongjun, and his mother, Ju Guizhi, a company founder, engaged in $59 million in related-party transactions that weren't fully disclosed to investors, the SEC said.

Jerome Tomas, an attorney for the company, declined to comment on the suit.

The SEC's case is the eighth to come out of its investigation of Chinese companies that entered U.S. markets via reverse mergers—transactions in which an overseas firm merges with a U.S. shell company and goes public with comparatively little scrutiny.

Over the past two years, many Chinese reverse-merger companies have come under scrutiny over accounting or disclosure problems.