By Aruna Viswanatha
WASHINGTON--A unit of Macquarie Group Ltd. will pay $15 million
to resolve charges by the Securities and Exchange Commission that
it underwrote a public offering for a China-based company even
though it had information that contradicted statements in the
offering materials.
The case is the SEC's first against an underwriter in its
long-running crackdown on alleged accounting fraud by Chinese
companies, many of whom entered the U.S. capital markets through
backdoor mergers.
It is the latest in a series of cases the SEC has filed against
so-called gatekeepers who helped Chinese companies gain access to
U.S. markets, such as consultants, auditors and financiers.
On Friday, the SEC also charged a former managing director of
Macquarie Capital, Aaron Black, and former investment banker
William Fang, for failing to exercise appropriate care in the due
diligence review. Messrs. Black and Fang agreed to settle the
charges, paying $200,000 and $35,000 respectively in penalties, but
neither admitting nor denying the allegations.
Lawyers for the two men didn't immediately respond to requests
for comment. The wholly owned subsidiary involved in the case was
Macquarie Capital (USA) Inc.
Australian-based Macquarie neither admitted nor denied the
allegations. "Macquarie takes its compliance and regulatory
obligations very seriously, and has worked closely with the SEC to
provide relevant information," a Macquarie spokesperson said.
The case involves Puda Coal, a Chinese mining company that is no
longer in business. In 2012 the SEC accused the company's chairman
and its chief executive of defrauding people into investing in what
the SEC said was essentially a shell company.
Macquarie led a 2010 secondary public offering by Puda Coal,
which traded on the New York Stock Exchange at the time. The SEC
said Puda Coal told investors it held a 90% stake in a Chinese coal
company, which Macquarie repeated in its marketing materials for
the offering, despite having a report from Kroll Associates that
showed Puda Coal didn't own any part of the coal company.
The SEC said the report stated Puda Coal's chairman had
transferred ownership of the coal company to himself and sold part
of the interest to a Chinese state-owned investment firm.
According to the complaint, Mr. Fang, 31, received the report
from Kroll and forwarded it to Mr. Black and other deal team
members twenty-nine minutes later telling them "No red flags were
identified."
"Underwriters are critical gatekeepers who are relied upon by
the investing public to ferret out the essential facts and address
potential inaccuracies before marketing a public stock offering,"
Andrew M. Calamari, who runs the SEC's New York office, said.
According to the SEC, Macquarie also agreed to cover the costs
of a fund to compensate Puda Coal investors.
The commission has filed more than 20 enforcement cases against
Chinese companies and their officials, and more than 170
U.S.-traded Chinese companies have faced questions about their
accounting or disclosure from regulators, auditors and investors
over the past few years, according to a tally by The Wall Street
Journal.
The SEC has also sought more evidence and audit documents from
China in connection with the probes, entering into a settlement
last month with the Chinese affiliates of the Big Four accounting
firms designed to improve access to such documents.
Michael Rapoport contributed to this article
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