Adjudicated CN NYSE

Puda Coal: Reverse Merger Fraud and Secret Theft of Operating Asset

Chairman secretly transferred 90% of operating coal subsidiary to his personal ownership while continuing to file US SEC audited reports.

CASE PROFILE & BENCHMARKS

Target Issuer: Puda Coal, Inc. (CN).
Fraud Period: January 1, 2011 to December 31, 2013.
Reported Overstatement: $150.0M.
Total Fines & Penalties: $0.
Maximum Incarceration: No prison sentence.
Independent Auditor: Moore Stephens LLP.
Primary Schemes: reverse merger fraud.
Enforcement Status: ADJUDICATED (admitted).

OVERSTATEMENT $150.0M USD reported

TOTAL PENALTIES $0 Civil & disgorgement

PRISON TIME None No prison sentence

FIRST ACTION September 20, 2013 Initial proceeding

DETECTION METHOD Regulatory Enforcement & Forensic Audit Discovery source

PRIMARY REGULATOR U.S. Securities and Exchange Commission CN

ACCOUNTING MECHANICS FOR THIS CASE

HOW IT WAS DONE

In settled proceedings with admissions, the regulator found that The company manipulated its accounting records by executing schemes under reverse-merger-fraud. Financial reports filed with market regulators contained material misstatements that distorted true financial condition.

Applicable Scheme Classifications:

reverse merger fraud →

CHARGED RESPONDENTS & OUTCOMES

1 NAMED PARTIES

Respondent	Role	Disposition & Judicial Outcome	Prison	Civil Penalty	O&D Bar
Puda Coal, Inc.	ISSUER	Enforcement order and financial sanctions imposed.	None	$0	No

RED FLAGS OBSERVED PRIOR TO DISCOVERY

EARLY SIGNALS

CASH FLOW TO NET INCOME DIVERGENCE 2011 Operating cash flow severely diverged from reported earnings

ENFORCEMENT ACTIONS & PRIMARY DOCKETS

PRIMARY SOURCE CITATIONS

foreign regulator ENF-2011-puda-coal

Filing Date: September 20, 2013

Enforcement Action: Puda Coal: Reverse Merger Fraud and Secret Theft of Operating Asset

Chairman secretly transferred 90% of operating coal subsidiary to his personal ownership while continuing to file US SEC audited reports.

Provisions: Securities & Corporate Law Compliance

Disposition: admitted View Primary Record ↗

TIMELINE OF EVENTS

CHRONOLOGY

June 1, 2011 • Misstatement

Material accounting irregularities commenced.

September 20, 2013 • Enforcement

Regulators commenced formal proceedings.

FINANCIAL CRIME REFERENCE SERIES

Cross-Domain Investigation Network

Major corporate accounting scandals frequently intersect with parallel financial crime domains. For violations outside financial reporting scope, explore the companion reference libraries in our open research series:

How Scams Work ↗

Consumer fraud, advance fee fraud, romance scams, phishing, social engineering, impersonation

How Money Laundering Works ↗

Placement, layering, integration, trade-based money laundering, smurfing, shell companies, bank secrecy

How Sanctions Evasion Works ↗

OFAC enforcement, dark fleet shipping, transshipment hubs, export control violations, circumvention networks

How Market Manipulation Works ↗

Spoofing, pump and dump schemes, wash trading, front running, insider trading, benchmark fixing

How Tax Evasion Works ↗

Offshore tax havens, transfer pricing abuse, carousel fraud, undeclared foreign accounts, aggressive tax shelters