AgFeed settles in fraud case brought by US regulator

By Jane Byrne

- Last updated on GMT

Comany settles but case against former AgFeed chairman and five executives continues
Comany settles but case against former AgFeed chairman and five executives continues

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Tennessee based feed and pig production company, AgFeed Industries, has agreed to pay $18 million to settle a Securities and Exchange Commission (SEC) case over fraud allegations, said the US regulator yesterday.

AgFeed was delisted from the Nasdaq Stock Market in 2012 and filed for bankruptcy protection in 2013. It was charged by the SEC last March in connection with charges that it reported fake revenue from its China-based operations to help boost its stock price.

The company was previously based in China and publicly traded in the US before amalgamating with a US company in September 2010 and spreading its operations between the two countries. 

The SEC reported that AgFeed used a variety of methods to inflate revenue over the four years, including fake invoices for the sale of feed and purported sales of hogs that didn’t really exist. 

The moves boosted the manufacture’s annual revenue over a three and a half year period by amounts ranging from 71% to 103%, alleged the US regulator.

AgFeed did not admit or deny the claims in agreeing to the settlement, which is subject to court approval.

Accused AgFeed chairman still ‘litigating’

The SEC’s case against five former company executives and AgFeed’s former US based audit committee chair, K Ivan Gothner, continues.

The SEC alleges that Gothner, and former US based AgFeed CFO, Edward Pazdro, learned about the accounting fraud in China but failed to conduct any meaningful investigation or properly disclose it.

“Officers and directors have an obligation to exercise diligence and ensure that their financial reporting is accurate,”​ said Julie Lutz, director of the SEC’s Denver Regional Office, back in March.

Sandra Hanna, attorney for Gothner, told feednavigator today: “We filed a motion to dismiss the case over six months ago. We are still awaiting a court ruling on that."

SEC’s warning on reverse mergers

AgFeed was one of about 370 Chinese firms that listed in the US from 2004 to 2011 using the reverse merger approach.

The reverse merger deal involves a private company acquiring a shell company that is already listed instead of holding an IPO.

The SEC issued an alert in June 2011 warning investors of the risk of investing in foreign companies who enter the US markets through reverse merger transactions. 

The regulator’s warning cited a number of China based operating companies that has recently been suspended from trading by the SEC as a result of discoveries of false or misleading financial statements. 

Related topics Regulation Swine North America

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