For a company that has been in the firing line of US investors, AutoChina International Ltd still remains unruffled and confident on the road ahead.
The Chinese commercial vehicle seller was charged by the US Securities and Exchange Commission on April 11, along with 11 other investors of rigging its share prices on the Nasdaq to make it appear more actively traded than it really was.
SEC enforcement chief Robert Khuzami had said the "brazen manipulation" of the stock was meant "to obtain favorable loan terms" for the company. The defendants cited by the US regulator include Yan Huikai, a senior executive of AutoChina and member of the board, along with other employees and relatives.
The 10 people, all Chinese citizens, are alleged to have deposited more than $60 million in US-based brokerage accounts starting in October 2010 for the sole purpose of buying and selling AutoChina shares. The allegedly illegal trades included "matched orders", in which one account sold shares to another at the same time and price, and "wash trades", which resulted in no change in the true ownership of the shares. The SEC's suit claims that the scheme was launched after lenders had offered AutoChina unfavorable terms for a stock-backed loan due to the shares' low trading volume.
Three months before the defendants opened what the SEC said were 26 accounts with US-based electronic brokerage E-Trade Financial Corp, AutoChina's daily trading volume on the Nasdaq was about 18,000 shares. From Nov 1, 2010, less than a month after the accounts' opening, through Jan 31, 2011, volume in the stock soared nearly 700 percent to 139,000 shares a day, the SEC alleged. AutoChina shares were suspended from the Nasdaq in October 2011.
In a telephone interview with China Daily, AutoChina's founder, chairman, CEO and biggest shareholder Li Yonghui insists that most facts asserted by the SEC in its suit don't exist while those that do can be explained as legal and proper business conduct by the company. To a large extent, Li says, AutoChina's problems were the result of investor panic caused by short sellers' unfounded criticism of the company and its practices.
"The motivation the SEC alleges for this whole scheme does not exist," Li says through a translator from company headquarters in Shijiazhuang, capital of North China's Hebei province.
Although Li isn't a defendant in the SEC suit, the complaint makes repeated references to him as AutoChina's chairman and owner of 57 percent of the company's equity at the time of the scheme. It was the chairman on whose behalf the investors - some identified as the chairman's brothers, sister and sister-in-law, and as AutoChina employees - sought to help secure the stock-backed loan, the SEC said.
Sometime around February 2011, once the three-month trading frenzy alleged by the SEC had ended, "an entity controlled by AutoChina's chairman and his spouse obtained approximately $120 million in financing". That entity, whose sole asset was AutoChina stock, subsequently transferred at least $60 million of the loan proceeds to AutoChina, the SEC alleged.
Li, in the interview, categorically denied these charges. He says that neither he nor anyone else at the company, acting on his behalf or for any other reason, ever traded in any stocks "for any kind of financing or loan purposes".
The surge in trading volume in AutoChina in late 2010 and early 2011, he says, was due to stepped-up activity by unspecified short sellers, while other investors sought to unload shares after being spooked by the online critiques of accounting practices at the company.
Li also challenges the alleged impropriety of the defendants' brokerage accounts. He says the accounts were opened with an E-Trade office in Hong Kong, thereby casting doubts on the SEC's jurisdiction in the matter. Opening offshore accounts is a common practice for trading in domestic stocks that are listed abroad, he says.
It was only when E-Trade issued a margin call on the SEC-named defendants, demanding additional cash deposits to maintain their accounts due to the stock's rapidly falling price - a decline AutoChina blames on short sellers - that they began selling off their holdings, Li says.