A Puda Coal Inc. (PUDA) investor sued Chinese private equity fund Citic Group Corp., claiming the firm conspired with Puda’s chairman to transfer control of the company’s most-important asset to insiders, leaving Puda an empty shell company without operations or revenue.
After transferring the company, Shanxi Puda Coal Group Co., Puda sold shares to investors who lost hundreds of millions of dollars when the fraud became public, the investor, Thomas Tarsavage, said in a complaint filed yesterday in Manhattan federal court.
“Puda insiders improperly transferred the company’s only revenue-producing, operating subsidiary to Citic and then, with the assistance of Citic, falsely portrayed to investors in Puda that the company still possessed its operating subsidiary,” Tarsavage claimed.
Tarsavage seeks to represent a class of investors who acquired Puda stock and options between July 15, 2010, and Oct. 3, 2011. Tarsavage also is suing Citic derivatively for the benefit of Puda.
The U.S. Securities and Exchange Commission last year sued Puda Chairman Ming Zhao and former Chief Financial Officer Liping Zhou over the transactions.
The SEC in 2011 cautioned investors about buying shares in companies that gain listings on U.S. exchanges through so-called reverse mergers, saying they may be prone to fraud.
The case is Tarsavage v. Citic Trust Co., 13-cv-02312, U.S. District Court, Southern District of New York (Manhattan).