Reuters
U.S. sues Calif.-based China investment company
Wednesday May 28, 5:13 pm ET
SAN FRANCISCO, May 28 (Reuters) - Federal securities regulators on Wednesday sued The Hartcourt Companies Inc., (OTC BB:HRCT.OB - News) and its chairman for allegedly participating in a scheme that illegally raised more than $800,000 for the investing holding company.
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The Securities and Exchange Commission complaint alleges Long Beach, California-based Hartcourt violated securities regulations that permit the issuance of shares to compensate consultants as a back-door means to raise capital for the company itself.
The SEC named Hartcourt, its chairman Alan Phan and Los Angeles resident Yongzhi Yang in its complaint seeking civil penalties and permanent injunctions.
The SEC also said Yang, whose lawyer could not be reached for comment, assisted in selling the shares.
The company, which specializes in the acquisition and development of private companies in China, denied the allegations and said it would vigorously fight the lawsuit.
"Unless settled, this lawsuit may last for a few years," Phan said in a statement. "It will be one of the major challenges facing Hartcourt."
According to the SEC, the company violated federal securities laws by issuing one million shares to Yang's wife to raise money for the company rather than compensate her for services provided to Hartcourt. Yang's wife did not provide any services for the company, the SEC said.
The complaint also alleges that Phan caused Hartcourt to issue a series of false and misleading press releases while Yang was selling stock into the market.
During the period in which Hartcourt issued the press releases, its stock price rose from $1.27 to $4.50, a 254 percent increase, the commission said. Hartcourt stock was off 25 percent on Wednesday to close at 49 cents.