U.S. authorities have raided the New York office and home of Benjamin Wey, a promoter of controversial Chinese reverse mergers, according to law enforcement officials.
Agents with the Federal Bureau of Investigation executed search warrants at Mr. Wey’s home and New York Global Group, the company where Mr. Wey is president, the agency confirmed.
In these reverse mergers, a non-US company acquired a US shell company to gain a listing on a US stock exchange, bypassing the regulatory scrutiny involved in a traditional initial public offering.
The Public Company Accounting Oversight Board, which overseas US auditors, raised concerns about such companies in 2010. PCAOB and SEC officials have been negotiating with their Chinese counterparts to gain access to auditing papers for companies based in China but have not reached an agreement.
James Doty, chairman of the PCAOB, said, “While I remain hopeful that we will be able to reach a negotiated settlement with the Chinese, the PCAOB cannot, and will not, wait indefinitely. If we cannot reach a resolution in the near term, the PCAOB, in consultation with the SEC, will take further appropriate action to protect investors.”
Reverse mergers are legal, but authorities have been concerned that the process has been abused by companies without legitimate operations. US officials have limited ability to investigate in China so much of their focus has been on the US promoters, auditors, and agents that facilitate the deals.
China-based companies have been particularly active in seeking to list through reverse mergers. Mr. Wey is one of the most active promoters in China. He has not been accused of any wrongdoing. A message left at his New York office was not immediately returned.
According to the company’s website, “New York Global Group has a single focus: acting as a liaison between the international capital markets and Asian-based clients.” His firm has more than 200 China-related transactions under its belt.
In 2005, without admitting or denying the findings, Mr. Wey agreed to be censured by the Oklahoma Department of Securities for allegedly advising a retired person to invest in a penny stock without revealing that he was a paid consultant to the company.
Longtop Financial, a China-based software provider, said in August it may face civil action from the SEC for failing to provide current financial statements to investors. In September, the SEC sued Deloitte Touche Tohmatsu for failing to produce documents related to its investigation into possible fraud by Longtop.