Macquarie Capital Settles Over Fraudulent IPO

The SEC alleges that the firm knew China-based Puda Coal had included false information in its public offering documents.
Katie Kuehner-HebertMarch 30, 2015

The Securities and Exchange Commission on Friday said that Macquarie Capital settled charges for underwriting a public offering for China-based Puda Coal despite obtaining a due diligence report indicating that the company’s offering materials contained false information.

Macquarie, a unit of Australia-based Macquarie Group Ltd., agreed to pay $15 million and also cover the costs of setting up a “fair fund” to compensate investors who suffered losses after purchasing shares in the 2010 public offering.

According to the SEC, Puda Coal falsely told investors in the offering documents that it held a 90% ownership stake in a Chinese coal company, and Macquarie repeated those statements in its marketing materials for the offering — despite obtaining a report from Kroll Associates showing that Puda Coal did not own any part of the coal company.

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Kroll had discovered that Puda Coal’s chairman had transferred ownership of the coal company to himself and then sold nearly half of his interest to the largest state-owned investment firm in China, the SEC said.  As a result, Puda Coal no longer had any ownership stake or source of revenue.

Macquarie made a net profit of $4.17 million as lead underwriter on the Puda Coal offering, which sold stock to investors at a price of $12 per share, the SEC alleged. When reports about Puda Coal’s false claim appeared on the Internet based on the same People’s Republic of China filings that Kroll accessed for its report, Puda Coal’s stock price plunged as low as pennies per share.

“Underwriters are critical gatekeepers who are relied upon by the investing public to ferret out the essential facts and address potential inaccuracies before marketing a public stock offering,” Andrew M. Calamari, director of the SEC’s New York regional office, said in a press release announcing the settlement.

“Macquarie Capital proceeded with this offering despite a due-diligence process that exposed a false claim by Puda Coal, and investors suffered massive losses when the truth publicly came to light.”



A Macquarie spokesperson said, “Macquarie takes its compliance and regulatory obligations very seriously and has worked closely with the SEC to provide relevant information. Under the terms of the settlement, Macquarie has neither admitted nor denied the SEC’s allegations.”

The SEC also charged former Macquarie Capital managing director Aaron Black and former investment banker William Fang “for failing to exercise appropriate care in their due diligence review,” the agency said.  Black agreed to pay $212,711 and Fang agreed to pay $35,000 to settle the charges.