OIL FIELD SERVICES COMPANY CHARGED BY SEC WITH MISLEADING INVESTORS

FROM:  U.S. SECURITIES AND EXCHANGE COMISSION  
Washington, D.C., April 23, 2012 — The Securities and Exchange Commission today charged a China-based oil field services company and two senior officers involved in a scheme to intentionally mislead investors about the value of its assets and its use of $120 million in IPO proceeds. The SEC additionally charged the company’s chairman of the board involved in a separate $40 million theft from the company.

The SEC alleges that SinoTech Energy Limited grossly overstated the value of its primary operating assets in financial statements, specifically the lateral hydraulic drilling (LHD) units that are central to its business. The company’s IPO registration statement in November 2010 promised investors it would spend $120 million raised in the IPO to acquire LHD units, but the company’s purchase contracts and other documents otherwise show it acquired far fewer LHD units, lied about the number it acquired, and grossly overstated the value of the units. SinoTech CEO Guoqiang Xin and former CFO Boxun Zhang were responsible for the fraud.

Meanwhile, the company’s chairman Qinzeng Liu is accused of secretly siphoning at least $40 million from a SinoTech bank account in the summer of 2011. He then stood silently by as SinoTech – attempting to counter negative Internet reports that the company was potentially fraudulent – falsely assured investors that the company had that money and more in the bank. Liu later admitted his theft to SinoTech’s auditor and board of directors, but he retained his position and investors were not informed of the incident.
“SinoTech’s brief life as a public company in the U.S. markets has been rife with falsehoods,” said David Woodcock, Director of the SEC’s Fort Worth Regional Office. “Investors deserve the utmost honesty and transparency from companies and their officers when they tap public markets in the United States.”

According to the SEC’s complaint filed in U.S. District Court for the Western District of Louisiana (Lake Charles Division), SinoTech’s public filings certified by both Xin and Zhang represented that the company had purchased 16 LHD units worth $94 million. In fact, the company only acquired 11 such units worth less than $17 million. SinoTech continually misled investors about the value of its equipment in press releases and SEC filings between December 2010 and November 2011. Xin went so far as to try (unsuccessfully) to convince SinoTech’s LHD unit supplier to issue public statements verifying the company’s false valuations to investors. The supplier refused.

The SEC’s complaint alleges that Liu’s admitted theft of $40 million in company funds occurred sometime between June 30 and August 17. Liu withdrew the money from SinoTech’s primary bank account at the Agricultural Bank of China. SinoTech did not record Liu’s withdrawal in the company’s books and records, and it retained Liu as its chairman despite his confession.

The SEC alleges that the theft remained hidden when SinoTech attempted to rebut an Internet report alleging fraud in August 2011. In an effort to persuade investors that SinoTech was legitimate, the company issued a press release stating that SinoTech’s bank balances totaled more than $93 million and included $54 million on deposit at the Agricultural Bank of China. Liu knew this claim was false due to his earlier theft from that account.

The SEC’s complaint seeks permanent injunctive relief and financial penalties against all defendants as well as disgorgement of ill-gotten gains by SinoTech and Liu. The SEC also requests bars against each of the individual defendants from serving as officers or directors of U.S. public companies.