CEO of China-Based Energy Company Pleads Guilty to Securities Fraud
The Chief Executive Officer of an energy firm headquartered in Tukwila, Washington, pleaded guilty today in U.S. District Court in Seattle to two counts of Securities Fraud. DICKSON LEE, 66, served as the CEO of L & L Energy Inc., until his arrest earlier this year. L&L, a formerly NASDAQ listed company, purported to be engaged in various aspects of the coal business including mining, washing, and wholesale distribution of coal, all within the People’s Republic of China. According to the plea agreement signed today, LEE admits he falsified reports to the U.S. Securities and Exchange Commission (SEC) regarding the existence of a Chief Financial Officer and, in a separate scheme, issued under false pretenses hundreds of thousands of shares of L&L stock to individuals controlled by LEE. LEE is scheduled for sentencing by U.S. District Judge Richard A. Jones on January 9, 2015.
According to the plea agreement, in the first count of Securities Fraud, LEE admits that in 2008 and 2009, while trying to get L&L stock listed on a national exchange, he falsely reported the identity of the company’s Chief Financial Officer (CFO) and lied about the existence of adequate internal controls in public SEC filings. In fact, the person LEE claimed was the CFO had refused to accept the position, and L&L had no CFO to ensure accurate financial reporting. In 2009, when the purported CFO discovered the fraud, LEE paid the individual tens of thousands of dollars in cash and stock in exchange for her silence, and never disclosed the arrangement to shareholders. Finally, in 2013, during a subsequent SEC investigation, LEE falsely testified under oath about the CFO’s role in the company.
In the second count of Securities Fraud, LEE admits that in 2011 and 2012, he issued hundreds of thousands of company shares to third-parties in China who, at LEE’s direction, sold the shares on the market to generate revenue for cash-strapped L&L. At the time, LEE knew that the SEC had initiated an investigation into L&L’s affairs and that raising cash through established investment banks was no longer a viable option. LEE also knew that L&L’s Board had been specifically advised that it could not authorize the direct issuance and sale of stock without public disclosure of the investigation. LEE, therefore, secretly issued L&L stock to China-based individuals under false pretenses and then directed their sale without ever disclosing the truth about the company. In order to further conceal his actions, LEE directed that the shares issued be falsely recorded in L&L’s accounting records as having been issued for compensation for services, whereas none of these individuals provided any benefit to L&L in return for the shares. Between May 2011 and March 2012, LEE directed in this manner the issuance and sale of approximately 730,000 shares.
The case is being investigated by the FBI. A parallel civil case is being pursued by the SEC. The case is being prosecuted by Assistant United States Attorney Kathryn Kim Frierson.