SEC Files Partially Settled Manipulation Action

by Dorsey & Whitney LLP

The Commission brought another action centered on reverse mergers involving Chinese issuers. This action differs from earlier cases, however, since it focuses on the promoters who are charged with manipulating the shares rather than the companies. SEC v. Kelley, (D. N.J. Filed May 5, 2014).

The action centers on trading in the shares of two issuers, China Auto Logistics, Inc. and Guavwei Recycling Corporation. The former is based in Tianjin, China. It operates a web-based automobile sales and trading platform. Before the merger it was known as Tianjin Seashore New District Shisheng Business Trading Group. Co. The latter, previously known as Fuqing Guanwei Plastic Industry Co., Ltd., has its principal place of business in Fuqing City, China. It manufactures and distributes recycled plastic products.

The defendants are Paul Kelly, a Canadian citizen who purportedly owns a number of public shells. George Tazbaz, a Canadian citizen who has interests in entities used in the scheme. Roger Lockhart, an Arkansas resident who was a broker from 1986 until August 2006. He has de facto control over certain entities used in the scheme. Robert Agiogianis, a resident of New Jersey, who owns a public relation firm used in the scheme. And, Shaqwn Becker, a Kansas resident who was also previously a broker and is an investor in another public relations firm used in the scheme.

Over a four year period beginning in 2008 the defendants took China Auto Logistics and Guanwei Recycling public through reverse merges with U.S. public shell companies. In each instance the defendants concealed their ownership interest in the firm and then manipulated the stock, reaping millions of dollars in profits.

The schemes, according to the SEC’s complaint, were largely identical. Each involved the following common elements:

  • The group reached an agreement with the firm management under which they would cover all the expenses of going public in the U.S. markets in addition to the continuing costs for a period of two years;

  • The group would be paid 30% to 40% of the firm’s stock;

  • The group acquired a controlling interest in the shell to be used to take the firm public;

  • The group then paid all the expenses including the outside auditors, lawyers and stock promoters for the firms to go public;

  • The transactions were structured so that they controlled nearly all of the float for the firm;

  • The ownership of the group was concealed;

  • The shares were distributed to a number of U.S., Canadian and Hong Kong firms owned by the group without making the required filings; and

When the stock began trading Messrs. Kelly, Tazbaz, Lockhart and Argriogianis, along with stock promoter Shawn Becker and other stock promoters manipulated the trading and volume so that a listing on NASDAQ could be obtained;

Ultimately the group sold their shares, reaping millions in profits. The complaint alleges violations of Securities Acts Sections 5(a), 5(c) and 17(a), Exchange Act Sections 9(a), a 10(b), 13(d), 15(a), 16(a) and Regulation M.

Messrs. Kelley, Lockhart and Agriogianis settled with the Commission. Mr. Kelly agreed to pay over $6 million and will be barred from the securities business and from participating in any penny stock offering. Mr. Lockhart agreed to pay more than $3 million. Mr. Agriogianis entered into a cooperation agreement. The litigation is continuing as to the other defendants.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dorsey & Whitney LLP | Attorney Advertising

Written by:

Dorsey & Whitney LLP

Dorsey & Whitney LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.