Posted by Jelvin Tan Xiang Rong, Year 4 undergrad at the School of Accountancy, Singapore Management University
SEATTLE — The Chief Executive Officer of an energy firm headquartered in Tukwila, Washington, was sentenced Friday in U.S. District Court in Seattle to five years in prison, three years of supervised release and a $10,000 fine for two counts of Securities Fraud, announced Acting United States Attorney Annette L. Hayes.DICKSON LEE, 66, served as the CEO of L & L Energy, Inc., until his arrest last 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. LEE 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 in a scheme to raise cash for the company. At the sentencing hearing U.S. District Judge Richard A. Jones said the case should send a message to CEOs, “if you engage in deceit and false representations. . . there will be severe consequences.”
“Investors rely on the representations made by publicly traded companies, both in accounting records and their filings with regulators such as the Securities and Exchange Commission,” said Acting U.S. Attorney Annette L. Hayes. “Mr. Lee’s fabrications about key facts concerning his company undermined one of the foundations of our capital markets. That is what he has been held to account for today.”
According to records in the case, in 2008 and 2009, while trying to get L&L stock listed on a national exchange, LEE 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 730,000 shares of company stock 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 be falsely recorded in L&L’s accounting records as having been issued for compensation for services, although none of these individuals provided any benefit to L&L in return for the shares.
“This case should serve as a warning to those out there who think that rules don’t apply to them, who let their greed outweigh their obligation to the public trust,” said Special Agent in Charge Frank Montoya, Jr., of the FBI’s Seattle field office. “Those people should know the FBI is deeply committed to protecting the community against those who would violate that trust.”
In their sentencing memo, prosecutors explain how these crimes impact the investing public, writing to the court: “Dickson Lee’s conduct was particularly egregious because he flagrantly and repeatedly sought to undermine basic gatekeeping systems erected to prevent unaccountable corporate executives from fleecing investors….Lee…betrayed a deep contempt for the regular investor. The consequence of Lee’s actions is continued mistrust by the public in corporate executives, erosion of confidence in the securities markets, and significantly higher investment costs as investors spend more to conduct their own due diligence. This limits participation and the result is a less open and less liquid market to the detriment of the economy.”
The case was 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.