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China RTO Transfer Agent Gets SEC Sanction

NEW YORK ( TheStreet) -- One of the key stock-transfer agents in the world of Chinese reverse mergers was censured by the Securities and Exchange Commission Thursday after it came to light that the 75-year-old father of the agent's founder and president had misappropriated $2.7 million from the firm.

Called the Securities Transfer Corporation and based near Dallas, the transfer agent is run by Kevin Halter Jr., the brother of Timothy Halter, whose investment house, Halter Financial, is one of the most prolific coordinators and financial backers of Chinese reverse mergers in the U.S.

Halter Financial often engages STC's services to hold funds in escrow as Chinese companies are brought public in the U.S. through the controversial method, also known as a reverse takeover, or RTO. Both Kevin Halter Sr. and Jr. also operated a firm called Halter Capital, which keeps an inventory of shell companies for use in reverse-merger transactions.

The SEC action Thursday against the Halter transfer agency doesn't appear to be related to a broader investigation into the Chinese reverse-merger phenomenon that the commission has undertaken. For more than a year, a wave of fraud revelations and allegations of financial wrongdoing -- mostly leveled by short sellers -- has roiled small-cap Chinese companies with stocks listed in the U.S., sparking the regulatory scrutiny.

Investigating Chinese Reverse Mergers

According to an administrative order issued by the SEC Thursday, Kevin Halter served as the part-time bookkeeper for his son's firm from August 2007 to January 2009. During that span, he transferred at various times a total of $2.7 million from the accounts of ten STC clients into his own personal accounts, according to the SEC. He appears, however, to have intended to give the money back.

"After a Commission examination raised questions about certain STC fund transfers, Halter confessed" to his son, the SEC said in its order. Kevin Halter Jr. then "demanded that his father repay the money he had misappropriated, and reported the matter to the Commission. Soon thereafter, Halter repaid the money he had taken and all affected STC clients were made whole," the SEC said. At the same time, in January 2009, Halter Jr. also fired his father.

Halter Jr. and his transfer agent firm settled with the SEC without admitting or denying the commission's findings.

It wasn't clear when the SEC began raising those questions about the suspect STC fund transfers. A spokeswoman at the commission declined to comment.

Kevin Halter Jr. did not immediately respond to a voice-mail message requesting comment.

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