The small-cap Chinese manufacturer of printing equipment, which originally gained a stock listing in the U.S. through a 2006 reverse merger, received a subpoena from the SEC on November 10, according to an 8-K filing made by the company Friday, almost two months after Duoyuan made the unusual decision to fire its auditor. It has been out of compliance with its SEC filings ever since.
News of the formal investigation sent the company's stock down 20% Friday to $1.66.
According to Duoyuan's 8-K, regulators are examining a list of alleged misconduct, including whether Duoyuan "had engaged in fraud in the sale of securities, had filed materially false documents with the SEC, had failed to maintain adequate books and records, and had failed to maintain an adequate system of internal accounting controls, and whether the Company's principal officers had made false certifications regarding the Company's financial statements, and had engaged in deceit in dealings with the Company's external auditor."The company said it had hired Baker & McKenzie to conduct its "internal investigation," which is ongoing. Also, because it hasn't filed a financial report with the SEC since May 2010, the company faces a possible delisting by the New York Stock Exchange. The disclosures come as the SEC continues with a broader investigation into Chinese small-cap stocks, particularly those that came public in the U.S. through reverse mergers. Sometimes called a reverse takeover, or RTO, the process doesn't receive the same level of regulatory scrutiny as a traditional IPO.