Board members of ShengdaTech Inc. (SDTH.NSDQ), a Chinese company that gained access to U.S. investors through a reverse merger, sued the chief executive officer of the bankrupt chemical maker, claiming he’s obstructing an internal fraud investigation.
A special committee of ShengdaTech sued Chen Xiangzhi to prevent him from regaining control of the company, ending a probe of its finances and ousting a newly appointed chief restructuring officer.
Reorganizing ShengdaTech requires “the continued existence of the special committee and the CRO, and the preservation of their independent powers,” the board members said in court papers filed Aug. 20 in U.S. Bankruptcy Court in Reno, Nevada.
Chen could not be immediately reached for comment at ShengdaTech offices, where no one answered the phone before business hours in China.
The company listed $295.4 million in assets and $180.9 million in debt as of last Sept. 30 in court papers the special committee filed Aug. 19.
ShengdaTech makes nano precipitated calcium carbonate, or NPCC, a chemical additive used in automotive and polyvinyl chloride products. ShengdaTech is the only supplier of NPCC products to the tire industry in China, according to the company’s website.
The company was organized by a so-called reverse merger in 2006, when Chen’s Faith Bloom Limited acquired a U.S. company incorporated in Nevada named Zeolite Exploration Co.
Failure to File
ShengdaTech traded on the Nasdaq Stock Exchange until April, when it failed to file an annual financial report and its auditor resigned.
Since 2007, more than 150 Chinese companies with a market value of $12.8 billion entered U.S. markets through reverse mergers, according to the Public Company Accounting Oversight Board, which oversees auditors of public companies. During that same period, about 50 Chinese companies filed initial public offerings.
In a reverse merger, a company not listed in the U.S. buys an American public shell corporation, allowing the new entity to avoid the scrutiny of an initial public offering.
U.S. exchanges have frozen or delisted shares of more than a dozen China-based firms since March.
Source:bloomberg