24/7 Wall St.

The Securities and Exchange Commission has announced that it has charged AutoChina International Limited (OTC: AUTCF) AND 11 INVESTORS with conducting a market manipulation scheme.  The charges showed that the company and the investors created a “false appearance of a liquid and active market” for AutoChina’s stock.  The charge includes a senior executive and director at the China-based firm.

The SEC’s complaint was filed in the U.S. District Court for the District of Massachusetts and charges that an AutoChina senior executive and director Hui Kai Yan (a former AutoChina manager) and others fraudulently traded AutoChina’s stock to boost its daily trading volume.  This almost sounds like the “liquidity trader” strategy used by some day trading firms to boost their value in share volume back during and after the tech bubble a decade ago.

Today’s complaint goes back to October 2010 and the SEC has charged the defendants and others to have deposited more than $60 million into U.S.-based brokerage accounts which then engaged in hundreds of fraudulent trades over the next three months with a Hong Kong-based broker-dealer.

The fraudulent trades are said to have included matched orders selling from one account to another account at the same time and for the same price.  In short, they are wash trades which created no change of beneficial ownership of the shares. The SEC noted, “AutoChina and the other defendants engaged in the scheme after lenders offered AutoChina unfavorable terms for a stock-backed loan due to low trading volume in its stock.”

This is just one more instance where it sounds like the largest form of free speech in China comes from corporate officers talking up their companies to foreign investors who are willing to pay anything to get into the long-term Chinese growth story.

JON C. OGG