Another NASDAQ Official in China Discovered to Have Questionable Ties to NASDAQ-Listed Chinese Reverse Mergers.

A report previously published by asensio.com raised concerns about a NASDAQ OMX Group, Inc. (NASDAQ: NDAQ) official in China having questionable involvement in Chinese reverse mergers. The report concerned Guangxun Xu, NASDAQ’s former chief representative in China, who resigned suddenly last year, within a few weeks of asensio.com informing a NASDAQ listings oversight official about irregularities in NASDAQ’s listings of Chinese reverse mergeres.

asensio.com has now learned that another NASDAQ official in China was connected to questionable NASDAQ-listed Chinese companies, both before and after his relationship with NASDAQ. This former NASDAQ official is named Lawrence Pan, a.k.a. Xiao Xia Pan.

Pan served as NASDAQ’s chief representative in China from 2005 to 2007. In 2007, NASDAQ hired Xu to be co-chief representative along with Pan . However, Pan resigned from NASDAQ “days later,” according to an article in China Entrepreneur. In his brief time at NASDAQ, Pan reportedly “directed” 25 listings of Chinese companies on NASDAQ, according to the same article.

Pan’s story is extraordinary and complicated.

Among Pan’s questionable associations are his wife, Mary Xia, and an individual named Qingsong Du who was convicted of criminal charges. Each of these individuals has been involved in a US-listed Chinese company.

Pan’s wife was involved in a NASDAQ-listed Chinese company that failed after Du, the CEO, was detained and convicted of criminal charges by the Chinese government. Pan and his wife were involved in a FINRA-registered broker-dealer with the same criminally-convicted individual, Qingsong Du. Pan’s wife continued to be involved in business affairs with Qingsong Du while Pan worked for NASDAQ. Following his departure from NASDAQ, Pan was also directly involved in Winner Medical Group, Inc. (NASDAQ: WWIN), a Chinese reverse merger, that obtained a NASDAQ listing directly after Pan’s appointment to the company’s board of directors.

Below are details on these individuals and their connections to US-listed Chinese companies.

Pan’s Wife Involved in US-Listed Chinese Company whose CEO Was Convicted for Criminal Violations:

Prior to Pan’s involvement with NASDAQ, a woman identified as Pan’s wife, Mary Xia, a.k.a. Mei Yi Xia, had served on the board of a NASDAQ-listed Chinese company that victimized U.S. investors and whose CEO was found guilty of fraud and criminally charged. This company was Asia Electronic Holding Co. (“AEH”). (Mary Xia is identified as Pan’s wife in a securities-related lawsuit, discussed below. Letters filed in the lawsuit identify Pan as Mary’s husband; see page 3 of attachment.)

Less than a year after AEH completed its U.S. IPO in September 1997, AEH’s shares plummeted on news that its CEO, Qingsong Du, had been detained by the Chinese government for potential criminal violations. A Chinese official stated at the time that the reason for Du’s detention was that AEH’s “public offering on the Nasdaq Stock Market broke Chinese law,” according to a Washington Post article. Chinese press later reported that Du “was found guilty of fraudulent investment schemes” and was given a four-year prison sentence and required to pay a 22.9 million yuan fine (approximately US$3.4 million at current exchange rates). In May 1999, AEH was de-listed from NASDAQ.

Lawrence Pan and Mary Xia involved in US broker-dealer with Qingsong Du:

Mary Xia, Lawrence Pan’s wife, was directly involved in a U.S.-based broker-dealer that later became the subject of civil action by the U.S. Securities and Exchange Commission (“SEC”) and of a criminal indictment brought by the U.S. Department of Justice. Lawrence Pan and Qingsong Du, the CEO of AEH brought up on criminal charges in China, were also directly involved in this broker-dealer.

Mary Xia formed Asia Pacific Securities, Inc. (“APS”) in 1997, and was APS’ sole director and president. In November 1998, Qingsong Du purchased 18.3% of APS shares for $500,000. Du’s detention by Chinese authorities was announced in July 1998. Du’s original agreement to purchase APS stock provided that Du would acquire 55% of APS shares for $500,000 and “inject $1 million to APS in trading at the secondary market.” However, perhaps as a result of his arrest, Du only made a payment of $500,000, and a smaller number of APS shares were issued to Du.

Less than three years later, in March, 2001, Mary Xia sold 20% of APS to Thomas Fletcher Holdings, LLC for $4,945.20, and sold an option for $10,000 to buy the remaining 80% of APS shares for $10,056.72. After the sale of stock, APS was renamed Thomas Fletcher & Co.

Soon after the deal, in July 2001, Thomas Fletcher filed an arbitration statement of claim with FINRA, alleging that Mary Xia wrongfully claimed she had been the subject of sexual harassment and assault by one Thomas Fletcher’s principals, and that Mary Xia wrote letters with those claims to various regulators. Thomas Fletcher sought more than $5 million in damages.

In October 2001, Mary Xia commenced a lawsuit against Thomas Fletcher for sexual harassment and breach of contract, seeking more than $80,000,000 in damages.

The lawsuit was brought by Mary Xia and Lawrence Pan together. Lawrence Pan is stated to be Mary Xia’s husband in documents filed in the lawsuit. Pan signed an affidavit stating that he was only a “consultant” to the broker-dealer, and never an employee, despite having listed the title of director on his business card for “public relation purposes.” The court filings appear to provide no explanation for Pan being a party in the lawsuit with Xia, despite his being only a “consultant” to the firm.

The SEC brought civil charges for securities fraud against Thomas Fletcher and several of its employees in November 2002 .

In May 2003, the U.S. Department of Justice indicted seven people for involvement in crimes surrounding “multiple fraud schemes centered around a broker-dealer, Thomas Fletcher and Co., Inc.”

Mary Xia’s Involvement with Du Continued During Pan’s Time at NASDAQ:

Mary Xia and Qingsong Du are listed as the only officers and directors of a business known as Aidi Financial Investment LLC, incorporated in New Jersey in 2003 and defunct as of 2007, according to New Jersey state records.

Mary Xia’s professional biography in a SEC-filing states that she was Aidi’s CEO from January 2003 to December 2005. Du is also the listed as an owner of Shaanxi Aidi Investment Consulting Co. Limited, a business incorporated in Hong Kong .

Xia’s continued association with Du coincides with her husband Lawrence Pan’s time as NASDAQ’s chief representative in China from 2005 to 2007.

Pan, Xia, and Du’s Son Each Involved in Chinese Reverse Mergers Following Pan’s Time at NASDAQ:

Following Lawrence Pan’s time with NASDAQ, Pan, his wife Mary Xia, and Yingshing David To, who is the son of Xia’s criminally-convicted associate Qingsong Du have each been involved in Chinese reverse mergers listed in the U.S.

Lawrence Pan is currently a director of Winner Medical Group, Inc. (NASDAQ: WWIN), a China-based manufacturer of “medical dressings and medical disposables.” WWIN appointed Pan as a director in January 2010. WWIN completed a reverse merger with a U.S. entity in 2005. In March 2010, just two months after Pan’s appointment, WWIN moved from the AMEX to the NASDAQ.

Mary Xia, a.k.a. Meiyi Xia, Pan’s wife, was involved in the reverse merger of China Integrated Energy, Inc. (NASDAQ: CBEH), a China-based company purportedly involved in the distribution of oil products and the production of biodiesel. Xia controlled at least 88% of CBEH shares through an entity known as Redsky Group, upon consummation of the CBEH reverse merger in October 2007, according to a registration statement filed with the SEC on July 7, 2008. The same registration statement separately identifies Xia having dispositive power over another 1.5 million shares, or about 6% of the total shares outstanding, through an entity named Princeton Capital Group. CBEH stock was listed on the NASDAQ in June 2009. A report on sharesleuth.com discusses an individual tied to CBEH named Martin Sumichrast, who reportedly has been involved in several stock schemes with convicted felons.

An individual called Yingshing David To became controlling shareholder of China Green Agriculture, Inc. (NYSE: CGA), upon completion of CGA’s reverse merger, according to CGA’s 10-K, filed September 17, 2009. This Yingshing David To is the son of Qingsong Du, the former CEO of AEH discussed above, who was reportedly convicted on criminal charges in China. In a registration statement filed with the SEC by AEH, Du’s son was identified by the name To Shing Hoi and was listed owning 48.5% of AEH shares. A search of Hong Kong Companies Registry records shows that Shing Hoi To also goes by the name Ying Shing To. Qingsong Du and Yin Shing To are listed as co-owners of Shaanxi Aidi Investment Consulting Co. Limited, incorporated in Hong Kong . Thus, the Yingshing David To listed in CGA’s SEC filings is apparently the son of Qingsong Du of AEH. Barron’s also reported that To is the son of Du in an article discussing CGA. CGA moved from the AMEX to the NYSE in December 2009.

NASDAQ and FINRA’s Questionable Oversight:

Lawrence Pan leadership role with NASDAQ raises issues concerning the integrity of NASDAQ’s and FINRA’s regulatory oversight, given Pan’s association with Mary Xia and Qingsong Du, and his own direct involvement in a NASDAQ-listed Chinese reverse merger. FINRA reportedly “performs market regulation under contract for The NASDAQ Stock Market,” according to FINRA’s website, but public disclosures do not make clear the nature of FINRA’s regulatory work for the NASDAQ. FINRA is not subject to the Freedom of Information Act and does not comply with the same disclosure requirements as the SEC or public companies.

The largest regulatory issue surrounding Pan and Xia’s involvement in Chinese reverse mergers is whether the NASDAQ should be paying FINRA, a regulator and its former owner, for listings compliance services, and whether this conflict allows NASDAQ to have neglect to stop or purposefully allow Chinese NASDAQ officials’ questionable involvement in Chinese companies seeking a NASDAQ listing.

Posted in NASDAQ

Manuel Asensio doesn’t bet often. But when he does, it’s wise to pay attention.

Paul Kaihla
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