The Securities and Exchange Commission (SEC) settled fraud charges against Ideanomics, Inc., formerly known as Seven Stars Cloud Group, Inc., and its former CEO for misleading the public about the company’s financial performance between 2017 and 2019.
The SEC also settled charges against the company’s current CEO, Alfred Poor, and former CFO, Federico Tovar, for their roles in the scheme.
The SEC alleges that in mid-November 2017, Ideanomics and its then chairman and CEO, Zheng (Bruno) Wu, reported revenue guidance of $300 million, despite numerous known issues indicating that the company would miss this guidance by a wide margin. The company later reported only $144 million in 2017 revenues.
Ideanomics and Wu also misled the company’s auditor with a fraudulent letter of intent from a purportedly interested buyer of certain assets to avoid writing down those assets by $17 million in 2017. Further, Wu improperly hid his personal interest in two companies that received millions in cash and stock from deals with Ideanomics between 2017 and 2019, according to the SEC.
Also, the SEC alleged that Ideanomics, Wu, Poor, and Tovar improperly accounted for a deal involving crypto assets in 2019, resulting in the company’s overstatement of revenues by more than $40 million. They also made false representations in company financial statements.
“As we alleged, Ideanomics and its executives defrauded investors, including by misstating its financial statements and failing to disclose material information to investors,” Stacy Bogert, associate director of the Division of Enforcement, said. “The investing public must be able to trust the accuracy of a company’s disclosures, and we will hold accountable executives who abuse that trust by engaging in fraud.”
The SEC said Wu violated the antifraud, reporting, internal control, and books and records provisions of the federal securities laws and caused certain of the company’s violations. The SEC found that Ideanomics violated the antifraud, reporting, internal control, and books and records provisions of the federal securities laws. It also found that Poor and Tovar violated the antifraud, reporting, and books and records provisions and caused certain of the company’s violations.
All respondents settled the matter by agreeing to cease and desist from future violations of the charged provisions, without admitting or denying the SEC’s findings.
Wu agreed to pay more than $3.3 million in disgorgement and prejudgment interest and a $200,000 penalty, while Tovar and Poor each agreed to pay a $75,000 penalty.
Ideanomics agreed to pay a $1.4 million penalty and to retain an independent compliance consultant to review, assess, and make recommendations as to the company’s internal accounting controls. Finally, Wu agreed to a ten-year officer and director bar, and Tovar agreed to be suspended from appearing and practicing before the SEC as an accountant for at least two years.