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OSC finds Zungui Haixi, principals broke securities laws

Ontario Securities Commission

Peter Power/Peter Power/The Globe and Mail

An Ontario Securities Commission panel has ruled that Chinese shoe manufacturer Zungui Haixi Corp. and well as the company's chairman and chief executive officer, broke the province's securities laws.

The regulator said Friday that the shoe manufacturer failed to maintain an audit committee and didn't file audited annual financial statements on time.

The investigation also found CEO Yanda Cai and chairman Fengyi Cai allowed the violations and failed to co-operate with Zungui's audit committee and special committee.

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No-one appeared on behalf of Zungui or Yanda Cai and Fengyi Cai at the hearing held this week.

The OSC stopped trading in the company's shares in September after Ernst & Young LLP suspended an audit of and advised the company's audit committee that an independent investigation was warranted.

Fengyi Cai owns or controls a 56.8 per cent stake in Zungui. Yanda Cai and Fengyi Cai live in China, while Fengyi Cai also maintains a residence in Hong Kong.

The independent directors of the Toronto-listed company resigned in protest last year, along with the firm's chief financial officer, after they told the regulator they weren't assured of funding or co-operation for an internal investigation.

The troubles come following allegations of financial irregularities against other companies that operate in China but trade on Canadian stock markets, including tree plantation operator Sino-Forest.

Zungui Haixi raised $39.8-million in its initial public offering in December, 2009, on the TSX Venture Exchange.

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