The Commission has filed a series of actions against China based issuers. Some have centered on financial fraud and misrepresentation claims such as SEC v. SinoTechEnergy Ltd., Civil Action No. 212-cv-00969 (W.D. LA. Filed April 23, 2012) and SEC v. Li, Civil Action No. CV-11-1712 (D. Ariz. Filed Aug. 30, 2011). Others focused on manipulation allegations such as SEC v. AutoChina Internatinal Ltd., Case No. 1:12-CV-01643 (D. Mass. Filed April 11, 2012). Still others centered on the misuse of corporate assets such as SEC v. Ming Zhou, Case No. 12 CV 1316 (S.D.N.Y. Filed Feb. 22, 2012).

SEC v. Subaye, Inc., Civil Action No. 13 Civ 3114 (S.D.N.Y. filed May 13, 2013) takes these cases one step further. A newly appointed executive slated to take over the company traveled to the PRC to investigate the operations which had been reported in Commission filings to generate millions of dollars from dozens of customers only to discover little more than a bit of cash and a few documents, according to the complaint. No company.

Subaye is a Delaware company that supposedly had its primary operations in the PRC. Its shares were registered with the Commission for trading and listed on NASDAQ. Its CEO, defendant James Crane, was a Massachusetts CPA.

Revenue for the company continually increased eve as its focus changed. In 2008 its Form 10-K reported that the firm was a provider of video in China. That business yielded $29 million in revenue for 2008. The next year was even more profitable according to the firm’s 2009 Form 10-K. Subay had $48 million in revenue in 2009. The source of the revenue changed however. Now the Form 10-K reported that the company was developing what it believed to be the first online shopping mall in the world utilizing “3D imaging throughout the online customer interface.”

The next year was even better. Subaye reported revenue of $39.1 million. The Form 10-K reported another shift in business. Now the company was “fully committed to one business model focused entirely on the second generation cloud computing product.”

Things began to unravel at the end of 2010. Mr. Crane replace Canadian audit firm DNTW with PricewaterhouseCoopers Hong Kong. The new auditors began asking questions. Who are the customers? Where is the support for the marketing expenses? Can we see the documents supporting the revenue? Mr. Crane considered replacing the firm. PWC HK resigned in February 2011.

One month earlier the PCAOB had filed a settled action against Mr. Crane and his audit firm. The action was based on the inability of the Board to inspect the firm and its failure to file the required reports and pay its dues. Mr. Crane and his company consented to the entry of an order in which he was barred from being an associated person of a registered public accounting firm.

In late February 2011 NASDAQ commented proceedings to delist the company for failing to comply with listing standards. Mr. Crane resigned as CFO a short time later. No response was filed with the exchange.

Alexander Holternmann, a German business executive who had once facilitated a transaction for the company, was appointed to a management role and later CEO. In June, one month after his appointment, he made his fateful trip to the PRC to examine company operations. What he found is that he was not really in charge of much at all.

The Commission’s complaint alleges violations of Exchange Act Section 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B). The case is in litigation.