HF Foods to pay $3.9 million to settle alleged executive fraud | Brief news

The settlement, announced Thursday in an administrative proceeding, follows charges brought by the SEC earlier this week against former HF Foods CEO Zhou Min Ni and former CFO Jian Ming Ni. Zhou Min Ni agreed to pay a penalty of $300,000 in settlement, while Jian Ming Ni will pay $80,000.

The details: From August 2018 to 2020, the former executives embezzled approximately $3.4 million from HF Foods through related party transactions and other methods, the SEC alleged in its order. Executives also reportedly planned to remove $7.4 million in liabilities from a predecessor company's books as part of HF Foods' IPO process through a special purpose acquisition company.

As a result of these alleged actions, public filings made by HF Foods during the relevant period contained both materially inaccurate financial statements and other false and misleading statements, the SEC said. In 2023, the company conducted an internal investigation into this matter which resulted in a restatement of its accounts for the 2019 and 2020 financial years.

The company was accused of violating antifraud and other provisions of the federal securities laws.

Compliance Considerations: Accounting irregularities at HF ​​Foods were brought to light by a financial research firm in March 2020, the SEC said. Following that company's report, HF Foods appointed an external attorney to conduct a “thorough internal investigation” into the allegations.

As a result of the investigation, the company removed the guilty individuals from its management, improved its disclosure controls and procedures and its internal control over financial reporting, and strengthened its internal compliance program.

HF Foods also established a litigation committee that filed lawsuits against Zhou Min Ni, Jian Ming Ni and others and obtained settlements that benefited the company, the SEC noted.

HF Foods did not immediately respond to a request for comment. The company neither admitted nor denied the SEC's findings in reaching a settlement.