Hog Feed Business Fraud Case Study

AgFeed industries were made in Nevada on March 30, 2005. The company is engaged in the feed and commercial hog producing business in the People’s Republic of China. The company’s feed business has a research and development, manufacture, marketing and sale of premix feed and blended feed for use in the domestic animal husbandry markets, for hog production in China. Also AgFeed manufactures, distributes, markets and sells two main product lines they include additive premix fodder and blended feeds. In addition, the company raises, breeds and sells hogs for use in China’s pork production and hog breeding markets on its hog farms which are located throughout southern China. (Feedo, 2015) AgFeed is one of the largest independent hog producers

The company and the top executives I have mention were charged by the SEC in March with continuously reporting false income from the China operations in order to stay on their targeted goals and increase their stock value. AgFeed illegally had gains in stock offerings to investors at the inflated prices resulting from the accounting scheme. The SEC also discovers that the Managers had knowledge of this fraudulent act, but never reported or took the necessary steps to disclose it to their investors. The settlement of $18 million will be paid to the investors that were victims of AgFeed’s fraud. The SEC filed charges against Junhong Xiong CFO, Dr. Li chairman and other controllers on the China’s management team that was behind the scheme, which began in 2008 after AgFeed bought out 29 Chinese farms to increase its hog production. The audit report showed that there were fake hogs and bloated weights compare to the actual hogs accounted for were falsely reported on “outside” the books; these books were given to outside auditors. The “inside” books were accurate and had lower revenue numbers that were kept away from auditors. Dr. Li and Xiong are too blamed for falsely reporting revenues of about $250 million. (Cohn,

They declared to file for bankruptcy to sell their assets to make up for their debt. The management team of U.S. and China both were in on the accounting fraud but didn’t deny the actions when investigated by the SEC. AgFeed settle with SEC only $18 million to satisfy the stockholders for the inflation of stock. AgFeed U.S. management and the Chinese management used the system to get a “slap on the wrist” compare to what Enron gotten for knowingly false revenue. Since they declared Chapter 11 bankruptcy in 2011, which is a form of bankruptcy that involves a reorganization of a debtor’s business affairs and assets, AgFeed settled with the SEC only $18 million and also has to liquidate all of their assets. I believe that AgFeed knew it was a matter of time before the SEC would figure out what they were doing with the accounting books. The inside book probably what was use in bankruptcy court to be approved the Chapter 11. I think the SEC was willing to settle with AgFeed because they provide both U.S. and China with distribution of hog and animal feed. Another factor is that AgFeed has business in China SEC probably didn’t want to further investigate the