>> The latest law jobs – the latest law career news hereBusinesses Conspired with Chinese Billionaire to Defraud Investors by Inflating Value of China-Based Company via Sham Sales of Aluminum in the United States
LOS ANGELES – US Attorney – Powered by LawFuel – Six Southern California companies today were ordered to pay $1.83 billion in restitution for participating in a conspiracy to defraud the United States through a scheme in which huge amounts of aluminum – disguised as “pallets” to avoid $1.8 billion in customs duties – were exported to the United States and were “sold” to fraudulently inflate a China-based company’s revenues and deceive investors worldwide.
United States District Judge R. Gary Klausner sentenced two aluminum businesses and four warehousing companies – all of which were related to one another – to five years of probation, which is the maximum penalty permitted by law, and ordered them to pay $1.83 billion in restitution. The defendants are:
- Perfectus Aluminium Inc., an Ontario-based business;
- Perfectus Aluminium Acquisitions LLC, a subsidiary of Perfectus Aluminium formed in 2014 to oversee several companies that received aluminum pallets shipped to the United States after duties were imposed on Chinese aluminum in 2011;
- Scuderia Development LLC, which owns a warehouse in Riverside;
- 1001 Doubleday LLC, which owns a warehouse in Ontario;
- Von Karman – Main Street LLC, which owns a warehouse in Irvine; and
- 10681 Production Avenue LLC, which owns a warehouse in Fontana.
At the conclusion of a nine-day trial in August 2021, a federal jury found all six corporate entities guilty of one count of conspiracy, nine counts of wire fraud and seven counts of passing false and fraudulent papers through a customhouse. The Perfectus Aluminium defendants also were found guilty of seven counts of international promotional money laundering.
“The Perfectus and Warehouse defendants were integral participants in this conspiracy,” prosecutors wrote in a sentencing memorandum. “Indeed, they existed only to perpetrate it.”
The corporate defendants sentenced today – along with indicted defendants China Zhongwang Holdings Ltd., Asia’s largest manufacturer of aluminum extrusions; Zhongtian Liu, the company’s former president and chairman; and several other individuals – lied to U.S. Customs and Border Protection to avoid paying the United States $1.8 billion in anti-dumping and countervailing duties (AD/CVD) that were imposed in 2011 on certain types of extruded aluminum imported into the United States from China.
The aluminum sold to United States-based companies controlled by Liu was simply aluminum extrusions that were spot-welded together to make them appear to be functional pallets. In fact, there were no customers for the 2.2 million pallets imported by the Liu-controlled companies between 2011 and 2014, and no pallets were ever sold.
The vast majority of the pallets were imported through the ports of Los Angeles and Long Beach and then stockpiled at four large warehouses in Southern California, all of which were purchased at Liu’s direction.
Liu and his co-defendants orchestrated the bogus sales of aluminum to Liu-controlled companies in Southern California to falsely inflate China Zhongwang’s value. Liu was the majority owner of China Zhongwang, which has been listed on the Stock Exchange of Hong Kong since a 2009 initial public offering that raised $1.26 billion.
After the AD/CVD duties were put in place in 2011, China Zhongwang’s annual reports falsely claimed that there was a robust demand for the aluminum pallets in the United States. Although the annual reports asserted that the aluminum pallets were being sold to independent third parties – and the defendants used these reported “sales” to inflate China Zhongwang’s reported sales volume and purported volume of exports to the United States – in fact the aluminum was being stockpiled by Liu-controlled entities in more than 2 million square feet of warehouse space owned by the warehouse defendants in Southern California, as well as at Liu’s New Jersey facility.
Since there was no actual demand for the pallets, Liu and China Zhongwang arranged for aluminum melting facilities to be built and acquired, which were to be used to reconfigure the aluminum imported as pallets into a form with commercial value.
The defendants facilitated their schemes by laundering hundreds of millions of dollars through shell companies to the U.S.-based aluminum companies controlled by Liu. The funds were then transferred to China Zhongwang and the other shell companies as payments for the aluminum.
On March 24, Judge Klausner ordered the forfeiture to the United States the seized aluminum, currently estimated to be worth approximately $70 million.
The remaining four defendants charged in a 2019 federal grand jury indictment in this case have yet to appear in court in the United States to face the criminal charges in this matter:
- Zhongtian Liu, 58, a billionaire Chinese citizen who is a former Tustin resident, and who is the former president and former chairman of the board of China Zhongwang Holdings Ltd.;
- China Zhongwang Holdings Ltd., a publicly traded aluminum company based in Liaoyang City that at the time of the indictment was the largest aluminum extrusion manufacturer in Asia and the second largest in the world, and which has accrued approximately $3.6 million in contempt sanctions for its failure to appear in this case;
- Zhaohua Chen, 62, a Chinese national who allegedly was a close friend of Liu and a key player in the scheme; and
- Xiang Chun Shao, a.k.a. “Johnson Shao,”60, most recently of Irvine, who allegedly managed a collection of Southern California businesses that pretended to be independent third parties importing the Chinese aluminum, including the Perfectus defendants.
In 2017, the United States Attorney’s Office filed civil forfeiture actions against the four Southern California warehouses used by Perfectus to store the pallets. In 2018, the government filed a fifth civil forfeiture complaint against “approximately 279,808 Aluminum Structures in the Shape of Pallets,” about half of which were seized in early 2017 at the Ports of Los Angeles and Long Beach, and the other half were seized from three other warehouses Perfectus was using to store the pallets.
Those civil asset forfeiture cases have been stayed pending the completion of the criminal prosecution.
Homeland Security Investigations and IRS Criminal Investigation investigated this matter.
Assistant United States Attorneys Roger A. Hsieh and Gregory D. Bernstein of the Major Frauds Section prosecuted this case. Assistant United States Attorney Jonathan S. Galatzan, Chief of the Asset Forfeiture Section, is handling the asset forfeiture-related portion of this case.
Release No. 22-068