FOLLOW US

Insiders at blockchain-based financial services company Future FinTech Group Inc. were hit with a shareholder derivative suit on Tuesday alleging they concealed that the company's CEO had inflated stock prices, which was revealed to the public when the U.S. Securities and Exchange Commission filed a lawsuit against him.

According to shareholder Eric Duquette's suit filed in New Jersey federal court, Future FinTech CEO Shanchun Huang intentionally purchased company stock prior to becoming CEO in March 2020 in order to artificially propel the stock price. Huang was attempting to keep the company's shares higher than $1 per share as the company faced delisting for failing to meet the Nasdaq stock exchange's minimum price requirements, the SEC had alleged, Duquette noted in his suit.

In addition to Huang, Future FinTech's Chief Financial Officer Ming Yi, former CFO Jing Chen and four directors are named as defendants in the derivative suit for their alleged participation in the scheme to prop up the company's stock price.

The suit's relevant period begins March 10, 2020, the day Future FinTech announced Huang as its new CEO. The complaint alleges the statements issued that day by the company were false and misleading. Future FinTech and its executives touted Huang's experience and leadership qualities without disclosing he was manipulating the company's stock at that time, Duquette said.

The suit references several other statements issued by Future FinTech that allegedly omitted relevant information about the defendants' wrongdoing. For example, in March 2021, Future FinTech and Huang filed an initial insider holdings report that did not disclose Huang already held company stock when he became CEO.

The company's shares remained artificially inflated until earlier this year when the SEC filed a suit against Huang on Jan. 11, Duquette said. The SEC claimed Huang used an offshore account to purchase Future FinTech shares in the months leading up to his CEO appointment. After becoming CEO, Huang repeatedly failed to make required public filings with the SEC about his Future FinTech share ownership, the SEC alleged.

Duquette said shares of Future FinTech fell following the SEC's announcement of its suit, declining more than 20% to close at $1.02 per share on Jan. 12.

Duquette's complaint also notes Future FinTech is facing a securities class action in New Jersey federal court and that the company has already been damaged financially due to the defendants' actions.

The derivative suit accuses the defendants of violating the Exchange Act, breaching their fiduciary duties and unjust enrichment.