China Armcometals, Inc. Sued for Securities Fraud, Receiver Sought, No 8K Filed 22 Days Running!

On September 20, 2010 China Armcometals, Inc. (NYSE:CNAM) was served with a securities fraud complaint (United States District Court-Nevada, Case No:2:10-cv-1581) Titled Shaw v China Armcometals, the lawsuit alleges among other things that; Kexuan Yao, (‘Yao”) the CEO, Chairman of the Board and largest shareholder of CNAM illegally removed the restrictive legend on 1.3 million shares China Armcometals in violation of Section 5 of the Securities Act of 1933, and that the board of Directors instead of disclosing this to the public, made a conscious decision to conceal this matter in violation of federal securities laws. As remedy the suit seeks the appointment of a receiver.

A summary of the allegations include that:

1. Yao committed fraud by providing knowingly false information, via a written shareholder representation statement. In the written statement Yao represented that his 1.3 million shares represented less than 1% of the outstanding authorized common shares of CNAM, when in fact it represented 8.9%. This false statement was used to obtain a legal opinion so that Yao could remove the restricted legend of his 1.3 million CNAM shares;

2. Yao removed the restrictive legend and transferred 1.3 million shares of CNAM common stock in violation of Sections 5(a) and 5(c) of the Securities Act of 1933 and Title 15, United States Code, sections 77e(a) and 77e(c) which prohibits the sale or offer to sell securities without filing a registration statement with the SEC unless the transaction qualifies for an exemption from registration;

3. That the Company and the Board of Directors started an investigation concerning Yao transfer of 1.3 million shares identified that Yao actually had SEC prosecution under Section 5 of the Securities Act of 1933 and made a conscious decision to conceal this finding from the public in violation of mandated federal securities laws;

4. Yao filed a false Form 4 on July 2, 2010, with Board of Directors knowledge, stating he purchased 400,000 shares of CNAM at $5.00 per share while simultaneously omitting that he transferred 1.3 million shares on June 28, 2010;

5. Yao knowingly has omitted filing a Form 4 with the SEC detailing his transfer of 1.3 million shares because in a statement in a civil pleading Yao’s own attorney admitted:

“… Yao would be obligated to file public reporting forms with the SEC announcing he had sold stock in China Armcometals, Inc. which would hurt the value of his and other stockholders' interest…” Page 11 Line 22-26 …”

Securities and Exchange Commission (SEC) Regulation (S-K Item 103 - Legal Proceedings (17 CFR 229.103) requires publicly-traded companies to disclose legal proceedings in reports filed with the SEC.

Including:

1. “…3. Notwithstanding Instructions 1 and 2, any material bankruptcy, receivership, or similar proceeding with respect to the registrant or any of its significant subsidiaries shall be described…”

In this lawsuit a RECEIVER is being sought:

“…3 A custodian or receiver should be appointed to manage, or to oversee the management of China Armco, to access the internal system controls of their mandated financial reporting in accordance with Sarbanes Oxley and to conduct an internal investigation which will be provided to the court identifying fraud which has been found and remedies to take so as to continue the operation of China Armco….” (Read it HERE)

So why would China Armcometals, Inc. refuse to file an 8K stating that Yao, and the Board of Directors where being sued for fraud and a receiver was being sought in this litigation?

I posed this question directly to the company and its contracted counsel on October 5, 2010:

“…please provide me with your legal justification why China Armcometals has not filed an 8K with the Securities and Exchange Commission pertaining to the lawsuit titled Shaw v China Armcometals filed in the United States District Court –District of Nevada Case No: 2-10-cv-1581. For your records I am attaching the initial complaint with the proof of service showing China Armco has had knowledge of this suit for more than 15 days…”.

I received delivery confirmation on October 5, 2010 and NO RESPONSE from the China Armcometals. Which begs the question, if China Armcometals, Inc. is concealing the disclosure of this securities fraud lawsuit, in violation of federal securities laws, what else are they hiding?

If you have any information concerning China Armcometals, Inc. please send it in confidence to chris@newswire.net

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