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OSC bans Chinese shoe maker, key executives for breaching securities laws

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A Chinese shoe manufacturer and its top executives have been banned for life from participating in Ontario's capital markets after the Ontario Securities Commission ruled they broke provincial securities laws.

Zungui Haixi Corp., which manufactured running shoes in China but listed its shares on the TSX Venture Exchange, was accused of failing to meet required standards for a public company, including failing to file audited financial statements on time, failing to maintain an audit committee and failing to co-operate with an investigation.

In a sanctions decision Wednesday, the OSC has permanently banned chief executive officer Yanda Cai and chairman Fengyi Cai from acting as directors or officers of a company and has permanently banned them from trading securities. The OSC also ordered a payment of $63,667 in investigation costs and formally reprimanded them for their behaviour.

The ruling means the two Chinese executives will not be able to launch another venture on an Ontario stock exchange. They did not attend the hearing in the case earlier this year and were not represented by lawyers.

The OSC halted trading in the company's shares last September after auditors from Ernst & Young LLP advised the company's audit committee that it felt an independent investigation of Zungui's affairs was needed. The audit firm said it had problems with bank documents and invoices it examined.

The OSC's investigation of Zungui came amid a broader probe of Chinese-based companies listing their shares for sale in Canada to attract foreign investment. The review came amid concerns of fraud at high-profile Chinese forestry company Sino-Forest Corp., whose shares were later delisted from the Toronto Stock Exchange.

In its ruling on the case, the OSC said Zungui and its officials "have demonstrated a total and continuing disregard for their obligations under Ontario securities law" and "have demonstrated from their conduct that they are fundamentally ungovernable."

The company's independent directors and chief financial officer resigned in protest last year after they told regulators they were not getting co-operation from the Chinese-based executives in their attempts to investigate concerns at the company.

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