In the Matter of Kiang

In April 2008, the chief financial officer (CFO) for L&L Energy, Inc. (L&L) resigned her post. Dickson Lee, L&L’s chief executive officer, asked a former L&L employee and director (purported ACFO) to be L&L’s acting CFO. The purported ACFO declined the offer via email. Undeterred, Lee caused the next four L&L filings with the Securities and Exchange Commission (SEC) (plaintiff) to falsely state that the purported ACFO was serving as L&L’s acting CFO. Each of these SEC filings included the purported ACFO’s digital signature in which the ACFO supposedly attested, as required by the Sarbanes-Oxley Act (SOX), to the accuracy of L&L’s financial statements and the appropriateness of L&L’s disclosure controls and procedures. In May 2009, after learning that L&L was misusing her name, the purported ACFO asked Shirley Kiang (defendant), an L&L director and the chair of L&L’s audit committee, to investigate what the purported ACFO described as a “serious and urgent” matter. Kiang asked Lee about the purported ACFO’s allegation, but Lee responded that the ACFO was lying because she wanted money from L&L. Kiang did not conduct any further investigation. In June 2009, the purported ACFO contacted Kiang again to ask whether Kiang had investigated the situation; this time, the purported ACFO provided Kiang with her April 2008 email rejecting Lee’s job offer. Kiang then confronted Lee, who admitted that the purported ACFO had not served as L&L’s acting CFO and that Lee caused L&L’s SEC filings to falsely claim otherwise. Lee urged Kiang not to worry about the false SEC filings because they were in the past and urged Kiang not to tell anyone about the issue because doing so would harm L&L’s reputation and cause L&L’s stock price to go down. On August 12, 2009, L&L filed its 2009 Form 10-K with the SEC, in which Lee certified that any fraud involving L&L’s management had been disclosed to L&L’s independent auditors and to L&L’s audit committee. In her role as a director and chair of the audit committee, Kiang signed the 2009 10-K, despite the fact that Kiang knew or should have known that Lee’s fraud regarding the purported ACFO was not disclosed to L&L’s independent auditors. The SEC commenced a cease-and-desist proceeding against Kiang, which Kiang offered to settle. The SEC accepted Kiang’s settlement offer.