Food service distributor HF Foods Group agreed to pay a $3.9 million penalty as part of a settlement with the Securities and Exchange Commission (SEC) regarding alleged fraudulent conduct carried out by its former chief executive officer and former chief financial officer.
The settlement, announced in an administrative proceeding Thursday, follows charges the SEC levied earlier this week against former HF Foods CEO Zhou Min Ni and former CFO Jian Ming Ni. Zhou Min Ni agreed to pay a $300,000 penalty in settling, while Jian Ming Ni will pay $80,000.
The details: From August 2018 through 2020, the former executives misappropriated approximately $3.4 million from HF Foods through related party transactions and other methods, the SEC alleged in its order. The executives also allegedly schemed to remove $7.4 million of liabilities from a predecessor company’s books as part of the process of HF Foods going public via a special purpose acquisition company.
Because of these alleged actions, HF Foods’ public filings during the relevant period contained both materially inaccurate financial statements and other false and misleading statements, the SEC said. In 2023, the company conducted an internal investigation into the matter that resulted in a restatement of its financial statements for fiscal years 2019 and 2020.
The company was accused of violating the antifraud and other provisions of the federal securities laws.
Compliance considerations: Accounting irregularities at HF Foods were brought to light by a financial research company in March 2020, the SEC said. Following that company’s report, HF Foods appointed an external counsel to conduct an “extensive internal investigation” into the allegations.
Following the probe, the company removed the culpable individuals from its management, improved its disclosure controls and procedures and internal control over financial reporting, and strengthened its internal compliance program.
HF Foods also created a litigation committee that pursued legal claims against Zhou Min Ni, Jian Ming Ni, and others and earned settlements that benefited the company, the SEC noted.
Company response: “HF Foods is pleased to put this matter relating to the conduct of the company’s former executives behind us,” said HF Foods CEO Peter Zhang in a June 10 press release. “We are now focused on expanding the business and operating the company in a manner that is ethical and consistent with the principles and values that are so important to the company’s future success.”
The company neither admitted nor denied the SEC’s findings in reaching settlement.
Editor’s note: This story was updated June 11 to include comment from HF Foods’ online statement.
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