UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

Transcription

1 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK THOMAS ROSENBERGER, on behalf of Case No himself and all others similarly situated, CLASS ACTION Plaintiff, //if/ vs. CLASS ACTION COMPLAINT FOR VIOLATIONS OF FEDERAL PUDA COAL, INC., LIPING ZHU, QIONG SECURITIES LAWS WU, and MING ZHAO, Defendants. JURY TRIAL DEMANDED Thomas Rosenberger ("Plaintiff'), by his attorneys, on behalf of himself and all others similarly situated, alleges the following based upon the investigation of plaintiff's counsel, except as to allegations specifically pertaining to plaintiff, which are based on personal knowledge. The investigation of counsel included, among other things, a review of Puda Coal Inc's ("Puda Coal" or the "Company") public filings with the United States Securities and Exchange Commission ("SEC"), press releases issued by the Company, media, and news reports about the Company, and other publicly available data, including, but not limited to, publicly available trading data relating to the price and trading volume of Puda Coal common stock and analyst reports. 1. This action is a securities action brought under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 promulgated thereunder by the SEC, and under Sections 11 and 15 of the Securities Act of 1933 (the "Securities Act") by Plaintiff on behalf of a class of all persons and entities who purchased the common stock of Puda Coal between September 15, 2009 and April 8, 2011, inclusive (the "Class Period") to recover damages caused to the Class by defendants' violations of the securities laws.

2 2. The Company describes itself as a supplier of premium high grade cleaned coking coal used to produce coke for steel manufacturing in the People's Republic of China (the "PRC"). In the Company's most recent annual report filed on Form 10-K for the year ending December 31, 2010 (" K"), the Company states that within its core Coal Washing Business, Puda Coal's operations are "conducted exclusively by an entity in China, Shanxi Puda Coal group Co., Ltd ("Shanxi Coal"). 3. Throughout the Class Period, the Company reported revenues and earnings, but failed to disclose that there were improper transfers of core Company assets, most notably the transfer of ownership of Shanxi Coal, by its Chairman of the Board, Mr. Ming Zhao ("Zhao"), to himself such that Puda Coal's assets and value was in reality materially less than disclosed to its investors. 4. During the Class Period, the Company's stock materially increased based on the Defendants' positive statements about the Company's prospects, reaching a 52-week high of $16.97 per share on December 2, The Company took advantage of the artificially inflated stock price by selling 9,000,000 shares of common stock on December 8, 2010 at the artificially inflated price of $12 per share. 5. On April 8, 2011, the first disclosures of wrongful transfers of ownership of Company assets to Chairman Zhao emerged in a publicly circulated news article entitled "Puda Coal Chairman Secretly Sold Half The Company and Pledged The Other Half To Chinese PE Investors". Following the circulation of this article, on April 8, 2011, Puda Coal announced in a press release that it was currently reviewing the allegations regarding improper share transactions by Chairman Zhao. 2

3 6. The material facts adversely affecting the Company were not fully disclosed until April 11, 2011, when, before the opening of trading, Puda Coal issued a press release that stated, in part, the following: Puda Coal Commences Investigation TAIYUAN, SHANXI PROVINCE, China, April 11, 2011 Puda Coal, Inc. (NYSE AMEX: PUDA) ("Puda Coal" or the "Company) today announced that its Board of Directors has unanimously ratified the Audit Committee's decision to launch a full investigation into the allegations raised in a recent article alleging various unauthorized transactions in the shares of a subsidiary company, Shanxi Coal. The Audit Committee has retained professionals in the United States and China to assist it in its investigation. The full board, including Mr. Ming Zhao, the Chairman of Puda Coal, has agreed to cooperate in the investigation. Although the investigation is in its preliminary stages, evidence supports the allegation that there were transfers by Mr. Zhao in subsidiary ownership that were inconsistent with disclosure made by the Company in its public securities filings. Mr. Zhao has agreed to a voluntarily leave of absence as Chairman of the Board of the Company until the investigation is complete. The New York Stock Exchange has halted trading in the Company's stock. 7. Since the April 11, 2011 disclosure, Puda Coal's stock continues to be halted by the New York Stock Exchange rendering it effectively worthless to its shareholders who are unable to sell the Company's stock. JURISDICTION AND VENUE 8. The claims asserted arise under Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder and under Sections 11 and 15 of the Securities Act. Jurisdiction is conferred by Section 27 of the Exchange Act and Section 22 of the Securities Act. Venue is proper as defendant Puda Coal's common stock trades on the NYSE Amex in this District and the underwriters of Puda Coal's December 8, 2010 secondary common stock offering, Macquarie Capital (USA) Inc. and Brean Murray, Carret & Co., LLC, have offices in this District. 3

4 III. THE PARTIES 9. Plaintiff purchased Puda Coal common stock as detailed in the certification attached hereto and was damaged thereby. 10. Defendant Puda Coal is a Delaware corporation and has its headquarters in Taiyuan, Shanxi Province, China at 426 Xuefu Street, Taiyuan, Shanxi Province, The People's Republic of China. 11. Defendant Ming Zhao ("Zhao") is a co-founder of the Company and has been the Chairman of the Board of Directors at all relevant times. Pursuant to the Company's April 11, 2011 press release, defendant Zhao is currently taking a leave of absence until Puda Coal's investigation is complete. Among other things, Zhao signed the Company's annual report filed on March 31, 2010 with the Securities and Exchange Commission ("SEC") on Form 10-K for the year ended December 31, 2009 (" K") and annual report filed on March 16, 2011 with the SEC for the year ended December 31, 2010 (" K"). 12. Defendant Liping Zhu ("Zhu") has been the President and Chief Executive Officer at all relevant times. Among other things, Zhu signed the Company's K, K, quarterly report for the third quarter ended September 30, 2009 filed on November 13, 2009 on Form 10-Q ("Q Q"), quarterly report for the first quarter ended March 31, 2010 filed on May 17, 2010 on Form 10-Q ("Q Q"), quarterly report for the second quarter ended June 30, 2010 filed on August 16, 2010 on Form 10-Q ("Q Q"), and quarterly report for the third quarter ended September 30, 2010 filed on November 15, 2010 on Form 10-Q ("Q Q"). 4

5 13. Defendant Qiong Wu ("Wu") has been the Company's Chief Financial Officer at all relevant times. Among other things, Wu signed the Company's K and K during the Class Period. 14. The individuals named as defendants in 'Ill are referred to herein as the "Individual Defendants". The Individual Defendants, because of their positions with the Company, possessed the power and authority to control the contents of Puda Coal's press releases and presentations to securities analysts, money and portfolio managers and institutional investors, i.e., the market. Each defendant was provided with copies of the Company's press releases alleged herein to be misleading prior to or shortly after their issuance and had the ability and opportunity to prevent their issuance or cause them to be corrected. Because of their positions and access to material non-public information available to them but not to the public, each of these defendants knew that the adverse facts specified herein had not been disclosed to and were being concealed from the public and that the positive representations which were being made were then materially false and misleading. IV. CLASS ACTION ALLEGATIONS 15. Plaintiff brings this action as a class action pursuant to Federal Rules of Civil Procedure 23(a) and 23(b)(3) on behalf of a class of all persons and entities who purchased the publicly traded common stock of Puda Coal between September 15, 2009 and April 10, 2011, inclusive, including persons or entities who purchased Puda Coal's common stock pursuant and/or traceable to the Company's materially false and misleading registration statement and prospectus supplement dated December 8, 2010 (the "Class"). 16. The members of the Class are so numerous that joinder of all members is impracticable. While the exact number of Class members is unknown to plaintiff at the present 5

6 time and can only be ascertained through appropriate discovery, plaintiff believes that there are hundreds of members of the Class located throughout the United States. As of March 7, 2011, Puda Coal had over 30 million shares of common stock outstanding. 17. Plaintiff's claims are typical of the claims of the members of the Class. Plaintiff and all members of the Class have sustained damages because of defendants' unlawful activities alleged herein. Plaintiff has retained counsel competent and experienced in class and securities litigation and intends to pursue this action vigorously. The interests of the Class will be fairly and adequately protected by plaintiff. Plaintiff has no interests which are contrary to or in conflict with those of the Class that plaintiff seeks to represent. 18. A class action is superior to all other available methods for the fair and efficient adjudication of this controversy. Plaintiff knows of no difficulty to be encountered in the management of this action that would preclude its maintenance as a class action. 19. Common questions of law and fact exist as to all members of the Class and predominate over any questions solely affecting individual members of the Class. Among the questions of law and fact common to the Class are: (a) whether the federal securities laws were violated by defendants' acts and omissions as alleged herein; (b) whether defendants misstated and/or omitted to state material facts in their public statements and filings with the SEC; (c) whether defendants participated directly or indirectly in the course of conduct complained of herein; and (d) whether the members of the Class have sustained damages and the proper measure of such damages. 6

7 V. FALSE AND MISLEADING STATEMENTS 20. On September 15, 2009, the Company issued a press release concerning its application for listing on the NYSE Amex LLC ("NYSE Amex") in which it stated, in part as follows: On September 15, 2009, the Board of Directors of Puda Coal, Inc. (the "Company") amended and restated the Company's Audit Committee Charter to be in compliance with the requirements of the NYSE Amex LLC (the "Exchange") in connection with its application for listing on the Exchange. The Amended and Restated Audit Committee Charter is attached hereto as Exhibit 3.1 and incorporated herein by reference.... On September 15, 2009, the Board of the Company also adopted a Code of Business Conduct and Ethics in order to be in compliance with the requirements of the Exchange. The Code is attached hereto as Exhibit 3.2 and incorporated herein by reference. 21. The Puda Coal Code of Business Conduct and Ethics attached to the September 15, 2009 press release states, in pertinent part, that Conflicts of Interest The Company recognizes and respects the right of its directors, officers and employees to engage in outside activities which they may deem proper and desirable, provided that these activities do not impair or interfere with the performance of their duties to the Company or their ability to act in the Company's best interests. In most, if not all, cases this will mean that our directors, officers and employees must avoid situations that present a potential or actual conflict between their personal interests and the Company's interests. A "conflict of interest" occurs when a director's, officer's or employee's personal interest interferes with the Company's interests. Conflicts of interest may arise in many situations. For example, conflicts of interest can arise when a director, officer or employee takes an action or has an outside interest, responsibility or obligation that may make it difficult for him or her to perform the responsibilities of his or her position objectively and/or effectively in the Company's best interests. Conflicts of interest may also occur when a director, officer or employee or his or her immediate family member receives some personal benefit (whether improper or not) as a result of the director's, officer's or employee's position with the Company. Each individual's situation is different and in evaluating his or her own situation, a director, officer or employee will have to consider many factors. 7

8 Any transaction or relationship that reasonably could be expected to give rise to a conflict of interest should be reported promptly to the Compliance Officer. The Compliance Officer may notify the Board of Directors or a committee thereof as he or she deems appropriate. Actual or potential conflicts of interest involving a director or officer should be disclosed directly to the Chairman of the Board of Directors. Compliance with Laws, Rules and Regulations The Company seeks to conduct its business in compliance with both the letter and the spirit of applicable laws, rules and regulations. No director, officer or employee shall engage in any unlawful activity in conducting the Company's business or in performing his or her day-to-day company duties, nor shall any director, officer or employee instruct others to do so. Protection and Proper Use of the Company's Assets Loss, theft and misuse of the Company's assets has a direct impact on the Company's business and its profitability. Employees, officers and directors are expected to protect the Company's assets that are entrusted to them and to protect the Company's assets in general. Employees, officers and directors are also expected to take steps to ensure that the Company's assets are used only for legitimate business purposes. [Emphasis in original]. 22. On September 18, 2009, the Company issued a press release announcing that Puda Coal's common stock was approved to begin trading on the NYSE Amex on September 22, 2009: Puda Coal expects to begin trading on NYSE Amex on Tuesday, September 22, 2009, until which time its shares will continue to trade on the Over-The-Counter (OTC) Bulletin Board.... "We are very pleased to soon begin our next phase as a public company by moving our stock listing from OTC Bulletin Board to NYSE Amex," said Mr. Lining Zhu, President and CEO of Puda Coal, Inc. "We are honored to join the NYSE group of companies, and this milestone represents our continuous efforts to raise our profile within the investment community, improve our stock's liquidity, expand our transparency and enhance our corporate governance." 23. On November 13, 2009, the Company issued a press release concerning its financial results for the third quarter ended September 30, Among other things, the 8

9 Company reported net revenue of $56.1 million, gross profit of $5.4 million, operating income of $4.0 million and a net loss of $0.6 million, or $0.04 per fully diluted share for the third quarter of Additionally, the Company made the following statements regarding Shanxi Coal: Recent Events On September 30, 2009, the Shanxi provincial government appointed Puda Coal's subsidiary Shanxi Puda Coal Group Co., Ltd as a consolidator of eight coal mines in Yucheng City, Pinglu County, The Company has commenced the technical geological prospecting process for the targeted coal reserves and the Company will also perform a comprehensive financial analysis of the project and then determine the most efficient plan to develop and construct the targeted consolidated coal mines. The eight mines will be consolidated into five, expanding the total area of the coal mines by 94.5% to 35.6 square kilometers, increasing coal reserves by 232.8% to million metric tons and improving coal mine production capacity by 118.2% to 3.6 million metric tons. 24. On November 13, 2009, Defendants caused the Company to file its Q Q for the quarter ended September 30, 2009 with the SEC. The Q Q, which was signed by Defendant Zhu, stated, in part, the following: As of September 30, 2009, the percentages owned by Mr. Ming Zhao and Mr. Yao Zhao in the Group companies are as follows: Puda Coal, Inc.: Mr. Ming Zhao (approximately 49%); Mr. Yao Zhao (approximately 12%) held directly. Puda Investment Holding Limited: Mr. Ming Zhao (approximately 49%); Mr. Yao Zhao (approximately 12%) held indirectly through Puda. Shanxi Putai Resources Limited: Mr. Ming Zhao (approximately 49%); Mr. Yao Zhao (approximately 12%) held indirectly through Puda and BVI. Shanxi Puda Coal Group Co., Ltd.: Mr. Ming Zhao (8%); Mr. Yao Zhao (2%) held directly, Mr. Ming Zhao (approximately 44%); Mr. Yao Zhao (approximately 11%) held indirectly through Puda, BVI and Putai. After the above reorganization and as of September 30, 2009, the organizational structure of the Group is as follows: 9

10 Puda Coal, Inc. "Puda" 100% Puda Investment Ming Zhao (8%) Holding Limited and "BVI" Yao Zhao (2%) 100% Shanxi Putai Resources Limited 90% Shanxi Puda Coal Group Co., Ltd. "Putai" "Shanxi Coal" 25. The Q Q also includes the following statement: The accompanying unaudited consolidated financial statements as of September 30, 2009 and for the three and nine month periods ended September 30, 2009 and 2008 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10- Q and of Regulation S-X. 26. The Q Q includes certifications pursuant to the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley") Section 302, signed by Defendants Zhu and Wu, which represented as follows: 1. I have reviewed this Quarterly Report on Form 10-Q of Puda Coal, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those 10

11 entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designated under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. 27. On February 16, 2010, the Company filed a Prospectus Supplement with the SEC on Form 424(b)(2) in connection with the public offering of 3,284,000 shares of Puda Coal common stock including the underwriters option to purchase additional shares. The offering was priced at $4.75 per share and raised net proceeds of about $14.6 million. The Prospectus Supplement, among other things, incorporates by reference the Q Q. The Prospectus Supplement, which was issued pursuant to a Registration Statement filed with the SEC on Form 11

12 S-3 dated February 12, 2010 signed by Defendants Zhu, Wu, and Zhao, among others, stated, in part, the following: Puda Coal, Inc. ("Puda" or the "Company") is a supplier of high-grade metallurgical coking coal to the industrial sector of the People's Republic of China. Its processed coking coal is primarily purchased by coke and steel producers for the purpose of making the coke required for the steel manufacturing process. Its operations are conducted exclusively by an entity in China, Shanxi Puda Coal Group Col., Ltd. ("Shanxi Coal"), which it controls through 90% indirect equity ownership. 28. On March 24, 2010, the Company issued a press release concerning its financial results for the fourth quarter and year ended December 31, Among other things, the Company reported revenue of $60.2 million, gross profit of $5.3 million, operating income of $4.9 million and net income of $2.3 million, or $0.14 per fully diluted share for the fourth quarter. 29. On March 31, 2010, Defendants caused the Company to file its K for the year ended December 31, 2009 with the SEC. The K, which was signed by Defendants Zhu, Wu, and Zhao, among others, included certifications pursuant to the Sarbanes-Oxley Section 302 of Defendants Zhu and Wu substantially the same as above in 1-26, and stated, in part, the following: We are a supplier of high-grade metallurgical coking coal to the industrial sector in the People's Republic of China (the "PRC" or "China"). Our processed coking coal is primarily purchased by coke and steel producers for the purpose of making the coke required for the steel manufacturing process. Our operations are conducted exclusively by an entity in China, Shanxi Puda Coal Group Co., Ltd ("Shanxi Coal"), which we control through 90% indirect equity ownership. 30. The K also includes the following statement: The discussion and analysis of Puda's financial condition and results of operations is based upon Puda's consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. 12

13 31. On May 13, 2010, the Company issued a press release concerning its financial results for the first quarter ended March 31, Among other things, the Company reported revenue of $62 million, gross profit of $10.3 million, operating income of $9.1 million and net income of $5.4 million, or $0.31 per fully diluted share for the first quarter. Additionally, the Company made the following statements regarding Shanxi Coal: As part of the Shanxi provincial government's policies to consolidate and redevelop the coal mining industry, new guidelines were enacted by the government in February 2010 to require the registered capital of coal mine consolidators to be at least RMB200 million (US$29.3 million). The current registered capital of Shanxi Coal is RMB22.5 million (about US$3.3 million). Since Shanxi Coal has been previously approved as an acquirer and consolidator of two coal mine projects, Shanxi Coal plans to increase its registered capital to RMB500 million (US$73.2 million), 90% of which (i.e., RMB430 million) will be funded by Shanxi Coal's 90% shareholder, Putai, and 10% of which (i.e., RMB48 million) will be funded by Shanxi Coal's 10% shareholder, Mr. Ming Zhao and his brother, Mr. Yao Zhao. The loan will be used to pay for the increase of the registered capital of Putai's 90% subsidiary, Shanxi Puda Coal Group Co., Ltd. ("Shanxi Coal"). 32. On May 17, 2010, Defendants caused the Company to file its Q Q for the first quarter ended March 31, 2010 with the SEC. The Ql Q, which was signed by Defendant Zhu, included certifications pursuant to the Sarbanes-Oxley Section 302 substantially the same as above in 1126 of Defendants Zhu and Wu, and stated, in part, the following: As of March 31, 2010, the percentages owned by Mr. Ming Zhao and Mr. Yao Zhao in the companies are as follows: Puda Coal, Inc.: Mr. Ming Zhao (approximately 39%); Mr. Yao Zhao (approximately 10%) held directly. Puda Investment Holding Limited: Mr. Ming Zhao (approximately 39%); Mr. Yao Zhao (approximately 10%) held indirectly through Puda. Shanxi Putai Resources Limited: Mr. Ming Zhao (approximately 39%); Mr. Yao Zhao (approximately 10%) held indirectly through Puda and BVI. 13

14 Shanxi Puda Coal Group Co., Ltd.: Mr. Ming Zhao (8%); Mr. Yao Zhao (2%) held directly, Mr. Ming Zhao (approximately 35%); Mr. Yao Zhao (approximately 9%) held indirectly through Puda, BVI and Putai. After the above reorganization and as of March 31, 2010, the organizational structure is as follows: Puda Coal, Inc. "Puda" 100% Puda Investment Ming Zhao (8%) Holding Limited and "BVI" Yao Zhao (2%) 100% Shanxi Putai Resources Limited 90% Shanxi Puda Coal Group Co., Ltd. "Putai" "Shanxi Coal" 33. The Q Q also includes the following statement: The accompanying unaudited consolidated financial statements as of March 31, 2010 and 2009 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and of Regulation S-X. 34. On August 16, 2010, the Company issued a press release concerning its financial results for the second quarter ended June 30, Among other things, the Company reported revenue of $82.3 million, gross profit of $12.1 million, operating income of $10.4 million and adjusted net income of $7.3 million, or $0.36 per fully diluted share for the second quarter. 35. On August 16, 2010, Defendants caused the Company to file its Q Q for the second quarter ended June 30, 2010 with the SEC. The Q Q, which was signed by Defendant Zhu, included certifications pursuant to the Sarbanes-Oxley Section 302 substantially the same as above in If 26 of Defendants Zhu and Wu, and stated, in part, the following: As of June 30, 2010, the percentages owned by Mr. Ming Zhao and Mr. Yao Zhao in the companies are as follows: Puda Coal, Inc.: Mr. Ming Zhao (approximately 37%); Mr. Yao Zhao (approximately 9%) held directly. 14

15 Puda Investment Holding Limited: Mr. Ming Zhao (approximately 37%); Mr. Yao Zhao (approximately 9%) held indirectly through Puda. Shanxi Putai Resources Limited: Mr. Ming Zhao (approximately 37%); Mr. Yao Zhao (approximately 9%) held indirectly through Puda and BVI. Shanxi Puda Coal Group Co., Ltd.: Mr. Ming Zhao (10%) held directly, Mr. Ming Zhao (approximately 33%) held indirectly through Puda, BVI and Putai. After the above reorganization and as of June 30, 2010, the organizational structure is as follows: Rada Coat. Inc. '-Pucla" 1012,, Pu1a D.r.-er,t2nent Ho:din!? Ltrattecl Mr Mins' Zhao, (10%) 3 Vi 100'0 putai P.ource Limited Shanxi Puda Group Cot, tj "Stianxi C: oar 36. The Q Q also includes the following statement: The accompanying unaudited consolidated financial statements as of June 30, 2010 and 2009 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and of Regulation S-X. 37. On November 15, 2010, the Company issued a press release concerning its financial results for the third quarter ended September 30, Among other things, the Company reported revenue of $90 million, gross profit of $9.6 million, operating income of $7.9 million and adjusted net income of $5.0 million, or $0.25 per diluted share for the second quarter. 38. On November 15, 2010, Defendants caused the Company to file its Q Q for the third quarter ended June 30, 2010 with the SEC. The Q Q, which was signed by Defendant Zhu, included certifications pursuant to the Sarbanes-Oxley Section

16 substantially the same as above in 26 of Defendants Zhu and Wu, and stated, in part, the following: As of September 30, 2010, the percentages owned by Mr. Ming Zhao and Mr. Yao Zhao in the companies are as follows: Puda Coal, Inc.: Mr. Ming Zhao (approximately 37%); Mr. Yao Zhao (approximately 9%) held directly. Puda Investment Holding Limited: Mr. Ming Zhao (approximately 37%); Mr. Yao Zhao (approximately 9%) held indirectly through Puda. Shanxi Putai Resources Limited: Mr. Ming Zhao (approximately 37%); Mr. Yao Zhao (approximately 9%) held indirectly through Puda and BVI. Shanxi Puda Coal Group Co., Ltd.: Mr. Ming Zhao (10%) held directly, Mr. Ming Zhao (approximately 33%) held indirectly through Puda, BVI and Putai. After the above reorganization and as of September 30, 2010, the organizational structure is as follows: Puda Coat. Inc. "P.JcIa. Pu::a T united VI : 1::);)c lr. Mi:rs, Zhao (1 i))?:tai Resources "Putai Shauxi Pucia Coal Group Co, Ltd. C:oar 39. The Q Q also includes the following statement: The accompanying unaudited consolidated financial statements as of September 30, 2010 and for the three and none month periods ended September 30, 2010 and 2009 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10- Q and of Regulation S-X. 40. On December 8, 2010, the Company filed a Prospectus Supplement with the SEC on Form 424(b)(5) in connection with the public offering of 9,000,000 shares of Puda Coal 16

17 common stock, including the underwriters option to purchase additional shares. The offering was priced at $12 per share raising net proceeds of about $101.5 million. The Prospectus Supplement incorporates by reference the K, the Q Q, the Q Q and certain other documents. The Prospectus Supplement, which was issued pursuant to a Registration Statement filed with the SEC on Form S-3 dated October 14, 2010 signed by Defendants Zhu, Wu, and Zhao, among others, states, in part, the following: Our operations are conducted exclusively in China through our 90% owned subsidiary, Shanxi Puda Coal Group Co., Ltd., or Shanxi Coal. * * * Capital Increase of Shanxi Coal As part of the Shanxi provincial government's policies to consolidate and redevelop the coal mining industry, new guidelines were adopted by the government in February 2010 to require the registered capital of coal mine consolidators to be at least RMB200 million (US$29.3 million). The new requirement was adopted to ensure that coal mine consolidators have sufficient financial strength to consolidate coal mines efficiently. The registered capital of Shanxi Coal at that time was RMB22.5 million (about US$2.7 million). As Shanxi Coal had been approved as an acquirer and consolidator of certain coal mine projects, Shanxi Coal increased its registered capital to RMB500 million (US$73.2 million) as required by the government's policies, 90% of which would be funded by Shanxi Coal's 90% shareholder, Shanxi Putai Resources Limited Co., or Putai, and 10% of which would be funded by Shanxi Coal's 10% shareholder, Mr. Ming Zhao. 41. On March 14, 2011, the Company issued a press release concerning its financial results for the fourth quarter and year ended December 31, Among other things, the Company reported net revenue of $90.5 million, gross profit of $9.2 million, operating income of $6.7 million and a net income of $4.4 million, or $0.18 per fully diluted share for the fourth quarter. 42. On March 16, 2011, Defendants caused the Company to file its K for the year ended December 31, 2010 with the SEC. The K, which was signed by Defendants 17

18 Zhu, Wu, and Zhao, among others, included certifications pursuant to the Sarbanes-Oxley Section 302 of Defendants Zhu and Wu substantially the same as above in If 26, and stated, in part, the following: We are a supplier of premium high grade cleaned coking coal used to produce coke for steel manufacturing in the People's Republic of China (the "PRC" or "China"). We have also been appointed by government as a designated acquirer and consolidator of two coal mine consolidation projects, "Pinglu Project" and "Jianhe Project". Our headquarters is located in Taiyuan, Shanxi Province, China. Coal Washing Business: Our processed coking coal is primarily purchased by coke and steel producers for the purpose of making the coke required for the steel manufacturing process. Our operations are conducted exclusively by an entity in China, Shanxi Puda Coal Group Co., Ltd ("Shanxi Coal"), which we control through 90% indirect equity ownership. 43. The K also includes the following statement: The discussion and analysis of Puda's financial condition and results of operations is based upon Puda's consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. 44. The statements referenced in were materially false and/or misleading because Defendants failed to disclose that (1) Puda Coal's ownership interest in certain key Company assets, most notably the Company's key operating subsidiary, Shanxi Coal, had been wrongfully transferred to defendant Zhao, (2) as a result of the wrongful transfer of Puda Coal's ownership interest in Shanxi Coal, its core operating subsidiary, Puda Coal's assets and corresponding value was materially diminished, (3) Puda Coal's operating results and financial condition were materially misstated, (4) the Company had material deficiencies in its internal controls over its financial reporting, (5) the Company's financial statements were materially false and misleading and not presented in accordance with GAAP, and (6) Defendants had no reasonable basis for their positive statements about Puda Coal's business and financial results. 18

19 VI. THE TRUTH BEGINS TO EMERGE 45. On April 8, 2011, before the opening of trading, a publicly circulated news article entitled "Puda Coal Chairman Secretly Sold Half The Company and Pledged The Other Half To Chinese PE Investors" reported as follows: Shanghai, China Chinese RIO Puda Coal, Inc (NYSE AMEX: PUDA) Chairman Ming Zhao transferred the ownership of PUDA's sole Chinese operating entity, Shanxi Puda Coal Group Co., Ltd ("Shanxi Coal"), to himself in 2009 without shareholder approval according to official government filings. Then, in 2010 Zhao sold 49% and pledged the other 51% of Shanxi Coal to CITIC Trust Co., Ltd ("CITIC"), a Chinese private equity fund, for RMB245 million ($37.1 million). Zhao then recklessly leveraged Shanxi Coal by borrowing RMB3.5 billion ($530.3 million) from CITIC at an incredibly high 14.5% interest rate (including fees) to finance the development of its coal mines. PUDA shareholders are completely unaware of these transactions that decimate the value of its U.S. listed shares. * * * On 9/3/09, Yao Zhao (Ming Zhao's brother and the legal representative of PUDA's WFOE, Shanxi Putai Resources Limited, ("Putai") illegally authorized Putai to transfer 90% of Shanxi Coal to Ming Zhao, adding to the 8% Ming Zhao already held. Additionally, Yao Zhao divided his own 2% of Shanxi Coal between Ming Zhao and Wei Zhang. An official copy of the "Notification of Share Registry Change" can be downloaded here, including a partial translation. The transfers resulted in Ming Zhao owning 99% of Shanxi Coal, leaving U.S. investors with nothing. Incredibly, PUDA's auditor, Moore Stephens, failed to catch this theft of an entire company that is clearly documented in government ownership filings that any lawyer can obtain direct from the source. [Emphasis in original.] After stealing Shanxi Coal from U.S investors, Ming Zhao began looking for domestic investors to fund his aggressive expansion plans. At the same time, Zhao brazenly continued trying to raise money for PUDA in the U.S., despite the fact PUDA (without Shanxi Coal) was just a shell company. As U.S. capital markets recovered, on 2/19/10 PUDA sold million shares in a public offering underwritten by Brean Murray and Newbridge Securities raising $14.5 million (8-K here), without disclosing to the investors that PUDA no longer owned Shanxi Coal, its sole operating subsidiary in China. Why did Brean Murray fail to perform any basic legal due diligence on the real ownership of Shanxi Coal. 19

20 * * * On 12/16/10 PUDA again tapped the U.S. capital markets, this time for $101.5 million by selling 7.85 million shares at $12 per share in a public offering underwritten by Macquarie Capital and brean Murray (8-K here). PUDA again failed to disclose Chairman Zhao's 9/3/09 illegal transfer of 99% of Shanxi Coal to himself, nor Zhao's illegal sale of 49% of Shanxi Coal to CITIC for $37.1 million, nor the $530 million 14.5% loan from CITIC secured by the pledge of the remaining 51% of Shanxi Col shares. Why did Macquarie Capital also fail to perform basic legal due diligence on the real ownership of Shanxi Coal, half of which had been already sold to CITIC? Furthermore, at $12 per share, Macquarie investors paid over six times the $1.91 valuation CITIC paid for 49% of Shanxi Coal in July On April 8, 2011, Puda Coal did not deny the allegations, but responded to the publicly circulated allegations in a press release that stated, in part, as follows: TAIYUAN, China, April 8, 2011 /PRNewswire-Asia-FirstCall/ Puda Coal, Inc. (NYSE AMEX: PUDA) ("Puda Coal" or the "Company"), a supplier of high grade metallurgical coking coal used to produce coke for steel manufacturing in China and consolidator of nine coal mines in Pinglu County Yuncheng City known as Pinglu Project and four coking coal mines in Huozhou County Linfen City known as Jianhe Project in Shanxi Province, today announced that it is currently reviewing the allegations regarding improper share transactions by the Company's Chairman, Mr. Ming Zhao, which were published on an investor website on April 8, The Company intends to provide a formal response to the allegations as soon as practical. 47. On April 8, 2011 shares of Puda Coal declined by $3.10 per share, more than 34%, to close at $6 per share on heavier than usual volume. 48. On April 11, 2011, before the market opened, Puda Coal issued a press release as set forth in 6 above announcing the commencement of an investigation into "the allegations raised in a recent article alleging various unauthorized transactions in the shares of a subsidiary company, Shanxi Coal," admitting that it had already found evidence of transfers by Defendant Zhao inconsistent with its public securities filings, and indicating that Defendant Zhao was taking a leave of absence immediately as Chairman of the Board of the Company. 20

21 49. As noted in the Company's April 11, 2011 press release, the Company's stock was halted from trading prior to the time the market opened and it has continued to be halted since April 11, VII. ADDITIONAL SCIENTER ALLEGATIONS 50. As alleged herein, defendants acted with scienter in that defendants knew that the public documents and statements issued or disseminated in the name of the Company were materially false and misleading; knew that such statements or documents would be issued or disseminated to the investing public; and knowingly and substantially participated or acquiesced in the issuance or dissemination of such statements or documents as primary violations of the federal securities laws. As set forth elsewhere herein in detail, defendants, by virtue of their receipt of information reflecting the true facts regarding Puda Coal, their control over, and/or receipt and/or modification of Puda Coal's allegedly materially misleading misstatements and/or their associations with the Company which made them privy to confidential proprietary information concerning Puda Coal, participated in the fraudulent scheme alleged herein. 51. Defendants knew or recklessly disregarded the falsity and misleading nature of the information which they caused to be disseminated to the investing public. The ongoing fraudulent scheme described in this complaint could not have been perpetrated over a substantial period of time, as has occurred, without the knowledge and complicity of the personnel at the highest level of the Company, including the Individual Defendants. Defendants had the motive and opportunity to perpetrate the fraudulent scheme and course of business described herein because the Individual Defendants were the most senior officers of Puda Coal, issued statements and press releases on behalf of Puda Coal and had the opportunity to commit the fraud alleged 21

22 herein. Further, Defendants were motivated to commit the fraud alleged in order to complete two public offerings of Company shares at inflated prices during the Class Period. VIII. LOSS CAUSATION/ECONOMIC LOSS 52. During the Class Period, as detailed herein, defendants engaged in a scheme to deceive the market and a course of conduct that artificially inflated Puda Coal's stock price and operated as a fraud or deceit on Class Period purchasers of Puda Coal's common stock by misrepresenting the Company's operating condition and future business prospects. Defendants achieved this by making positive statements about Puda Coal's business and financial results while they knew or recklessly disregarded that the Company's Chairman, Defendant Zhao, had wrongfully transferred the Company's key operating subsidiary to himself Later, however, when defendants' prior misrepresentations were disclosed and became apparent to the market, the price of Puda Coal's common stock fell precipitously as the prior artificial inflation came out of Puda Coal's stock price. As a result of their purchases of Puda Coal common stock during the Class Period, plaintiff and other members of the Class suffered economic loss, i.e., damages under the federal securities laws. IX. FRAUD-ON-THE-MARKET DOCTRINE 53. At all relevant times, the market for Puda Coal's common stock was an efficient market for the following reasons, among others: (a) The Company's common stock was actively traded in a highly efficient market; (b) As a regulated issuer, the Company filed periodic public reports with the SEC; (c) The Company was covered regularly by securities analysts; and 22

23 (d) The Company regularly issued press releases which were carried by national news wires. Each of these releases was publicly available and entered the public marketplace. 54. As a result, the market for the Company's common stock promptly digested current information with respect to Puda Coal from all publicly available sources and reflected such information in the price of the Company's securities. Under these circumstances, all purchasers of the Company's common stock during the Class Period suffered similar injury through their purchase of the common stock of Puda Coal at artificially inflated prices and a presumption of reliance applies. X. NO SAFE HARBOR 55. The statutory safe harbor provided for forward-looking statements under certain circumstances does not apply to any of the allegedly false statements pleaded in this complaint. Many of the specific statements pleaded herein were not identified as "forward-looking statements" when made. To the extent there were any forward-looking statements, there were no meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the purportedly forward-looking statements. Alternatively, to the extent that the statutory safe harbor does apply to any forward-looking statements pleaded herein, defendants are liable for those false forward-looking statements because at the time each of those forward-looking statements was made, the particular speaker knew that the particular forward looking statement was false, and/or the forward-looking statement was authorized and/or approved by an executive officer of Puda Coal who knew that those statements were false when made. 23

24 FIRST CLAIM FOR RELIEF For Violation of Section 10(b) of the Exchange Act and Rule 10h-5 Promulgated Thereunder Against All Defendants 56. Plaintiff incorporates!ii 1-55 by reference. 57. During the Class Period, defendants disseminated or approved the false statements specified above, which they knew or deliberately recklessly disregarded were materially false and misleading in that they contained material misrepresentations and failed to disclose material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. they: 58. Defendants violated Section 10(b) of the Exchange Act and Rule 10b-5 in that (a) (b) Employed devices, schemes and artifices to defraud; Made untrue statements of material facts or omitted to state material facts necessary in order to make statements made, in light of the circumstances under which they were made not misleading; or (c) Engaged in acts, practices, and a course of business that operated as a fraud or deceit upon plaintiff and others similarly situated in connection with their purchases of Puda Coal common stock during the Class Period. 59. Plaintiff and the Class have suffered damages in that, in reliance on the integrity of the market, they paid artificially inflated prices for Puda Coal's common stock. Plaintiff and the Class would not have purchased Puda Coal common stock at the prices they paid, or at all, if they had been aware that the market prices had been artificially and falsely inflated by defendants' misleading statements. 24

25 60. As a direct and proximate result of these defendants' wrongful conduct, plaintiff and the other members of the Class suffered damages in connection with their purchases of Puda Coal common stock during the Class Period. SECOND CLAIM FOR RELIEF For Violation of Section 20(a) of the Exchange Act Against the Individual Defendants 61. Plaintiff incorporates 1-55 by reference. 62. The Individual Defendants acted as controlling persons of Puda Coal within the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level positions, participation in and/or awareness of the Company's operations and/or intimate knowledge of the statements filed by the Company with the SEC and disseminated to the investing public, the Individual Defendants had the power to influence and control and did influence and control, directly or indirectly, the decision-making of the Company, including the content and dissemination of the various statements which plaintiff contends are false and misleading. The Individual Defendants were provided with or had unlimited access to copies of the Company's reports, press releases, public filings and other statements alleged by plaintiff to be misleading prior to and/or shortly after these statements were issued and had the ability to prevent the issuance of the statements or cause the statements to be corrected. 63. In particular, the Individual Defendants had direct and supervisory involvement in the day-to-day operations of the Company and, therefore, are presumed to have had the power to control or influence the particular transactions giving rise to the securities violations as alleged herein, and exercised the same. 64. As set forth above, Puda Coal and the Individual Defendants each violated Section 10(b) and Rule 10b-5 by their acts and omissions as alleged in this Complaint. By virtue 25

26 of their positions each as a controlling person, the Individual Defendants are liable pursuant to Section 20(a) of the Exchange Act. As a direct and proximate result of Puda Coal's and the Individual Defendants' wrongful conduct, plaintiff and other members of the Class suffered damages in connection with their purchases of the Company's common stock during the Class Period. THIRD CLAIM FOR RELIEF Violations of Section 11 of the Securities Act Against All Defendants 65. Plaintiff repeats and realleges each and every allegation contained above, except for any allegations sounding in fraud or intentional or reckless misconduct. 66. This Count is brought pursuant to Section 11 of the Securities Act, 15 U.S.C. 77k, on behalf of the Class, against Puda Coal and the Individual Defendants. 67. The Prospectus Supplement dated December 8, 2010, which includes the Registration Statement filed with the SEC on October 14, 2010 on Form S-3, was inaccurate and misleading, contained untrue statements of material facts, omitted to state other facts necessary to make the statements made not misleading, and omitted to state material facts required to be stated therein. 68. Puda Coal is the issuer. As issuer of the shares, Puda Coal is strictly liable to Plaintiff and to the members of the Class who purchased pursuant and/or traceable to the Registration Statement and Prospectus Supplement for the materially untrue statements and omissions alleged herein. 69. The Individual Defendants were officers and/or directors of Puda Coal and signed the Registration Statement or authorized it to be signed on their behalf and were responsible for the contents and dissemination of the Registration Statement. 26