A federal jury today found six corporate entities guilty of participating in a wide-ranging conspiracy to defraud the United States via a wire-and-customs fraud scheme in which huge amounts of aluminum – disguised as “pallets” to avoid $1.8 billion in customs duties – were exported to the United States and were “sold” to fraudulently inflate a China-based company’s revenues and deceive investors worldwide.
The case is the result of a massive probe conducted over several years by Homeland Security Investigations (HSI) Los Angeles and IRS Criminal Investigation.
The jury found the following two aluminum businesses and four warehousing companies – all of which were related to one another – guilty of one count of conspiracy, nine counts of wire fraud and seven counts of passing false and fraudulent papers through a customhouse:
- Perfectus Aluminum Inc., an Ontario-based business;
- Perfectus Aluminum Acquisitions LLC, a subsidiary of Perfectus Aluminum formed in 2014 to oversee several companies that received aluminum pallets shipped to the United States after duties were imposed on Chinese aluminum in 2011;
- Scuderia Development LLC, which owns a warehouse in Riverside;
- 1001 Doubleday LLC, which owns a warehouse in Ontario;
- Von Karman – Main Street LLC, which owns a warehouse in Irvine;
- 10681 Production Avenue LLC, which owns a warehouse in Fontana.
The two Perfectus companies also were found guilty of seven additional counts of international promotional money laundering.
According to evidence presented at the nine-day trial, China Zhongwang Holdings Ltd., Asia’s largest manufacturer of aluminum extrusions, Zhongtian Liu, the company’s former president and chairman, several individual defendants and the corporate defendants found guilty today lied to U.S. Customs and Border Protection to avoid paying the United States $1.8 billion in anti-dumping and countervailing duties (AD/CVD) that were imposed in 2011 on certain types of extruded aluminum imported into the United States from China.
The aluminum sold to United States-based companies controlled by Liu was simply aluminum extrusions that were spot-welded together to make them appear to be functional pallets. In fact, there were no customers for the 2.2 million pallets imported by the Liu-controlled companies between 2011 and 2014, and no pallets were ever sold.
The vast majority of the pallets were imported through the Ports of Los Angeles and Long Beach and then stockpiled at four large warehouses in Southern California, all of which were purchased at Liu’s direction.
Liu and his co-defendants orchestrated the bogus sales of aluminum to Liu-controlled companies in Southern California to falsely inflate China Zhongwang’s value. Liu was the majority owner of China Zhongwang, which has been listed on the Stock Exchange of Hong Kong since a 2009 initial public offering that raised $1.26 billion.
After the AD/CVD duties were put in place in 2011, the company’s annual reports falsely claimed that there was a robust demand for the aluminum pallets in the United States. Although the annual reports asserted that the aluminum pallets were being sold to independent third parties, and defendants used these reported “sales” to inflate China Zhongwang’s reported sales volume and purported volume of exports to the United States, in fact the aluminum was being stockpiled by Liu-controlled entities in more than 2 million square feet of warehouse space owned by the warehouse defendants in Southern California, as well as at Liu’s New Jersey facility.
Since there was no actual demand for the pallets, defendants Liu and China Zhongwang arranged for aluminum melting facilities to be built and acquired, which were to be used to reconfigure the aluminum imported as pallets into a form with commercial value.
The defendants facilitated their schemes by laundering hundreds of millions of dollars through shell companies to the U.S.-based aluminum companies controlled by Liu. The funds were then transferred to China Zhongwang and the other shell companies as payments for the aluminum.
U.S. District Judge R. Gary Klausner has scheduled a December 13, sentencing hearing in this case.
The remaining four defendants charged in the 2019 federal grand jury indictment in this case have yet to appear in court in the United States to face the criminal charges in this matter:
- Zhongtian Liu, 57, a billionaire Chinese citizen who is a former Tustin resident, and who is the former president and former chairman of the board of China Zhongwang Holdings Ltd.;
- China Zhongwang Holdings Ltd., a publicly traded aluminum company based in Liaoyang City that at the time of the indictment was the largest aluminum extrusion manufacturer in Asia and the second largest in the world;
- Zhaohua Chen, 62, a Chinese national who allegedly was a close friend of Liu and a key player in the scheme; and
- Xiang Chun Shao, a.k.a. “Johnson Shao,” 60, most recently of Irvine, who allegedly managed a collection of Southern California businesses that pretended to be independent third parties importing the Chinese aluminum.
In 2017, the U.S. Attorney’s Office filed civil forfeiture actions against the four Southern California warehouses used by Perfectus to store the pallets. In 2018, the government filed a fifth civil forfeiture complaint against “approximately 279,808 Aluminum Structures in the Shape of Pallets,” about half of which were seized in early 2017 at the Ports of Los Angeles and Long Beach, and the other half were seized from three other warehouses Perfectus was using to store the pallets. Those civil asset forfeiture cases have been stayed pending the completion of the criminal prosecution, in which the government is seeking the criminal forfeiture of the warehouses and seized aluminum.
The case is being prosecuted by the U.S. Attorney for the Central District of California’s Major Frauds, General Crimes and Asset Forfeiture Sections.
HSI is a directorate of U.S. Immigration and Customs Enforcement (ICE) and the principal investigative arm of the U.S. Department of Homeland Security (DHS), responsible for investigating transnational crime and threats, specifically those criminal organizations that exploit the global infrastructure through which international trade, travel and finance move.