1. Darren Kerr
Auditing, Spring 2015
Mr. Mitchell
SEC vs. China Infrastructure Investment Corp, et al.
1. The Securities Exchange Commission (SEC) had found that China Infrastructure
Investment Corp, et al. (CIIC) had misrepresented their 2011 10-K and 10-K/A forms as
well as their 2012 first quarter 10-Q form. These misrepresentations were considered
material omissions due to numerous forged signatures of CIIC’s former chief financial
officer, Li Lei. The chief executive officer, Li Xipeng, and corporate secretary, Wang
Feng, have been held accountable for the concealment of the forged signatures.
CIIC had been delisted by NASDAQ for failure to maintain a minimum share price of
$1.00. CIIC felt if the resignation of their CFO had been brought forth to the public, their
chances to win an appeal by NASDAQ would suffer. Due to the pressures, the corporate
secretary forged Li Lei’s signature. However, Li Lei had resigned, effective
immediately, on September 21, 2011 – before any of their forms were actually reviewed
and completed. On top of filing forged signatures to the SEC, CIIC had also sent
correspondences to NASDAQ with the forged signatures.
2. In the case of CIIC, the circumstances to commit fraud were very clear and apparent.
What I believe to be the most obvious reason fraud had been committed was caused by
pressure. CIIC knew around the same time the CFO has resigned, they were being
delisted by NASDAQ; the financial stability of the company was at stake. Since
requirements of NASDAQ are to maintain at least a $1.00 share price, the mentioning of
a CFO resignation could potentially hurt them even further. In order to maintain the

2. Darren Kerr
Auditing, Spring 2015
Mr. Mitchell
appearance of stability, the CFO and corporate secretary felt it was necessary to forge the
CFO’s signature.
Of course opportunity had to arise as well for this fraud to take place. Although it’s
not mentioned in the article, I am wondering specifically about the effectiveness of
CIIC’s Board of Directors and, specifically, Audit Committee. Immediately I wonder
how any filings, especially a 10-K, would pass the Committee’s presence, even with the
corporate secretary falsely reporting the CFO’s continuance for a transitional period.
All-in-all, CIIC’s CEO set the standard within the company on appropriate behavior.
With an enormous amount of pressure, it seems Li Xipeng caved into unethical behavior,
thereby allowing forging of the late-CFO from the secretary. Collusion continued the
allowance of this behavior between the CEO and secretary.
3. Although CIIC’s internal controls could have been tightened, the act of collusion
between the CEO and corporate secretary made it more difficult to detect. The Board of
Directors and Audit Committee seemingly should have been more involved in the
company. Specifically, the Audit Committee in particular should have been more
involved in the oversight of financial filings and the Board should have been aware of the
resignation and return of Li Lei. If the CFO had truly come back to the company to help
in transition, there should have been better check of controls in Human Resources,
Payroll, and other management regarding awareness of the CFO’s return.
4. None involved in the fraud serve as a Certified Public Accountant, however, some
basic code of conduct from the American Institute of Certified Public Accountants can

3. Darren Kerr
Auditing, Spring 2015
Mr. Mitchell
still be connected as a standard business practice. For example, acting with integrity and
objectivity had absolutely been violated by both CEO and secretary. The fact that the
CEO allowed the secretary the forge a signature proved he lacked integrity at that time.
It also proved that the secretary lacked both integrity and objectivity because they went
along with it, knowingly forging the signature to conceal the truth. General standards by
the same token was violated since both lacked due professional care. Then the most
obvious, acts discreditable: both knowingly broke laws, misrepresented facts, were
negligent in their work, and did not follow regulatory requirements
5. The article does not go into specifics on how the fraud was detected, although I could
only imagine a few scenarios on how it would’ve have been detected. I believe strongly
the fraud was uncovered mainly by the lack of Li Lei physically being present anywhere
for months after his resignation. Someone such as the CFO would definitely be seen by
the likes of the Auditing Committee or Board of Directors, especially around the time
SEC filings would need to be submitted. From there, it would only take a phone call to
Li Lei to confirm his employment with CIIC.
As of the last modification of the article, March 4th, 2015, the SEC’s litigation for this
fraud has not yet been closed. The SEC has issued an order suspending the companies
trading of securities. On top of that, the SEC has also ordered further hearings to
determine whether the registration of CIIC’s securities should be suspended or revoked
entirely.