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Oakville’s Paul Kelley, with executives of Guanwei Recycling Corp at the NASDAQ in July, 2010. (Zef Nikolla/NASDAQ)
Oakville’s Paul Kelley, with executives of Guanwei Recycling Corp at the NASDAQ in July, 2010. (Zef Nikolla/NASDAQ)

ROB MAGAZINE

Who is the Canadian linked with a series of reverse-merger failures? Add to ...

Paul worked for his father from 1997 to 2001, working in investor relations; his name appears as an investor relations contact on a Hucamp press release. Paul then stepped out on his own, borrowing two of his father’s dormant numbered companies in Canada and setting up a company in New York, MCC Group USA, Inc. (Today he has a New York-based firm called Asia First Financial Corp., with offices in the Chrysler Building.) “Basically I was starting to do more business within the United States and what I was doing was mostly taking companies public from not only Canada, the U.S. but other jurisdictions into the U.S. to trade on the U.S. market,” Kelley said in a court document.

Kelley’s RTO career took off when he met the Canadian businessman Jay Chiang in 2002. They became friends, having breakfast or lunch together and discussing religion.

* * *

Scandal has dogged Jay Chiang throughout his career. He made his first real money when he and his brother ran Aamazing Technologies, which distributed computer monitors in California and Canada. Money from that business allowed Chiang and his wife, Christina, a former singer and actress in Taiwan given to using numerous aliases, to buy a 10,000-square-foot mansion in Richmond Hill, Ontario, for $1.1 million (Canadian). But in 1998, Chiang declared bankruptcy after being served a $9.7-million judgment in California’s courts for failing to pay a supplier.

Chiang went on to establish a company that moved telecom traffic between Asia and North America. It had generated $15 million in sales by 2000. Around this time, Chiang met Jack Tang, a Beijing businessman. Chiang and Tang decided to take advantage of the flourishing business in reverse takeovers. But they needed someone familiar with North America’s capital markets to help them. Enter Paul Kelley. In 2002, the three men, along with a silent partner, set up a network of companies, one of which was Winner International Group Ltd. (WIG), to engineer reverse takeovers.

Their first step was to find companies in China that could be persuaded to participate in reverse takeovers. Most of the companies Tang approached were small or medium-sized—firms that plausibly needed capital and had easy-to-tell stories for North American investors. Convincing the companies wasn’t difficult. After all, the companies wouldn’t actually be footing the bill for the RTOs themselves—a bill that could be anywhere from $2 million to $3 million once the shell had been purchased, the auditors and lawyers had been paid, and the company had been up and running for a year or two.

The money instead came from Winner and various partners. A recent Canadian court decision says Chiang put up money to run Winner. According to other court documents, Kelley’s company, MCC Management, acted as a conduit—paying almost $7 million in expenses for the RTO companies on behalf of Winner from 2004 to 2008.

The next step was to find a shell—a defunct company—listed on the North American markets. It didn’t matter whether the shell’s former life had any connection to the Chinese company’s line of business. For example, Orsus Xelent Technologies Inc., a Beijing-based cellphone distributor, ended up on AMEX (now NYSE MKT) after Chiang, Kelley and Tang merged it with the shell of Universal Flirts Inc., an online dating service.

In 2004, the partners engineered their first RTO with Telestone, the wireless equipment manufacturer. Three more companies would follow in quick succession—Orsus Xelent, New Oriental Energy & Chemical Corp. and Kandi Technologies Corp.

Since they would be putting up several million dollars to bring each listing to market and to cover ensuing expenses, the partners now needed to earn back their investment. Kelley, Chiang and Tang bought shares in the public company at a pre-public offering price—that is, at a discount to what the public would pay. Kelley later said in a court document that the number of shares he was allowed to buy was negotiated on a transaction-by-transaction basis.

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