SEC Charges Ideanomics, its former Chairman and CEO, Zheng (Bruno) Wu, current CEO, Alfred Poor, and former CFO, Federico Tovar with Accounting and Disclosure Fraud

On August 9, 2024, the Securities and Exchange Commission (“SEC“) announced settled fraud charges against Ideanomics, Inc., formerly known as Seven Stars Cloud Group, Inc., and its former Chairman and CEO, Zheng (Bruno) Wu, for misleading the public about the company’s financial performance between 2017 and 2019. The SEC also announced settled charges against Ideanomics’ current CEO, Alfred Poor, and former CFO, Federico Tovar, for their roles in the scheme.

The SEC’s orders against Wu and Ideanomics, Poor and Tovar allege that:

  • Ideanomics issued a false and misleading press release on November 13, 2017, in which it provided $300 million revenue guidance for fiscal year 2017. When this press release was issued, numerous facts known to Company management indicated that the company would miss this guidance by a wide margin. The company later reported only $144 million in 2017.
  • In December 2017 and March 2019, Ideanomics’s then-Chairman Bruno Wu was substantively involved in negotiating agreements between Ideanomics and Tiger Sports Media, Ltd. and Beijing Financial Holdings, Ltd., Hong Kong-based entities, relating to transactions that benefited Wu personally. Wu falsely told Company management that those entities were not related to him or his companies, and Company management failed to properly investigate Wu’s connection to those entities. In fact, Wu exercised control over Tiger Sports and Beijing Financial and used cash and other assets from those companies for his personal benefit. In addition, Ideanomics overstated the value of assets acquired in connection with these agreements. As a result, Ideanomics did not disclose in public filings that Tiger Sports and Beijing Financial were related parties and improperly overstated the value of its investments. 
  • Ideanomics fraudulently and materially misstated the financial statements in its 2017 and 2018 Form 10-K filings, as well as its Form 10-Q filings for the first, second, and third quarters of 2018, by failing to impair the value of certain licensed video content that it valued at $17 million. Ideanomics supported the value of the video content with a nonbinding letter of intent to acquire the assets from a shell company. Ideanomics failed to record any impairment of the asset despite having recognized minimal revenue, if any, from the licensed content since 2015. Ideanomics’s misstatements resulted from the deliberate actions of Wu, as well as the failure of the company’s then-CFO, Federico Tovar. To avoid writing down those assets by $17 million, Ideanomics and Wu also misled the company’s auditor with a fraudulent letter of intent from a purportedly interested buyer.
  • Ideanomics materially misstated revenue in its 2018 Form 10-K, as well as its Form 10-Q filings for the first three quarters of 2018, by improperly accounting for oil transactions on a gross, rather than net, basis. Ideanomics improperly accounted for the transactions as a principal even though it purchased and sold the oil simultaneously and had little or no discretion over the purchase or sale prices. Ideanomics’s misstatements resulted from Tovar’s failure to understand Ideanomics’s oil trading business and the propriety of the oil trading accounting.
  • Ideanomics, Wu, Poor, and Tovar improperly accounted for a deal involving crypto assets in 2019, resulting in the company’s overstatement of revenues by $40.7 million, and made false representations in company financial statements for the first and second quarters of 2019. Wu told Tovar the amount of profit to report in those quarters, an amount which eliminated the potential tax liability. Tovar knew, or should have known, that this approach was not consistent with U.S. GAAP. Additionally, CEO Alfred Poor certified the first and second quarter Form 10-Q filings even though he knew or should have known of problems related to the underlying assets received from the counterparty that would affect their value and the amount of Ideanomics’s reported revenue.
  • Ideanomics falsely stated in its 2018 Form 10-K that its principal executive and principal financial officers, Poor and Tovar, had performed evaluations of the company’s internal control over financial reporting (“ICFR”) even though the evaluation of ICFR was incomplete. Given their roles and responsibilities as CEO and CFO, respectively, Poor and Tovar knew or should have known that these statements were false.
  • Ideanomics’s Form 10-Q for the second quarter of 2019 was signed by Carla Zhou as interim CFO, and attached to it were two SOX certifications that were purportedly signed by Zhou as interim CFO, which Poor facilitated. In fact, Zhou could not speak or read English and had not actually reviewed or signed the Form 10-Q or the certifications prior to the filing. Poor knew or should have known that the certifications purportedly signed by Zhou were inaccurate and that Zhou did not have a chance to review and approve of the Form 10-Q before it was filed.

The SEC’s order against Wu finds that he violated the antifraud, reporting, internal control, and books and records provisions of the federal securities laws and caused certain of the company’s violations. The SEC’s order against Ideanomics, Poor, and Tovar finds that Ideanomics violated the antifraud, reporting, internal control, and books and records provisions of the federal securities laws, and it finds that Poor and Tovar violated the antifraud, reporting, and books and records provisions and caused certain of the company’s violations.

Without admitting or denying the SEC’s findings, all respondents settled the matter by agreeing to cease and desist from future violations of the charged provisions. Wu agreed to pay more than $3.3 million in disgorgement and prejudgment interest and a $200,000 penalty. Tovar and Poor each agreed to pay a $75,000 penalty. Ideanomics agreed to pay a $1.4 million penalty and to retain an independent compliance consultant to review, assess, and make recommendations as to the company’s internal accounting controls. Finally, Wu agreed to a ten-year officer and director bar, and Tovar agreed to be suspended from appearing and practicing before the SEC as an accountant for at least two years.

Short Reports

Ideanomics, which currently trades at $.33/share under the ticker symbol IDEX on the OTC Market’s Expert market, was the target of negative Research Reports by J Capital and Hindenburg Research on June 25, 2020, while the issuer was trading on the NASDAQ Stock Market. Both research sites accused Ideanomics of having a history of frequently changing business operations and lying about its assets and revenues to pump the stock price. They also both warned investors that the Ideanomics share price could face huge losses in the future and that Ideanomics was at risk of regulatory action.

At the time, Ideanomics had just switched business operations to enter the popular Elective Vehicle (EV) space, and the share price had been seeing a nice climb because of it. Along with the change of operations, between June 11, 2020 and June 22, 2020, the company put out a parade of press releases announcing five contracts for electric vehicles, with Tianjin Zhongcheng Jiaye Automobile Trading (for 42 vehicles), Jiudao Group (for 400 vehicles), Didi City CP (for 300 vehicles), Beijing Silk Road Rainbow Group (for 2,000 vehicles), and the city of Neijiang in Sichuan Province (for 200 EV taxis). J Capital, who had taken a short position in Ideanomics, claimed they contacted the alleged purchasers of the vehicles and were told by four of the five that the announced deals were a lie. Some had never even heard of Ideanomics.  J Capital accused Ideanomics of announcing fake deals to drive up the stock price so that they could raise money in an offering since the company only had enough cash to continue operating for three more months. J Capital also pointed out that Ideanomics was using a shady auditor (BF Borgers CPA) located in Colorado, who probably never even put forth any effort into verifying any of Ideanomics’s financial claims. BF Borgers was recently busted by the SEC and permanently banned for what the SEC called a massive fraud for not actually conducting the audits it claimed to have conducted. The full J Capital report can be read at this link.

Hindenburg announced on X (formerly Twitter) that it had taken a short position in Ideanomics. It accused Ideanomics of only changing business operations to EV to run a pump-and-dump and predicted that the stock price would be heading back to its previous lows. Hindenburg also accused Ideonomics of misleading the public about its recently announced facility, including using fake images.

Ideanomics issued a press release countering the claims made by J Capital and Hindenburg research, but in the end, their warnings to investors rang true. Ideanomics did end up facing regulatory action, and not only did it see its share price drop to new lows, but it also ended up doing a 1:125 reverse split on August 23, 2023, got booted off the NASDAQ, and failed to stay current with its SEC filings, resulting in the issuer being relegated to the Expert Market. And even after the 1:125 reverse split, the share price once again fell to Hindenburg’s target of $.30/share.

More Trouble for Ideanomics

Even after the SEC settlement, Ideanomics may not be completely out of the woods yet.  Recently, on July 31, 2024, they were sued by WiTricity Corp. in federal court alleging that Ideanomics’s WAVE-branded wireless charging systems—designed for mass transit and logistics applications—infringe on five WiTricity patents for wireless energy transfer technology. According to the complaint, the WAVE charging systems are deployed in public transportation systems in Florida, Texas, California, and Washington state. Witricity is seeking damages, including lost profits and a reasonable royalty, and an order to block further use of the patented technology.


For further information about this securities law blog, please contact Brenda Hamilton, Securities Attorney, at 200 E. Palmetto Park Rd, Suite 103, Boca Raton, Florida, (561) 416-8956, or by email at [email protected]. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.

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