SEC v. Jerry Li, No. 1:19-cv-10562, Southern District of New York (Nov. 15, 2019) — Complaint

1
Marc P. Berger
Sanjay Wadhwa
Gerald A. Gross
Jack Kaufman
Liora Sukhatme
Attorneys for the Plaintiff
SECURITIES AND EXCHANGE COMMISSION
New York Regional Office
Brookfield Place
200 Vesey Street, Suite 400
New York, New York 10281-1022
(212) 336-0106 (Kaufman)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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SECURITIES AND EXCHANGE COMMISSION,           :
                                :       COMPLAINT
          :
     Plaintiff,               :       19 Civ.  (  )
          :
  -against-       :       ECF CASE
          :
JERRY LI,                        :       JURY TRIAL DEMANDED
         :
     Defendant.               :
--------------------------------------------------------------------------x

 Plaintiff Securities and Exchange Commission (“Commission”), for its Complaint against
Defendant Jerry Li (“Li” or the “Defendant”), alleges as follows:
SUMMARY OF THE ALLEGATIONS
1. This action arises from violations of the Foreign Corrupt Practices Act of 1977
(“FCPA”) by defendant Li, the former Managing Director of a direct selling company in China
(“China Subsidiary”), which is made up of wholly owned subsidiaries of a U.S. based direct
selling company (“Company A”).

2
2. From 2006 to 2016, Li orchestrated a bribery scheme in China, bribing local,
provincial, and national government officials to obtain direct selling licenses and curtail
government investigations of China Subsidiary’s business practices.
3. As China Subsidiary’s Director of Sales in 2006 and 2007, and as its Managing
Director from December 2007 until 2016, Li directed a scheme to:  (i) bribe officials through
payments of cash, gifts, travel, meals, and entertainment; (ii) falsify expense reports for those
payments; and (iii) circumvent Company A’s internal accounting controls to conceal the bribes.
VIOLATIONS
4. By virtue of the conduct alleged in this Complaint, Defendant has engaged in, and
unless enjoined, will continue to engage, directly or indirectly, in transactions, acts, practices and
courses of business that constitute violations of Sections 13(b)(2)(A), 13(b)(2)(B), 13(b)(5) and
30A of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. §§ 78m(b)(2)(A) and
(b)(2)(B), 78m(b)(5) and 78dd-l] and Rule 13b2-1 thereunder [17 C.F.R. §240.13b2-1].
5. Unless the Defendant is permanently restrained and enjoined, he will again
engage in the acts, practices, transactions, and courses of business set forth in this Complaint and
in acts, practices, transactions, and courses of business of similar type and object.  Defendant
should also be ordered to pay appropriate civil monetary penalties.
NATURE OF THE PROCEEDINGS AND RELIEF SOUGHT
6. The Commission brings this action pursuant to authority conferred by Section
21(d)(1) of the Exchange Act [15 U.S.C. §78u(d)(1)].
7. The Commission seeks a final judgment:  (a) permanently enjoining the
Defendant from future violations of the securities laws provisions that the Defendant violated as
alleged in this Complaint; (b) imposing civil money penalties on the Defendant pursuant to

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Section 21(d)(3) of the Exchange Act [15 U.S.C. §78u(d)(3)]; and (c) such other relief as the
Court deems just and appropriate.
JURISDICTION AND VENUE
8. This court has subject matter jurisdiction over this action pursuant to Sections
21(d), 21(e), and 27 of the Exchange Act [15 U.S.C. §§78u(d), 78u(e) and 78aa].
9. Venue is proper in the Southern District of New York pursuant to Section 27 of
the Exchange Act [15 U.S.C. §78aa] because certain of the acts, practices, transactions, and
courses of business constituting the violations alleged in this Complaint occurred in the Southern
District of New York.  Among other things, the Defendant gave false testimony to the
Commission in the Southern District of New York, in the presence of an officer and other
representatives of Company A, concerning the violations described herein.
10. The Defendant, directly or indirectly, made use of the means or instrumentality of
interstate commerce in connection with the transactions, acts, practices and courses of business
alleged in this Complaint, including travel, the mails, telephonic communications, and electronic
messaging.  Among other things, Defendant communicated telephonically and via email with
officers and employees of Company A in the United States regarding obtaining approvals for
entertaining of Chinese media and Government officials that the Defendant used to bribe the
officials.  The Defendant also emailed false internal certifications to Company A management in
connection with Company A’s Commission filings in the United States, as described in
paragraph 35 of this Complaint.
DEFENDANT
11. Li, age 51, is a Chinese national residing in China and was the Managing Director
of China Subsidiary from December 2007 to May 2017.  Prior to becoming Managing Director,
Li was the Director of Sales for China Subsidiary in 2006 and 2007.

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RELEVANT ENTITIES AND INDIVDUALS

12. “Company A” is a direct selling company incorporated in the Cayman Islands
with headquarters in the United States.  Company A’s common stock is registered with the
Commission pursuant to Section 12(b) of the Exchange Act.  At all relevant times, its stock has
been listed on the New York Stock Exchange, and it has been an “issuer” within the meaning of
the FCPA.
13. “China Subsidiary” is a group of wholly-owned, China-based subsidiaries of
Company A.
14. “China Employee 1” is a Chinese national who resides in China.  From 2006 to
May 2017, China Employee 1 served as the head of the External Affairs department (“External
Affairs”) for China Subsidiary.  China Employee 1 reported directly to Li from December 2007
to May 2017.
15. “China Employee 2” is a Chinese national who resides in China.  From at least
2007 to at least 2008, China Employee 2 was a sales manager at China Subsidiary.  From at least
December 2007, China Employee 2 reported to Li.
16. “China Employee 3” is a Chinese national who resides in China.  From at least
2007 to 2017, China Employee 3 was a senior manager in External Affairs and reported directly
to China Employee 1.
17. “China Employee 4” is a Chinese national who resides in China.  From at least
2007 to 2017, China Employee 4 was the head of Finance for China Subsidiary.  At all relevant
times, China Employee 4 reported directly to Company A’s Asia regional management, and
indirectly to Li.

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FACTS
18. Since at least 2006, External Affairs, headed by China Employee 1, was
responsible for obtaining direct selling licenses from the Chinese government – a prerequisite for
China Subsidiary to conduct its direct selling business in China.  External Affairs was also
responsible for promoting China Subsidiary’s interests to the Chinese government, responding to
inquiries and investigative requests from the Chinese government, and marketing China
Subsidiary through the Chinese media.  In 2007, External Affairs was comprised of 3-4
employees, but it grew to approximately 100 employees by 2016.
A. Li Bribed Chinese Government Officials
to Obtain Licenses and Stop Government Investigations

19. In late 2006, China Subsidiary submitted an application to the Chinese
government for its first direct selling license in China.  To facilitate application approval, China
Subsidiary paid bribes to government officials employed by the China Ministry of Commerce
(the agency responsible for awarding direct selling licenses in China), and to local offices of the
China State Administration for Industry and Commerce (another government agency that
participated in the licensing process).  Li and China Employee 1 directed the payment of those
bribes.  For example, in a January 10, 2007 recorded telephone call, Li asked China Employee 1
whether China Subsidiary had “taken care of” an official at the Ministry of Commerce (“Official
1”).  Li then asked, “We have given the money to [Official 1], haven’t we?” to which China
Employee 1 replied, “Of course we have.”  Li stated, “The money works well on him.”
1

20. Li also directed the payment of bribes to Chinese government officials to stop
government investigations of China Subsidiary, and to prevent or reduce fines issued to China

1
 The telephone discussions described in this Complaint were in Chinese, and the quoted
excerpts are English translations of those recordings.

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Subsidiary by the Chinese government.  For example, in a March 15, 2007 recorded telephone
call, Li and China Employee 1 discussed such payments to officials in Jilin Province.  Li told
China Employee 1 that Li had paid 35,000 yuan (approximately $4,500) to officials in Jilin “to
build the connection...I was thinking it is better to spend money beforehand than spending
money afterwards.  This money is a small sum after all, and if we were to be penalized, the
figure will be much greater.”
21. In a December 5, 2007 recorded telephone call, Li and China Employee 1
discussed payments made by China Employee 2 to officials in Zhejiang province to stop several
government investigations of China Subsidiary.  Li told China Employee 1 that Li had told China
Employee 2 “to handle those needed to be done immediately.  As for how much we should give
to those from district bureau, I told him to talk to you first.”  China Employee 1 responded that
she had already discussed this issue with China Employee 2, and that “we already handled
everything before I left yesterday, and he even bought cards...If they dare to take our money,
then they should get this handled for us.”
22. After China Subsidiary obtained its first direct selling license from the Chinese
government, Li continued to bribe government officials to secure additional licenses.  For
example, in a September 8, 2009 recorded telephone call, Li spoke with an official from the State
Administration for Industry and Commerce in Shaanxi Province (“Official 2”).  Official 2 told Li
that there may be “some trouble” in Beijing, and that China Subsidiary may have to pay a fine.
Official 2 told Li that he did not “want to discuss too much with you over the phone,” but that he
was interested in becoming a “consultant” to China Subsidiary, and that this money would help
pay for his “son’s house purchasing fund.”  Official 2 also told Li that China Subsidiary’s
licensing process in Shaanxi Province was almost complete, and Li thanked him:  “You have

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certainly helped us to get this done.”  Official 2 told Li that he will go to “Beijing to visit the
leadership, because not only for taking care of this matter, it is the relationship for life.”
B. Li Bribed Chinese State-Owned Media
to Prevent Negative Media Coverage of China Subsidiary

23. Li also bribed government officials at state-owned media outlets in China
2
 to
prevent negative media coverage of China Subsidiary.  For example, in January 2013, a state-
owned media outlet (“Media Outlet 1”) published a negative article about China Subsidiary.  In
an April 22, 2013 recorded telephone call, China Employee 1 told Li that she had met with the
President of Media Outlet 1 (“Media Official 1”) and asked him to remove the negative article.
China Employee 1 told Li:  “He already took what he should take, ate what he should eat, drank
what he should drink, and used what he should use.  It’s up to him.”  Li responded:  “It is time
for him to get to work, right?”  China Employee 1 told Li that she told Media Official 1 that “if
you destroyed us, where could you get money?” to which Media Official 1 laughed and agreed to
remove the negative articles.  Li praised China Employee 1:  “You have done a great job!”
24. In 2013, another state-owned media outlet (“Media Outlet 2”) published several
negative articles about China Subsidiary.  In an August 28, 2013 recorded telephone call, China
Employee 3 told Li that he had met with the Chief Editor of Media Outlet 2, who “had agreed
that they would stop after publishing two articles and we would start to negotiate collaboration.”
China Employee 3 told Li that when the Chief Editor of Media Outlet 2 escorted him out, China
Employee 3 “put our ‘goodwill’ on the desk.  He pretended he did not see it.  This should not be
a problem.”  Li told China Employee 3 that they should ask Media Outlet 2 to publish positive
articles before negotiating “collaboration.”

2
 Employees of state-owned media outlets in China are “foreign officials” under the FCPA.

8
C. Li Approved False Expenses and Deceived Internal Auditors at China Subsidiary
25. From at least 2006 to at least October 2016, Li approved reimbursement
applications for purportedly legitimate business expenses billed to China Subsidiary that, in fact,
were false, and that Li knew were false at the time he approved them.  For example, in a
December 30, 2006 recorded telephone call, Li and China Employee 1 discussed China
Subsidiary expense reports that had been submitted for bribes paid to local officials in Jiangxi
Province.  China Employee 1 told Li that Li had signed expense reports listing “red envelopes”
given to certain government officials.  Li told China Employee 1 that he had not noticed that the
expense reports listed “red envelopes” and asked China Employee 1 to send the expense reports
back to the employee who had submitted them and ask that employee “to rewrite the form,”
thereby concealing the nature of payments.  In the context of this conversation, Li understood
that “red envelope” meant a cash bribe.
26. In a September 1, 2010 recorded telephone call, Li and China Employee 4
discussed giving advance warning to and coaching an External Affairs employee for an
investigation by the China Subsidiary’s internal audit department (“IA”).  An IA manager had
learned that the External Affairs employee had submitted a fake hotel receipt, and the IA
manager told Li and China Employee 4 that the IA manager intended to confront the External
Affairs employee about the fake receipt.  Li told China Employee 4 to warn the External Affairs
employee but to avoid using company email when doing so.  Li also told China Employee 4 to
coach the External Affairs employee to stick to his false story:  “No matter what will happen to
him, he should tell them it came from the hotel.  If he gives in, then we will fall like a
landslide...He should just tell them that he was given a wrong receipt.”

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27. In a January 9, 2012 recorded telephone call, Li and China Employee 1 discussed
other fake receipts that had been identified by IA, in this case phony restaurant receipts.  Li told
China Employee 1 that she should try to get reissued receipts from the restaurants to avoid
further investigation.  Later that day, China Employee 1 told an External Affairs colleague that
Li was worried about “what’s going on between us and [Company A], especially the [Company
A] auditing department...Jerry [Li] is afraid something may go wrong.”  China Employee 1 also
said that Li did not want China Employee 1 to go to the IA committee meeting, and that Li
would “deal with them on [China Employee 1’s] behalf.”
28. In 2015 and 2016, Li approved several expense applications submitted by an
External Affairs employee for reimbursement of approximately $150,000 paid to a farm in
Yantai, purportedly for shipping fruit and vegetable gifts to Chinese government officials.  The
amount of produce purportedly purchased at the farm would have weighed approximately 34.5
metric tons, or 135 pounds per purported gift recipient and, thus, could not have been the actual
purpose of the $150,000 expenditure.  Li knew that these expense applications and the attached
invoices were false and had been created for an illicit purpose.
29. China Subsidiary’s financial statements were consolidated into Company A’s
reported financial statements, which were filed in the United States.  Therefore, the false
expenses approved and facilitated by Li were incorporated into Company A’s financial
statements.
D. Li Misled IA Concerning Unreasonable Spending and Internal Policy Violations

30. Between 2012 and 2016, Li falsely assured IA that certain high, illicit External
Affairs expenses were legitimate and necessary business expenses.  Li also falsely assured IA

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that he was otherwise committed to improving compliance of Company A’s internal FCPA and
internal accounting controls.
31. IA audited External Affairs’ expenses approximately twice a year, and IA issued a
report (“EA Audit Report”) at the conclusion of each audit.  The EA Audit Reports showed
unreasonably large expenses and listed violations of China Subsidiary’s policies, including fake
receipts and verbal approval of expenses.
32. For example, in 2014, Li received an EA Audit Report that found that, during one
six-month period, China Employee 1 had spent over $1 million on restaurant meals with Chinese
government officials.  According to the report, China Employee 1 had attended 239 such meals,
with a total of 4,312 participants, thus averaging $3,232 per meal.  These numbers were
implausibly high, as there were only 184 days (including weekends) during those six months.
According to the EA Audit Report, during those six months, External Affairs treated 30,076
Chinese government officials to meals and spent a total of approximately $3.7 million for meals,
gifts, and entertainment of government officials.
33. In April 2016, Li received another EA Audit Report covering expenses for the
first six months of 2015.  The report stated that China Employee 1 had attended 115 restaurant
meals with Government officials during a single six-month period.  The average cost per meal
was $1,472, which was implausible on its face.  During that same period, according to the EA
Audit Report, China Employee 1 provided gifts to 828 government officials, totaling $146,485.
The report stated that “vendor receipts were replaced when problems were found,” highlighting
China Subsidiary’s practice of allowing External Affairs to replace problematic receipts, and
failing to highlight those problems on the final reports.  Despite this practice of replacing
problematic receipts, the report still found violations, such as restaurant receipts submitted by

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different employees with very close transaction times in the same restaurant.  The report also
found that External Affairs had expended a total of $811,465 without corporate approvals, and
that seven External Affairs employees (including China Employee 1) had relied solely upon
verbal approvals for more than 50% of their expense applications, despite China Subsidiary’s
internal policy that such verbal approval could be used only for emergency expenditures.
34. Li received copies of the above-described EA Audit Reports in advance of their
distribution to Company A executives and board members in the U.S.  After Li received the EA
Audit Reports, he discussed the findings with IA.  Li falsely assured IA that the abnormally high
EA expenses were legitimate and necessary to conduct business in China.  Li acknowledged the
compliance problems identified in the reports, such as the use of fake receipts, and falsely
assured IA that he would discipline and train employees to improve compliance of China
Subsidiary’s policies.  IA purported to rely on Li’s false assurances in sending the EA Audit
Reports (including Li’s assurances) to Company A’s management and its Board of Directors, and
in responding to the Board of Directors’ subsequent inquiries regarding the high EA spending.
E. Li Provided False Internal Certifications
and Made False Statements to Company A Management

35. As Managing Director of China Subsidiary, for each quarter from 2008 to 2016,
Li signed an internal certification related to Company A’s filings.  In each instance, Li certified:
(i)  “I designed disclosure controls and procedures (meaning controls and other procedures for
recording, processing, summarizing, and reporting information that [Company A] must disclose
in its public report) to ensure that material information relating to my area of responsibility is
made known to the CEO and CFO”; (ii) “nothing came to my attention that made me question
the effectiveness of [Company A’s] disclosure controls and procedures”; and (iii) “I am not
aware of any significant deficiencies in the design or operation of [Company A’s] internal

12
controls or any material weaknesses in internal controls or any fraud, whether material or not
material, that involves management or other employees who have a significant role in [Company
A’s] internal controls.”    Based on the facts summarized above, showing Li’s concealment of
bribery, approval of false expenses, and circumvention of internal accounting controls, these
certifications were false.
36. On October 20-21, 2016, in testimony before the Commission staff – and in the
presence of the Company A officer responsible for its FCPA compliance (and other Company A
representatives) – Li denied knowledge of any payments to Chinese government officials on
behalf of China Subsidiary.  Specifically, Li stated that he never offered any payment to any
official at the Ministry of Commerce or the State Administration of Industry and Commerce, and
that he was not aware of any such payments offered by anyone at China Subsidiary.  Li also
stated that China Subsidiary was very strict about FCPA compliance.  Those statements were
false and misleading, for the reasons set forth above, and Li thus further acted to circumvent
Company A’s internal accounting controls.  Lee further testified that he did not have a personal
email account and that he did not use any email account other than his work email.  This
testimony was false and misleading because Li did, in fact, have a personal email account, which
he used for work-related correspondence.
FIRST CLAIM FOR RELIEF
Violations of Section 30(A) of the Exchange Act
(Anti-Bribery Provisions of the FCPA)

37. Paragraphs 1 through 36 are re-alleged and incorporated by reference herein.
38. Li, who was an officer, director, employee, or agent of Company A, a U.S. issuer,
made use of the mails or other means or instrumentalities of interstate commerce corruptly in

13
furtherance of an offer, payment, promise to pay, or authorization of the payment of any money,
or offer, gift, promise to give, or authorization of the giving of anything of value to foreign
officials for the purposes of influencing their acts or decisions, securing an improper advantage,
or inducing them to use their influence to assist the issuer in obtaining or retaining business.
39. By reason of the foregoing, Li violated Section 30A of the Exchange Act [15
U.S.C. §78dd-l].
SECOND CLAIM FOR RELIEF
Li Aided and Abetted Company A’s Violations
of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act

(Company Books and Records and Internal Accounting Controls)

40. Paragraphs 1 through 36 are re-alleged and incorporated herein by reference.
41. Section 13(b)(2)(A) of the Exchange Act [15 U.S.C. § 78m(b)(2)(A)] requires
issuers to make and keep books, records, and accounts which, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of their assets.
42. Section 13(b)((2)(B) of the Exchange Act [15 U.S.C. § 78m(b)(2)(B) requires
issuers to devise and maintain a system of internal accounting controls sufficient to provide
reasonable assurances that transactions are recorded as necessary to allow preparation of
financial statements in conformity with generally accepted accounting principles or any other
criteria applicable to such statements, and to maintain accountability for assets.
43. Company A violated Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B) [15
U.S.C. §§ 78m(b)(2)(A) and (b)(2)(B)].
44. Li knowingly or recklessly provided substantial assistance to Company A with
respect to Company A’s violations of Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B) [15
U.S.C. §§ 78m(b)(2)(A) and (b)(2)(B)].

14
45. By reason of the foregoing, Li violated Section 20(e) of the Exchange Act [15
U.S.C. § 78t(e)] by aiding and abetting Company A’s violations of Sections 13(b)(2)(A) and
13(b)(2)(B) of the Exchange Act [15 U.S.C. §§ 78m(b)(2)(A) and (b)(2)(B)].
THIRD CLAIM FOR RELIEF
Li Violated Section 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1

(Falsifying Books and Records)

46. Paragraphs 1 through 36 are re-alleged and incorporated herein by reference.
47. As described above, Li knowingly falsified, and directly or indirectly caused to be
falsified books, records, or accounts of Company A, an issuer subject to Section 13(b)(2) of the
Exchange Act [15 U.S.C. §78m(b)(2)].  As a result of Li’s conduct, the books and records of
Company A falsely recorded the corrupt payments for bribes to Chinese government officials
described above as payments for bona fide business expenses.  By authorizing the falsification of
invoices and expense applications, Li knowingly circumvented Company A’s internal accounting
controls.
48. By reason of the foregoing, Li violated Section 13(b)(5) of the Exchange Act [15
U.S.C. § 78m(b)(5)] and Exchange Act Rule 13b2-1 [17 C.F.R. §240.13b2-1].
PRAYER FOR RELIEF
WHEREFORE, the Commission respectfully requests that this Court enter a Final
Judgment:
I.
Finding that the Defendant (A) violated Sections 13(b)(5) and 30A of the Exchange Act
[15 U.S.C. §§ 78m(b)(5) and 78dd-l] and Rule 13b2-1 thereunder [17 C.F.R. §240.13b2-1]; and
(B) aided and abetted Company A’s violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the

15
Exchange Act [15 U.S.C. §§ 78m(b)(2)(A) and (b)(2)(B)] as alleged in this Complaint;
II.
Permanently enjoining the Defendant, his agents, servants, employees, attorneys-in-fact
and assigns, and those persons in active concert or participation with him or who receive actual
notice of the injunction by personal service or otherwise, from (A) violating or aiding and
abetting violations of Sections 13(b)(5) and 30A of the Exchange Act [15 U.S.C. §§ 78m(b)(5)
and 78dd-l] and Rule 13b2-1 thereunder [17 C.F.R. §240.13b2-1]; and (B) aiding and abetting
violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act [15 U.S.C. §§
78m(b)(2)(A) and (b)(2)(B)];
III.
Ordering the Defendant to pay civil monetary penalties pursuant to Section 21(d)(3) of
the Exchange Act [15 U.S.C. § 78u(d)(3)]; and
IV.
Granting such other and further relief as the Court may deem just and proper.

JURY DEMAND
Pursuant to
Rule
38
of the Federal Rules
of Civil
Procedure, Plaintiff demands
trial
by
jury in this
action of all issues
so triable.
Dated:
New
York, New York
November 14, 2019
By: _
~/.~~
~
M
arc P. erger
S
anjay
Wadhwa
G
erald
A. Gross
J
acic Kaufman
L
iora
Sukhatme
Attorneys for
Plaintiff
S
ECURITIES
AND
EXCHANGE COMMISSION
N
ew York
Regional
Office
Brookfield
Place
200
Vesey Street,
Suite 400
N
ew York, New York
10281-1022
{
212) 336-0106
(Kaufman)
K
[email protected]
I6

1 

Marc P. Berger 
Sanjay Wadhwa 
Gerald A. Gross 
Jack Kaufman 
Liora Sukhatme 
Attorneys for the Plaintiff 
SECURITIES AND EXCHANGE COMMISSION 
New York Regional Office 
Brookfield Place 
200 Vesey Street, Suite 400 
New York, New York 10281-1022 
(212) 336-0106 (Kaufman) 
 
UNITED STATES DISTRICT COURT 
SOUTHERN DISTRICT OF NEW YORK 
--------------------------------------------------------------------------x 
SECURITIES AND EXCHANGE COMMISSION,           :  
                                :       COMPLAINT 
          :     
     Plaintiff,               :       19 Civ.  (  ) 
          : 
  -against-       :       ECF CASE   
          :   
JERRY LI,                     :       JURY TRIAL DEMANDED 

         :  
     Defendant.               : 
--------------------------------------------------------------------------x 
 
 

 Plaintiff Securities and Exchange Commission (“Commission”), for its Complaint against 

Defendant Jerry Li (“Li” or the “Defendant”), alleges as follows: 

SUMMARY OF THE ALLEGATIONS  

1. This action arises from violations of the Foreign Corrupt Practices Act of 1977 

(“FCPA”) by defendant Li, the former Managing Director of a direct selling company in China 

(“China Subsidiary”), which is made up of wholly owned subsidiaries of a U.S. based direct 

selling company (“Company A”).    

Case 1:19-cv-10562   Document 1   Filed 11/14/19   Page 1 of 16



 
2 

2. From 2006 to 2016, Li orchestrated a bribery scheme in China, bribing local, 

provincial, and national government officials to obtain direct selling licenses and curtail 

government investigations of China Subsidiary’s business practices.   

3. As China Subsidiary’s Director of Sales in 2006 and 2007, and as its Managing 

Director from December 2007 until 2016, Li directed a scheme to:  (i) bribe officials through 

payments of cash, gifts, travel, meals, and entertainment; (ii) falsify expense reports for those 

payments; and (iii) circumvent Company A’s internal accounting controls to conceal the bribes. 

VIOLATIONS 

4. By virtue of the conduct alleged in this Complaint, Defendant has engaged in, and 

unless enjoined, will continue to engage, directly or indirectly, in transactions, acts, practices and 

courses of business that constitute violations of Sections 13(b)(2)(A), 13(b)(2)(B), 13(b)(5) and 

30A of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. §§ 78m(b)(2)(A) and 

(b)(2)(B), 78m(b)(5) and 78dd-l] and Rule 13b2-1 thereunder [17 C.F.R. §240.13b2-1]. 

5. Unless the Defendant is permanently restrained and enjoined, he will again 

engage in the acts, practices, transactions, and courses of business set forth in this Complaint and 

in acts, practices, transactions, and courses of business of similar type and object.  Defendant 

should also be ordered to pay appropriate civil monetary penalties.   

NATURE OF THE PROCEEDINGS AND RELIEF SOUGHT 

6. The Commission brings this action pursuant to authority conferred by Section 

21(d)(1) of the Exchange Act [15 U.S.C. §78u(d)(1)]. 

7. The Commission seeks a final judgment:  (a) permanently enjoining the 

Defendant from future violations of the securities laws provisions that the Defendant violated as 

alleged in this Complaint; (b) imposing civil money penalties on the Defendant pursuant to 

Case 1:19-cv-10562   Document 1   Filed 11/14/19   Page 2 of 16



 
3 

Section 21(d)(3) of the Exchange Act [15 U.S.C. §78u(d)(3)]; and (c) such other relief as the 

Court deems just and appropriate.   

JURISDICTION AND VENUE 

8. This court has subject matter jurisdiction over this action pursuant to Sections 

21(d), 21(e), and 27 of the Exchange Act [15 U.S.C. §§78u(d), 78u(e) and 78aa].  

9. Venue is proper in the Southern District of New York pursuant to Section 27 of 

the Exchange Act [15 U.S.C. §78aa] because certain of the acts, practices, transactions, and 

courses of business constituting the violations alleged in this Complaint occurred in the Southern 

District of New York.  Among other things, the Defendant gave false testimony to the 

Commission in the Southern District of New York, in the presence of an officer and other 

representatives of Company A, concerning the violations described herein.   

10. The Defendant, directly or indirectly, made use of the means or instrumentality of 

interstate commerce in connection with the transactions, acts, practices and courses of business 

alleged in this Complaint, including travel, the mails, telephonic communications, and electronic 

messaging.  Among other things, Defendant communicated telephonically and via email with 

officers and employees of Company A in the United States regarding obtaining approvals for 

entertaining of Chinese media and Government officials that the Defendant used to bribe the 

officials.  The Defendant also emailed false internal certifications to Company A management in 

connection with Company A’s Commission filings in the United States, as described in 

paragraph 35 of this Complaint.       

DEFENDANT 

11. Li, age 51, is a Chinese national residing in China and was the Managing Director 

of China Subsidiary from December 2007 to May 2017.  Prior to becoming Managing Director, 

Li was the Director of Sales for China Subsidiary in 2006 and 2007.   

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RELEVANT ENTITIES AND INDIVDUALS 
 

12. “Company A” is a direct selling company incorporated in the Cayman Islands 

with headquarters in the United States.  Company A’s common stock is registered with the 

Commission pursuant to Section 12(b) of the Exchange Act.  At all relevant times, its stock has 

been listed on the New York Stock Exchange, and it has been an “issuer” within the meaning of 

the FCPA.     

13. “China Subsidiary” is a group of wholly-owned, China-based subsidiaries of 

Company A. 

14. “China Employee 1” is a Chinese national who resides in China.  From 2006 to 

May 2017, China Employee 1 served as the head of the External Affairs department (“External 

Affairs”) for China Subsidiary.  China Employee 1 reported directly to Li from December 2007 

to May 2017.  

15. “China Employee 2” is a Chinese national who resides in China.  From at least 

2007 to at least 2008, China Employee 2 was a sales manager at China Subsidiary.  From at least 

December 2007, China Employee 2 reported to Li.        

16. “China Employee 3” is a Chinese national who resides in China.  From at least 

2007 to 2017, China Employee 3 was a senior manager in External Affairs and reported directly 

to China Employee 1.   

17. “China Employee 4” is a Chinese national who resides in China.  From at least 

2007 to 2017, China Employee 4 was the head of Finance for China Subsidiary.  At all relevant 

times, China Employee 4 reported directly to Company A’s Asia regional management, and 

indirectly to Li.        

  

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FACTS 

18. Since at least 2006, External Affairs, headed by China Employee 1, was 

responsible for obtaining direct selling licenses from the Chinese government – a prerequisite for 

China Subsidiary to conduct its direct selling business in China.  External Affairs was also 

responsible for promoting China Subsidiary’s interests to the Chinese government, responding to 

inquiries and investigative requests from the Chinese government, and marketing China 

Subsidiary through the Chinese media.  In 2007, External Affairs was comprised of 3-4 

employees, but it grew to approximately 100 employees by 2016.  

A. Li Bribed Chinese Government Officials 
to Obtain Licenses and Stop Government Investigations 
 
19. In late 2006, China Subsidiary submitted an application to the Chinese 

government for its first direct selling license in China.  To facilitate application approval, China 

Subsidiary paid bribes to government officials employed by the China Ministry of Commerce 

(the agency responsible for awarding direct selling licenses in China), and to local offices of the 

China State Administration for Industry and Commerce (another government agency that 

participated in the licensing process).  Li and China Employee 1 directed the payment of those 

bribes.  For example, in a January 10, 2007 recorded telephone call, Li asked China Employee 1 

whether China Subsidiary had “taken care of” an official at the Ministry of Commerce (“Official 

1”).  Li then asked, “We have given the money to [Official 1], haven’t we?” to which China 

Employee 1 replied, “Of course we have.”  Li stated, “The money works well on him.”1   

20. Li also directed the payment of bribes to Chinese government officials to stop 

government investigations of China Subsidiary, and to prevent or reduce fines issued to China 

                     
1 The telephone discussions described in this Complaint were in Chinese, and the quoted 
excerpts are English translations of those recordings. 

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Subsidiary by the Chinese government.  For example, in a March 15, 2007 recorded telephone 

call, Li and China Employee 1 discussed such payments to officials in Jilin Province.  Li told 

China Employee 1 that Li had paid 35,000 yuan (approximately $4,500) to officials in Jilin “to 

build the connection…I was thinking it is better to spend money beforehand than spending 

money afterwards.  This money is a small sum after all, and if we were to be penalized, the 

figure will be much greater.” 

21. In a December 5, 2007 recorded telephone call, Li and China Employee 1 

discussed payments made by China Employee 2 to officials in Zhejiang province to stop several 

government investigations of China Subsidiary.  Li told China Employee 1 that Li had told China 

Employee 2 “to handle those needed to be done immediately.  As for how much we should give 

to those from district bureau, I told him to talk to you first.”  China Employee 1 responded that 

she had already discussed this issue with China Employee 2, and that “we already handled 

everything before I left yesterday, and he even bought cards…If they dare to take our money, 

then they should get this handled for us.”    

22. After China Subsidiary obtained its first direct selling license from the Chinese 

government, Li continued to bribe government officials to secure additional licenses.  For 

example, in a September 8, 2009 recorded telephone call, Li spoke with an official from the State 

Administration for Industry and Commerce in Shaanxi Province (“Official 2”).  Official 2 told Li 

that there may be “some trouble” in Beijing, and that China Subsidiary may have to pay a fine.  

Official 2 told Li that he did not “want to discuss too much with you over the phone,” but that he 

was interested in becoming a “consultant” to China Subsidiary, and that this money would help 

pay for his “son’s house purchasing fund.”  Official 2 also told Li that China Subsidiary’s 

licensing process in Shaanxi Province was almost complete, and Li thanked him:  “You have 

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certainly helped us to get this done.”  Official 2 told Li that he will go to “Beijing to visit the 

leadership, because not only for taking care of this matter, it is the relationship for life.”      

B. Li Bribed Chinese State-Owned Media  
to Prevent Negative Media Coverage of China Subsidiary  
 
23. Li also bribed government officials at state-owned media outlets in China2 to 

prevent negative media coverage of China Subsidiary.  For example, in January 2013, a state-

owned media outlet (“Media Outlet 1”) published a negative article about China Subsidiary.  In 

an April 22, 2013 recorded telephone call, China Employee 1 told Li that she had met with the 

President of Media Outlet 1 (“Media Official 1”) and asked him to remove the negative article.  

China Employee 1 told Li:  “He already took what he should take, ate what he should eat, drank 

what he should drink, and used what he should use.  It’s up to him.”  Li responded:  “It is time 

for him to get to work, right?”  China Employee 1 told Li that she told Media Official 1 that “if 

you destroyed us, where could you get money?” to which Media Official 1 laughed and agreed to 

remove the negative articles.  Li praised China Employee 1:  “You have done a great job!” 

24. In 2013, another state-owned media outlet (“Media Outlet 2”) published several 

negative articles about China Subsidiary.  In an August 28, 2013 recorded telephone call, China 

Employee 3 told Li that he had met with the Chief Editor of Media Outlet 2, who “had agreed 

that they would stop after publishing two articles and we would start to negotiate collaboration.”  

China Employee 3 told Li that when the Chief Editor of Media Outlet 2 escorted him out, China 

Employee 3 “put our ‘goodwill’ on the desk.  He pretended he did not see it.  This should not be 

a problem.”  Li told China Employee 3 that they should ask Media Outlet 2 to publish positive 

articles before negotiating “collaboration.”    

                     
2 Employees of state-owned media outlets in China are “foreign officials” under the FCPA. 

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C. Li Approved False Expenses and Deceived Internal Auditors at China Subsidiary 

25. From at least 2006 to at least October 2016, Li approved reimbursement 

applications for purportedly legitimate business expenses billed to China Subsidiary that, in fact, 

were false, and that Li knew were false at the time he approved them.  For example, in a 

December 30, 2006 recorded telephone call, Li and China Employee 1 discussed China 

Subsidiary expense reports that had been submitted for bribes paid to local officials in Jiangxi 

Province.  China Employee 1 told Li that Li had signed expense reports listing “red envelopes” 

given to certain government officials.  Li told China Employee 1 that he had not noticed that the 

expense reports listed “red envelopes” and asked China Employee 1 to send the expense reports 

back to the employee who had submitted them and ask that employee “to rewrite the form,” 

thereby concealing the nature of payments.  In the context of this conversation, Li understood 

that “red envelope” meant a cash bribe. 

26. In a September 1, 2010 recorded telephone call, Li and China Employee 4 

discussed giving advance warning to and coaching an External Affairs employee for an 

investigation by the China Subsidiary’s internal audit department (“IA”).  An IA manager had 

learned that the External Affairs employee had submitted a fake hotel receipt, and the IA 

manager told Li and China Employee 4 that the IA manager intended to confront the External 

Affairs employee about the fake receipt.  Li told China Employee 4 to warn the External Affairs 

employee but to avoid using company email when doing so.  Li also told China Employee 4 to 

coach the External Affairs employee to stick to his false story:  “No matter what will happen to 

him, he should tell them it came from the hotel.  If he gives in, then we will fall like a 

landslide…He should just tell them that he was given a wrong receipt.”      

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27. In a January 9, 2012 recorded telephone call, Li and China Employee 1 discussed 

other fake receipts that had been identified by IA, in this case phony restaurant receipts.  Li told 

China Employee 1 that she should try to get reissued receipts from the restaurants to avoid 

further investigation.  Later that day, China Employee 1 told an External Affairs colleague that 

Li was worried about “what’s going on between us and [Company A], especially the [Company 

A] auditing department…Jerry [Li] is afraid something may go wrong.”  China Employee 1 also 

said that Li did not want China Employee 1 to go to the IA committee meeting, and that Li 

would “deal with them on [China Employee 1’s] behalf.” 

28. In 2015 and 2016, Li approved several expense applications submitted by an 

External Affairs employee for reimbursement of approximately $150,000 paid to a farm in 

Yantai, purportedly for shipping fruit and vegetable gifts to Chinese government officials.  The 

amount of produce purportedly purchased at the farm would have weighed approximately 34.5 

metric tons, or 135 pounds per purported gift recipient and, thus, could not have been the actual 

purpose of the $150,000 expenditure.  Li knew that these expense applications and the attached 

invoices were false and had been created for an illicit purpose.       

29. China Subsidiary’s financial statements were consolidated into Company A’s 

reported financial statements, which were filed in the United States.  Therefore, the false 

expenses approved and facilitated by Li were incorporated into Company A’s financial 

statements. 

D. Li Misled IA Concerning Unreasonable Spending and Internal Policy Violations 
 
30. Between 2012 and 2016, Li falsely assured IA that certain high, illicit External 

Affairs expenses were legitimate and necessary business expenses.  Li also falsely assured IA 

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that he was otherwise committed to improving compliance of Company A’s internal FCPA and 

internal accounting controls.       

31. IA audited External Affairs’ expenses approximately twice a year, and IA issued a 

report (“EA Audit Report”) at the conclusion of each audit.  The EA Audit Reports showed 

unreasonably large expenses and listed violations of China Subsidiary’s policies, including fake 

receipts and verbal approval of expenses.        

32. For example, in 2014, Li received an EA Audit Report that found that, during one 

six-month period, China Employee 1 had spent over $1 million on restaurant meals with Chinese 

government officials.  According to the report, China Employee 1 had attended 239 such meals, 

with a total of 4,312 participants, thus averaging $3,232 per meal.  These numbers were 

implausibly high, as there were only 184 days (including weekends) during those six months.  

According to the EA Audit Report, during those six months, External Affairs treated 30,076 

Chinese government officials to meals and spent a total of approximately $3.7 million for meals, 

gifts, and entertainment of government officials. 

33. In April 2016, Li received another EA Audit Report covering expenses for the 

first six months of 2015.  The report stated that China Employee 1 had attended 115 restaurant 

meals with Government officials during a single six-month period.  The average cost per meal 

was $1,472, which was implausible on its face.  During that same period, according to the EA 

Audit Report, China Employee 1 provided gifts to 828 government officials, totaling $146,485.  

The report stated that “vendor receipts were replaced when problems were found,” highlighting 

China Subsidiary’s practice of allowing External Affairs to replace problematic receipts, and 

failing to highlight those problems on the final reports.  Despite this practice of replacing 

problematic receipts, the report still found violations, such as restaurant receipts submitted by 

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different employees with very close transaction times in the same restaurant.  The report also 

found that External Affairs had expended a total of $811,465 without corporate approvals, and 

that seven External Affairs employees (including China Employee 1) had relied solely upon 

verbal approvals for more than 50% of their expense applications, despite China Subsidiary’s 

internal policy that such verbal approval could be used only for emergency expenditures.  

34. Li received copies of the above-described EA Audit Reports in advance of their 

distribution to Company A executives and board members in the U.S.  After Li received the EA 

Audit Reports, he discussed the findings with IA.  Li falsely assured IA that the abnormally high 

EA expenses were legitimate and necessary to conduct business in China.  Li acknowledged the 

compliance problems identified in the reports, such as the use of fake receipts, and falsely 

assured IA that he would discipline and train employees to improve compliance of China 

Subsidiary’s policies.  IA purported to rely on Li’s false assurances in sending the EA Audit 

Reports (including Li’s assurances) to Company A’s management and its Board of Directors, and 

in responding to the Board of Directors’ subsequent inquiries regarding the high EA spending.   

E. Li Provided False Internal Certifications 
and Made False Statements to Company A Management 
 
35. As Managing Director of China Subsidiary, for each quarter from 2008 to 2016, 

Li signed an internal certification related to Company A’s filings.  In each instance, Li certified: 

(i)  “I designed disclosure controls and procedures (meaning controls and other procedures for 

recording, processing, summarizing, and reporting information that [Company A] must disclose 

in its public report) to ensure that material information relating to my area of responsibility is 

made known to the CEO and CFO”; (ii) “nothing came to my attention that made me question 

the effectiveness of [Company A’s] disclosure controls and procedures”; and (iii) “I am not 

aware of any significant deficiencies in the design or operation of [Company A’s] internal 

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12 

controls or any material weaknesses in internal controls or any fraud, whether material or not 

material, that involves management or other employees who have a significant role in [Company 

A’s] internal controls.”  Based on the facts summarized above, showing Li’s concealment of 

bribery, approval of false expenses, and circumvention of internal accounting controls, these 

certifications were false. 

36. On October 20-21, 2016, in testimony before the Commission staff – and in the 

presence of the Company A officer responsible for its FCPA compliance (and other Company A 

representatives) – Li denied knowledge of any payments to Chinese government officials on 

behalf of China Subsidiary.  Specifically, Li stated that he never offered any payment to any 

official at the Ministry of Commerce or the State Administration of Industry and Commerce, and 

that he was not aware of any such payments offered by anyone at China Subsidiary.  Li also 

stated that China Subsidiary was very strict about FCPA compliance.  Those statements were 

false and misleading, for the reasons set forth above, and Li thus further acted to circumvent 

Company A’s internal accounting controls.  Lee further testified that he did not have a personal 

email account and that he did not use any email account other than his work email.  This 

testimony was false and misleading because Li did, in fact, have a personal email account, which 

he used for work-related correspondence.   

FIRST CLAIM FOR RELIEF  

Violations of Section 30(A) of the Exchange Act 

(Anti-Bribery Provisions of the FCPA) 
 

37. Paragraphs 1 through 36 are re-alleged and incorporated by reference herein.   

38. Li, who was an officer, director, employee, or agent of Company A, a U.S. issuer, 

made use of the mails or other means or instrumentalities of interstate commerce corruptly in 

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13 

furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, 

or offer, gift, promise to give, or authorization of the giving of anything of value to foreign 

officials for the purposes of influencing their acts or decisions, securing an improper advantage, 

or inducing them to use their influence to assist the issuer in obtaining or retaining business.   

39. By reason of the foregoing, Li violated Section 30A of the Exchange Act [15 

U.S.C. §78dd-l].  

SECOND CLAIM FOR RELIEF 

Li Aided and Abetted Company A’s Violations  
of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act 

 
(Company Books and Records and Internal Accounting Controls) 

 
40. Paragraphs 1 through 36 are re-alleged and incorporated herein by reference. 

41. Section 13(b)(2)(A) of the Exchange Act [15 U.S.C. § 78m(b)(2)(A)] requires 

issuers to make and keep books, records, and accounts which, in reasonable detail, accurately 

and fairly reflect the transactions and dispositions of their assets. 

42. Section 13(b)((2)(B) of the Exchange Act [15 U.S.C. § 78m(b)(2)(B) requires 

issuers to devise and maintain a system of internal accounting controls sufficient to provide 

reasonable assurances that transactions are recorded as necessary to allow preparation of 

financial statements in conformity with generally accepted accounting principles or any other 

criteria applicable to such statements, and to maintain accountability for assets.       

43. Company A violated Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B) [15 

U.S.C. §§ 78m(b)(2)(A) and (b)(2)(B)]. 

44. Li knowingly or recklessly provided substantial assistance to Company A with 

respect to Company A’s violations of Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B) [15 

U.S.C. §§ 78m(b)(2)(A) and (b)(2)(B)].   

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14 

45. By reason of the foregoing, Li violated Section 20(e) of the Exchange Act [15 

U.S.C. § 78t(e)] by aiding and abetting Company A’s violations of Sections 13(b)(2)(A) and 

13(b)(2)(B) of the Exchange Act [15 U.S.C. §§ 78m(b)(2)(A) and (b)(2)(B)].    

THIRD CLAIM FOR RELIEF 

Li Violated Section 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1 
 

(Falsifying Books and Records) 
 

46. Paragraphs 1 through 36 are re-alleged and incorporated herein by reference.   

47. As described above, Li knowingly falsified, and directly or indirectly caused to be 

falsified books, records, or accounts of Company A, an issuer subject to Section 13(b)(2) of the 

Exchange Act [15 U.S.C. §78m(b)(2)].  As a result of Li’s conduct, the books and records of 

Company A falsely recorded the corrupt payments for bribes to Chinese government officials 

described above as payments for bona fide business expenses.  By authorizing the falsification of 

invoices and expense applications, Li knowingly circumvented Company A’s internal accounting 

controls.   

48. By reason of the foregoing, Li violated Section 13(b)(5) of the Exchange Act [15 

U.S.C. § 78m(b)(5)] and Exchange Act Rule 13b2-1 [17 C.F.R. §240.13b2-1].    

PRAYER FOR RELIEF 

WHEREFORE, the Commission respectfully requests that this Court enter a Final 

Judgment: 

I. 

Finding that the Defendant (A) violated Sections 13(b)(5) and 30A of the Exchange Act 

[15 U.S.C. §§ 78m(b)(5) and 78dd-l] and Rule 13b2-1 thereunder [17 C.F.R. §240.13b2-1]; and 

(B) aided and abetted Company A’s violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the 

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Exchange Act [15 U.S.C. §§ 78m(b)(2)(A) and (b)(2)(B)] as alleged in this Complaint; 

II. 

Permanently enjoining the Defendant, his agents, servants, employees, attorneys-in-fact 

and assigns, and those persons in active concert or participation with him or who receive actual 

notice of the injunction by personal service or otherwise, from (A) violating or aiding and 

abetting violations of Sections 13(b)(5) and 30A of the Exchange Act [15 U.S.C. §§ 78m(b)(5) 

and 78dd-l] and Rule 13b2-1 thereunder [17 C.F.R. §240.13b2-1]; and (B) aiding and abetting 

violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act [15 U.S.C. §§ 

78m(b)(2)(A) and (b)(2)(B)]; 

III. 

Ordering the Defendant to pay civil monetary penalties pursuant to Section 21(d)(3) of 

the Exchange Act [15 U.S.C. § 78u(d)(3)]; and 

IV. 

Granting such other and further relief as the Court may deem just and proper.   

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JURY DEMAND

Pursuant to Rule 38 of the Federal Rules of Civil Procedure, Plaintiff demands trial by

jury in this action of all issues so triable.

Dated: New York, New York
November 14, 2019

By: _ ~/.~~ ~
Marc P. erger
Sanjay Wadhwa
Gerald A. Gross
Jacic Kaufman
Liora Sukhatme
Attorneys for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
New York Regional Office
Brookfield Place
200 Vesey Street, Suite 400
New York, New York 10281-1022
{212) 336-0106 (Kaufman)
[email protected]

I6

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	FIRST CLAIM FOR RELIEF  Violations of Section 30(A) of the Exchange Act