A Calgary-based energy company with links to China’s ruling Communist Party is suing its former top executives for misappropriation of funds and fraud in the latest twist in the saga of bankrupt Sequoia Resources Corp.
Shanghai Energy Corp. and its parent, Shanghai Sinooil Energy Holding (Hong Kong) Co. Ltd., claim former Shanghai Energy chief executive officer Wentao Yang and chief operating officer Kevin Richmond falsified documents and diverted money to Sequoia and to a bitcoin-mining operation.
Mr. Yang and Mr. Richmond, who were executives at Shanghai until May and June of this year respectively, are listed among 12 individual and corporate defendants in the statement of claim, filed last week in Calgary. Shanghai is seeking damages totaling $11.3-million.
In its claim, Shanghai alleges the executives diverted money to Sequoia in 2016 so it could buy Western Canadian natural-gas assets from Endurance Energy, which was in receivership. It says $8.5-million of the damages it is seeking consist of a refundable bond to the Alberta Energy Regulator (AER), net revenue from the assets, legal costs, staff expenses and a share of the debt associated with the purchase.
Shanghai also claims that Mr. Yang and several other individuals diverted $1-million to a company they formed called Blockworks Inc. to buy bitcoin-mining equipment and software. None of the allegations has been proven in court.
Mr. Yang denied all of Shanghai’s charges. “I’m going to defend myself,” he said. Mr. Richmond declined to comment.
Sequoia, established by Mr. Yang and Hao Wang, who is also a defendant in this case, was set up to acquire aging gas assets with high abandonment liabilities, starting with a package of wells purchased from Perpetual Energy Inc. in 2016. Sequoia went bankrupt in March when plummeting gas prices left insufficient cash flow to both maintain production and clean up wells as they petered out.
Sequoia’s failure left unfunded environmental liabilities of $225-million and shone a spotlight on a worsening problem of soaring cleanup costs as financially weak companies acquire old wells, despite the AER’s rules designed to prevent the practice.
The receiver in the Sequoia bankruptcy has filed suit against Calgary-based Perpetual and its CEO, Susan Riddell Rose, claiming they knew assets Sequoia purchased from them would sink the company. Perpetual has denied the allegation and has mounted a defence.
Shanghai, meanwhile, is among several Chinese-backed companies that have acquired Western Canadian oil and gas assets as established domestic players looked to shed properties to improve their own finances. In January, The Globe and Mail traced Shanghai’s ultimate ownership to the International Department of the Central Committee of the Communist Party of China.
Officials at Shanghai declined comment beyond a news release announcing the suit. Neither Mr. Yang nor Mr. Richmond was aware of the court action, filed on Thursday, until The Globe informed them of it.
Mr. Yang is also the target of an investigation by the Canada Revenue Agency, which alleges he failed to report income received in foreign transfers on his 2016 tax return. Shanghai is seeking access to documents seized by the CRA.
Editor’s note: An earlier version of this article incorrectly said Shanghai’s failure left unfunded environmental liabilities. In fact, it was Sequoia.
Jeffrey Jones