UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW …securities.stanford.edu/filings-documents/1047/... · - 2 - funnel tens of millions of dollars of Company funds directly or

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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

______________________________________ IN RE WONDER AUTO TECHNOLOGIES, INC. SECURITIES LITIGATION

No.11-CV-03687-PAE ECF CASE CLASS ACTION CONSOLIDATED COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS DEMAND FOR JURY TRIAL

Lead Plaintiff aAd Partners LP (“aAd Partners” or “Lead Plaintiff”), individually and on

behalf of all other persons and entities similarly situated, by its undersigned attorneys, for its

Consolidated Complaint against Wonder Auto Technologies, Inc., (“Wonder Auto” or the

“Company”), Qingjie Zhao, and Meirong Yuan, (collectively, “Defendants”), alleges upon

personal knowledge as to itself and its own acts, and upon information and belief as to all other

matters, based upon, inter alia, the investigation made by and through Lead and Liaison Counsel,

as follows:

NATURE OF THE ACTION

1. This is a federal securities class action on behalf of a class consisting of all

purchasers of the common stock of Wonder Auto from March 30, 2009 through May 6, 2011

(the “Class Period”), other than Defendants and their related entities, for violations of the

Securities Exchange Act of 1934 (the “Exchange Act”). During the Class Period, Defendants

issued a number of public filings which falsely characterized acquisitions by the Company as

arms-length transactions when they were in fact related party transactions facilitated to secretly

Case 1:11-cv-03687-PAE Document 25 Filed 12/05/11 Page 1 of 40

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funnel tens of millions of dollars of Company funds directly or indirectly to these related parties.

The Company’s public filings also materially overstated the Company’s revenues. Specifically,

Wonder Auto: (1) failed to disclose that the Company was engaging in transactions that lacked

economic substance to transfer at least $17.8 million in Company funds to related parties; (2)

otherwise failed to disclose related-party transactions; (3) overstated its reported revenues for

fiscal years 2008 and 2009 because it did not recognize revenue in accordance with its publicly

disclosed revenue recognition policies; and (4) contrary to the Defendants’ representations, the

Company lacked adequate internal financial controls. The true facts were publicly revealed in a

series of public announcements by the Company commencing on May 20, 2011 and continuing

through September 29, 2011.

2. Wonder Auto common stock last traded on the NASDAQ stock market on May 6,

2011 at a price of $5.42, after which it was suspended from trading on all markets by the

NASDAQ pending Wonder Auto’s provision of a satisfactory Plan of Compliance to NASDAQ.

On August 18, 2011, after the Company submitted a Plan of Compliance and sought re-listing on

the NASDAQ, the Company was advised that its request had been denied because, among other

things, “the Company failed to disclose details of an acquisition and that a series of acquisitions

were related-party transactions as well as that corporate funds may have been misappropriated in

these related-party transactions.” Wonder Auto stock did not trade again until September 12,

2011, but then only on the Pink Sheets, because the NASDAQ determined to allow the

Company’s common stock to resume trading but not on the NASDAQ market. The Company’s

stock last traded at approximately $1 per share. During the Class Period, Wonder Auto common

stock traded as high as $15.50. Lead Plaintiff seeks to recover damages caused by defendants’

violations of the Exchange Act.


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JURISDICTION AND VENUE

3. The claims alleged herein arise under Sections 10(b) and 20(a) of the Exchange

Act, 15 U.S.C. §§ 78j (b) and 78t, and Rule 10b-5, 17 C.F.R. § 240.10b-5 promulgated

thereunder.

4. The jurisdiction of this Court is based on Section 27 of the Exchange Act, 15

U.S.C. § 78aa and 28 U.S.C. § 1331 (federal question jurisdiction).

5. Venue is proper in this judicial district pursuant to Section 27 of the Exchange

Act. Substantial acts in furtherance of the alleged fraud or the effects of the fraud have occurred

in this Judicial District. Many of the acts charged herein, including the preparation and

dissemination of materially false and/or misleading information, occurred in substantial part in

this District.

6. In connection with the acts, conduct and other wrongs alleged in this complaint,

defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,

including but not limited to, the United States mails, interstate telephone communications and

the facilities of the national securities exchange.

PARTIES

7. Lead Plaintiff aAd Partners purchased shares of Wonder Auto during the Class

Period, as evidenced by its attached Certification, and was damaged thereby.

8. Defendant Wonder Auto is a Nevada corporation with its principal executive

offices located at No. 16 Yulu Street, Taihe District, Jinzhou, Liaoning, 121013, People’s

Republic of China (“China”). Wonder Auto is primarily engaged in the business of designing,

developing, manufacturing and selling automotive electrical parts, specifically alternators and

starters, engine valves, tappets, rods and shafts in China. As of April 29, 2010, Wonder Auto

had 33,859,994 shares of common stock outstanding.


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9. Defendant Qingjie Zhao (“Zhao”) at all relevant times herein was the Company’s

Chairman, President, and Chief Executive Officer. Zhao began serving as Chief Executive

Officer and President on June 22, 2006 and Chairman of the Board in July 2006. Defendant

Zhao joined the Company's subsidiary, Jinzhou Halla, as its Chairman in October 1997.

Defendant Zhao is also currently an executive director and 10.4% owner of China Wonder

Limited, a company listed on the Alternative Investment Market of the London Stock Exchange,

which is principally engaged in the manufacture and sale of specialty packaging machinery to the

Chinese pharmaceutical market, and an executive director and 11.0% owner of Jinzhou Jinheng

Automotive Safety System Co., Ltd., which is principally engaged in the manufacture and sale of

automotive airbag safety systems in China. As found by the Company’s Audit Committee in its

September 29, 2011 report, Zhao held equity and control positions in two of the entities involved

in the related-party acquisitions at issue in this action that were not extinguished until just prior

to the Company’s consummation of those acquisitions. Zhao signed, on behalf of Wonder Auto,

various SEC filings by the Company which are alleged herein to have been materially false and

misleading. On and effective July 12, 2011, Zhao resigned as CEO of the Company and on

September 29, 2011 resigned as Chairman of the Board, but remains a director of the Company.

10. Defendant Meirong Yuan (“Yuan”) at all relevant times herein was the

Company’s Chief Financial Officer, Treasurer and a director. Defendant Yuan has been the Vice

President of Jinzhou Wonder Industrial Co., Ltd and also serves as a director of Jinzhou Halla.

Yuan signed, on behalf of Wonder Auto, various SEC filings by the Company which are alleged

herein to have been materially false and misleading. On and effective July 12, 2011, Yuan

resigned as CFO of the Company.


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11. The defendants referenced above in ¶¶ 9 - 10 are sometimes referred to herein as

the “Individual Defendants.”

12. Each of the Defendants is liable as a participant in a fraudulent scheme and course

of business that operated as a fraud or deceit on purchasers of Wonder Auto common stock by

disseminating materially false and misleading statements and/or concealing material adverse

facts. The scheme (i) deceived the investing public regarding Wonder Auto’s business,

operations, and the intrinsic value of Wonder Auto common stock; and (ii) caused Lead Plaintiff

and the members of the Class to purchase Wonder Auto common stock at artificially inflated

prices and suffer damages when Defendants’ scheme was publicly revealed.

13. Qingdong Zeng (“Zeng”), who is not named as a defendant, became the

Company’s Chief Strategy Officer on July 2, 2010 and had been a vice president of the Company

since December 2009. Mr. Zeng has also been the president of the Company's subsidiary,

Jinzhou Wanyou, since September 2006. Mr. Zeng has also been a director of Wonder Auto and

the sole director of Jinheng Holdings since January 2010. Mr. Zeng is the brother-in-law of

Xiangdong Gao, who together with Defendant Zhao own 29% of the outstanding shares of

Wonder Auto. As found by the Company’s Audit Committee in its September 29, 2011 report,

before joining Wonder Auto, Zeng held control positions at the selling party, its affiliate or the

target company with regard to three transactions at issue in this action. On July 12, 2011, Mr.

Zeng was appointed acting Chief Executive Officer of Wonder Auto.

SUBSTANTIVE ALLEGATIONS

14. Wonder Auto is a manufacturer of automotive electric parts, suspension products

and engine components in China, including alternators, starters, engine valves and tappets, and

rods and shafts for use in shock absorber systems. The Company has organized its operations


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into four business segments: alternators, starters, rods and shafts, and engine valves and tappets.

Wonder Auto manufactures these components through a number of indirect wholly-owned

subsidiaries including Jinzhou Halla, Jinzhou Dongwoo, Jinzhou Wanyou, Jinzhou Hanhua,

Jinzhou Karhem, Jinzhou Motor, Jinzhou Equipment, Fuxin Huirui, Jinan Worldwide, Jinzhou

Jiade, and Jinzhou Lida.

15. Wonder Auto represents that the products it manufactures are used in passenger

and commercial automobiles. Wonder Auto sells the products within China to original

equipment manufacturers (OEMs), engine manufacturers and automotive parts suppliers.

Wonder Auto represented that its customers include SAIC GM Wuling Automobile Co., Ltd.,

Beijing Hyundai Motor Company, Shenyang Aerospace Mitsubishi Motors Engine Co., Ltd.,

Harbin Dongan Automotive Engine Co., Ltd., Shanghai Volkswagen Co., Ltd., BYD Company

Limited, Tianjin Toyota Co., Ltd., Ltd., Geely Automobile Co., Ltd. and Tianjin FAW Xiali

Automobile Co., Ltd.

THE UNDISCLOSED RELATED–PARTY ACQUISITIONS

16. Prior to and during the Class Period, Wonder Auto engaged in a number of

acquisitions that it represented were arms-length but were in fact related party transactions

devised to divert Company funds directly or indirectly for the benefit of Defendant Zhao, Zeng

and, as yet, unknown relatives of these individuals or other related parties.

17. These undisclosed related-party transactions commenced at least on August 23,

2006 when, according to a Form 8-K filed by Wonder Auto with the SEC on August 25, 2006,

the Company’s wholly owned subsidiary, Wonder Auto Limited entered into a Share Purchase

Agreement with Winning International Development Limited (“Winning”), a purportedly

independent party which was described as a British Virgin Islands corporation. By this


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agreement the Company contracted to purchase Winning’s holdings of 50% of the total shares of

Jinzhou Dong Woo Precision Co. Ltd. (a supplier of raw materials to Wonder Auto Limited) for

US $4.85 million. The Form 8-K was signed by Defendant Zhao, who also signed the Share

Purchase Agreement on behalf of Wonder Auto Limited. Xuhui Xie, an unidentified person,

signed on behalf of Winning. No connection between Winning and Wonder Auto or any of its

subsidiaries was disclosed. However, shortly thereafter, on November 1, 2006, Mr. Zeng signed

a Notification of Change of Secretary or Director filing with the Hong Kong Companies Registry

made by Friend Birch Limited, a subsidiary of Winning, on behalf of Winning. At the same

time, Mr. Zeng was serving as the president of the Company's subsidiary, Jinzhou Wanyou,

having been appointed to that position in September 2006.

18. The next acquisition which involved the same undisclosed related party –

Winning – occurred in 2007. According to a Form 8-K filed by Wonder Auto with the SEC on

April 4, 2007, on April 2, 2007, two subsidiaries of Wonder Auto acquired an aggregate

79.592% ownership interest in Jinzhou Wanyou Mechanical Parts Co., Ltd. (“Wanyou”) in two

separate, and separately negotiated, equity purchase transactions between the Company’s

subsidiaries and two former equity owners of Wanyou. The 8-K was signed by Defendant Zhao.

19. In the first transaction, the Company’s wholly-owned subsidiary, Wonder Auto

Limited, a British Virgin Islands corporation, acquired a 40.816% equity ownership interest in

Wanyou from “Friend Branches Limited,” a Hong Kong corporation, for a total cash

consideration of up to $8.42 million pursuant to a Share Purchase Agreement dated April 2,

2007. The actual entity was Friend Birch Ltd. According to Friend Birch’s 2006 Annual Return

filed with the Honk Kong Companies Registry, on November 1, 2006, Winning transferred its

entire ownership interest in Friend Birch to Mr. Zeng. According to a February 2, 2007


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Notification of Change of Director filing signed by Mr. Zeng, his position as sole director of

Friend Birch was transferred to Winning, but he continued to own all of Friend Birch until the

shares were transferred back to Winning some time prior to November 9, 2009. Further, Mr.

Zeng was the president of Wanyou at the time of this acquisition.

20. In the second transaction, the Company’s indirect, wholly-owned subsidiary,

Jinzhou Halla Electrical Equipment Co., Ltd (“Jinzhou Halla”), which already owned 20.408%

of Wanyou’s shares, acquired a further 38.776% equity stake in Wanyou from Jinzhou Wonder

Auto Suspension System Co., Ltd. (“Jinzhou Wonder Auto Suspension”) for a total cash

consideration of up to $8.0 million pursuant to a Share Purchase Agreement dated April 2, 2007.

A predecessor of Jinzhou Wonder Auto Suspension was Jinzhou Wonder Auto Shock Absorber

Co., Ltd. According to that company’s 1999 Certificate of Approval for Establishment of

Enterprises with Foreign Investment in China, its Chairman was Defendant Zhao and Mr. Zeng

was a director. The third director was Yaoyue Che, on behalf of Wonder H. AO. At that time, it

was owned by Jinzhou Wonder Group, Jinzhou Wonder ESOP and Wonder Development Ltd.,

which collectively invested $2.65 million. After several transfers of ownership among a variety

of related parties for no apparent consideration during which Mr. Zeng became Chairman of the

company in January 2004, in May 2005, ownership of Jinzhou Wonder Auto Suspension was

transferred to Winning, but Mr. Zeng continued to serve as Chairman of the company (until at

least October 31, 2008) at the behest of Winning and also continued to sign on behalf of

Winning. Accordingly, when Jinzhou Halla completed this acquisition of Wanyou shares from

Jinzhou Wonder Auto Suspension, Mr. Zeng was on both sides of the transaction.

21. The total consideration paid for the 79.592% ownership interest in Wanyou the

Company did not already own was up to $16.42 million, but, according to Wanyou’s Original


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Capital Contribution filings with the Hong Kong Companies Registry, Wanyou had only been

incorporated on September 15, 2006 with $0.5 million from Jinzhou Halla, $1 million from

Friend Birch and $0.95 million in equipment from Jinzhou Wonder Auto Suspension, for a total

of $2.45 million. The purchase price for the 79.592 percent equity stake equates to a value for

the entire company of $20.5 million, representing a 730% return on the individual investment to

Winning.

22. According to the Form 10-K filed by Wonder Auto with the SEC on March 29,

2009, the first day of the Class Period, for its fiscal year ended December 31, 2008 as reflected in

the 2008 Annual Report filed with the S.E.C (“2008 10-K”), the Company completed four

acquisitions during 2008 and through the filing of the 2008 10-K. The 2008 10-K was signed by

Defendants Zhao and Yuan. These acquisitions were as follows:

(a) On January 1, 2008, an acquisition of a 50% equity interest in Jinzhou

Hanhua Electrical Systems Co., Ltd. (“Jinzhou Hanhua”) for $4.10

million. The Company stated Jinzhou Hanhua designs, manufactures and

sells armatures for automotive starters and oil pumps and is a supplier to

Jinzhou Halla;

(b) On February 19, 2008, an acquisition of a 65% equity interest in Jinzhou

Karham, for $820,000. The Company stated Jinzhou Karham is engaged

in the business of designing, manufacturing and selling carbon brush

assemblies for automotive starters and is also a supplier to Jinzhou Halla;

(c) On May 15, 2008, an acquisition of a 100% equity interest in Fuxin Huirui

for $140,990. The Company stated Fuxin Huirui manufactures and sells

rotors for automotive alternators and is also a supplier to Jinzhou Halla;


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(d) On October 1, 2008 and January 4, 2009, in two separate transactions,

acquisitions of 65% and 35% equity interests in Jinan Worldwide,

respectively for an aggregate of $18,741,390. According to the Company,

Jinan Worldwide designs, manufactures and sells engine valves and

tappets, and is one of the largest engine valves and tappets manufacturers

in China.

23. The following chart describes Wonder Auto’s operations through its various

subsidiaries as of the filing of the 2008 10-K:

24. The January 1, 2008 acquisition of 50% of the equity in Jinzhou Hanhua marked

yet another acquisition from a purportedly independent Winning. In January 2008, however, Mr.

Zeng was still serving as Chairman of Jinzhou Wonder Auto Suspension at the behest of

Winning as well as president of Wanyou. There was no disclosure in the 2008 10-K that the

January 1, 2008 acquisition was a “related-party transactions” and no Form 8-K concerning this

acquisition was ever filed.


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25. On March 4, 2010, Wonder Auto filed its Form 10-K for its fiscal year ended

December 31, 2009 with the SEC (“2009 10-K”). It was signed by Defendants Zhao and Yuan,

Through the date of the 2009 10-K, the Company continued to pursue its growth by acquisition

strategy, by means of the following acquisitions:

(a) On September 22, 2009, an acquisition of 100% of the equity interest in

Friend Birch Limited (correctly identified at this time), a purportedly

independent Hong Kong company, by Wanyou, by which the Company

thereby indirectly acquired Friend Birch’s wholly owned Chinese

subsidiaries, Jinzhou Jiade Machinery Co., Ltd. and Jinzhou Lida Auto

Parts Co., Ltd., from Winning for $12 million. According to the

Company, these companies engaged in designing, manufacturing and

selling gas spring shafts and other thin mechanical shafts products,

automotive springs and gas springs.

(b) On January 18, 2010, through two separate transactions, an acquisition of

an aggregate of 38.36% of equity interest in Applaud Group Limited

which is a British Virgin Islands corporation and has no assets other than

its ownership of 52.2% of equity interest in Jinheng Automotive Safety

Technology Holdings Limited (“Jinheng Holding”), for which Defendant

Zhao, was an executive director.

26. The following chart describes Wonder Auto’s operations through its various

subsidiaries as the filing of the 2009 10-K:


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27. According to the Form 8-K filed by Wonder Auto with regard to the Friend Birch

acquisition, Ms. XIE Xuhui, an unidentified individual, signed the share purchase agreement as

an authorized representative and board member of Winning. As noted above, the ownership of

Friend Birch has flip-flopped between Winning and Zeng, who continued to retain sole

ownership of Friend Birch until sometime prior to November 9, 2009. These transfers were

made for no legitimate business purpose as Winning’s corporate resolution for the transfer of its

ownership in Friend Birch to Wanyou was signed by Zeng on behalf of Winning. This

resolution was not issued until November 10, 2009 – more than one month after October 1, 2009


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– the date on which Wonder Auto claimed in its 2009 10-K that it had completed its acquisition

of Friend Birch and it had then become a wholly owned subsidiary of the Company. In addition,

Zeng signed a December 9, 2009 Form D2A filing by Friend Birch dated November 10, 2009

showing that he had been appointed as a director to replace Winning, but Zeng signed both for

himself and for Winning. These facts strongly support the conclusion that Ms. XIE Xuhui was a

“straw” person and the true owner of Winning was, at the time of this acquisition, and during all

relevant times, Zeng.

28. Since the filing of the 2009 10-K, Wonder Auto made another purportedly

independent acquisition. According to the Company’s Form 10-Q filing with the SEC on August

9, 2010 for its second quarter ended June 30, 2010 (“2Q10 Report”) on June 24, 2010 which was

signed by Defendant Yuan, Wonder Auto, through Friend Birch, entered into a purported arms-

length agreement with Achieve Gain Group Limited (“Achieve Gain”), a company incorporated

in BVI, pursuant to which Friend Birch agreed to acquire Achieve Gain’s 100% equity interest in

Vital Glee Development Limited (“Vital Glee”), for a total consideration of $15 million. Vital

Glee was described as an investment holding company that, through an unidentified subsidiary,

was engaged in the automotive shock absorber manufacturing business. Wonder Auto’s Form

10-Q filing for its third quarter ended September 30, 2010, on November 9, 2010, identified the

subsidiary as Jinzhou Lide. Zeng signed the agreement on behalf of Friend Birch and an

unidentified person named Yubing Xue signed on behalf of Achieve Gain. No other information

was provided as to Achieve Gain or Vital Glee.

29. In actuality, Jinzhou Lide was not incorporated until April 26, 2010, only two

months prior to the acquisition, and, according to its incorporation papers, has been situated in a

facility owned by the Company. The address of Jinzhou Lide (BoHai Avenue, Jinzhou Economy


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& Technology Development Zone, Jinzhou, Liaoning) is the same as the address of the

Company’s subsidiary, Jinzhou Wanyou Mechanical Parts Co., Ltd. Diligent search has not

revealed the listing of Jinzhou Lide in any third-party parts supplier databases, which one would

expect if it was engaged in the automotive shock absorber manufacturing business. This was a

sham transaction.

30. Upon being questioned by analysts as to this transaction, Zeng stated that Jinzhou

Lide had been a recent spinoff from Jinzhou Wonder Auto Suspension, which was owned by a

Hong Kong Investor and that Mr. Xue did not own any shares. Wonder Auto’s web site

(www.wandeauto.com) also states that Jinzhou Lide was a spinoff of Jinzhou Wonder Auto

Suspension. As noted above, Wonder Auto Suspension has been 100% owned by Winning since

May 2005 and Zeng was its Chairman until at least October 31, 2008, serving at the behest of

Winning. In addition, as alleged above, Zeng has acted on behalf of Winning in a number of

transactions. Winning’s involvement in this transaction was not revealed by Defendants.

31. In its September 29, 2011 Report, the Audit Committee of Wonder Auto

confirmed that each of the targets of the above five acquisitions alleged to have involved

Winning were, in fact, “owned in whole or part by Winning, or its affiliates. The Audit

Committee further found that:

(a) Defendant “Zhao, in his personal capacity, held equity and control

positions in two of these target companies though apparently were extinguished

prior to the Company’s purchase of these companies.”

(b) “before joining the Company, Zeng held control positions at the selling

party, its affiliate, or the target during three of these transactions” but “[d]uring


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that time, Mr. Zeng’s brother-in-law maintained significant shareholdings in the

Company.”

32. The Audit Committee also found that Magic Era Group, Ltd. (“Magic”), a British

Virgin Islands company. and/or a suspected affiliate, participated in four of the Company’s

acquisitions during 2008 -2010 and that:

(a) in connection with three of these acquisitions, the Company provided at

least $17.8 million in cash or value to these entities

(b) “the participation of Magic and its affiliates in these four acquisitions

served no necessary business purpose.”

(c) “current and former Company personnel have acted on behalf of or

provided assistance to Magic and its affiliates, including applying to open

brokerage accounts for a Magic affiliate and signing an agreement with a third

party as Magic’s representative.”

(d) “a significant Company shareholder appears to have supplied

consideration on behalf of Magic in connection with Magic’s acquisition of equity

in an entity later acquired by the Company”

(e) “records obtained by the Committee state that a longtime associate of

Company management served as the director and shareholder of Magic”

(f) “the Company provided at least one Magic affiliate with office space”

(g) “a Magic affiliate purchased debts totaling more than $4.4 million owed

by an acquisition target shortly before the acquisition”; and


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(h) “according to records obtained by the Committee, at least one early

Company investor served as the stockholder, Chairman, and director of a Magic

affiliate.”

33. While the Audit Committee did not publicly identify these individuals, Wonder

Auto was created by an entity called MGCC Investment Strategies, Inc. (“MGCC”). According

to a Schedule 14C filed by MGCC with the SEC on July 31, 2006 (and signed by Zhao), on or

about July 8, 2006, MGCC’s corporate name was changed to “Wonder Auto Technology, Inc.”

The Schedule 14C further indicates that Defendant Zhao was its CEO, President and Secretary

and that Zhao was the beneficial owner of 61.05% by virtue of his control over Empower

Century Limited and Choice Inspire Limited. Pinnacle China Funds, L.P., which was controlled

by Barry Kitt, held 9.9% of MGCC’s stock. Given the similarity in corporate names between

MGCC and Magic and the fact that Zhao is a “significant Company shareholder,” it is a plausible

and reasonable inference that Defendant Zhao was a beneficiary of the payments to Magic and

certain of the Company’s acquisitions described above. Alternatively, the “significant Company

shareholder” to whom the Audit Committee referred could be Xiangdong Gao, who is Zeng’s

brother-in-law. It is also a plausible and reasonable inference that the “former Company

personnel” to which the Audit Committee referred include Zhao and Yuan, both of whom

resigned as officers of the Company two months prior to the Audit Committee Report, effective

July 12, 2011. Further, it is a plausible and reasonable inference that the “current Company

personnel” to which the Audit Committee Referred is Zeng. Further, the Company could not

have provided office space to “at least one Magic affiliate” without the knowledge and

complicity of Defendants Zhao and Yuan.


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34. The Audit Committee also found that “in connection with one of these

transactions, the Company contracted for consulting services with a Hong Kong company, the

shareholders of which included a then-Company employee who also served as a director of two

Company subsidiaries.” The Audit Committee further found that “the Hong Kong company

appears to be owned by an early Company shareholder formerly associated with a Magic

affiliate.”

35. The Audit Committee instructed Company management to “obtain independent

valuations by appraisal firms approved by the [Audit] Committee of all assets acquired and

liabilities assumed in connection with any transaction in which Magic or its affiliates

participated,” to no longer “engage in any transaction with Magic or its affiliates,” and to “obtain

a background check to confirm that all counter-parties and professional advisors are unrelated.”

36. None of these relations that infected at least the five acquisitions that directly or

indirectly involved Winning were publicly disclosed by the Company. As a result, the foregoing

SEC filings that disclosed these transactions were materially false and misleading.

37. Since 2007, the Company has had in place a Code of Ethics (the “Code”) which

applies to all “Covered Persons” such as “directors, officers and employees of the Company,

including the Company’s principal executive officer and principal financial officer.” The Code

is designed to “deter wrongdoing” and, among other things, promote: (1) “honest and ethical

conduct, including the ethical handling of actual or apparent conflicts of interests between

personal and professional relationships”; (ii) full, fair, accurate, timely, and understandable

disclosure in reports and documents that the Company files with, or submits to, the Securities

and Exchange Commission … and in other public communications made by the Company”; and

(iii) “compliance with applicable governmental laws, rules and regulations.” In particular, the


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Code explicitly forbids Covered Persons from “[e]ngaging in any transaction involving the

Company, from which the Covered Person can benefit financially or otherwise, apart from the

usual compensation received in the ordinary course of business, or which creates a conflict of

interest.” If for some reason, such conflicts were to arise, the Code requires Covered Persons to

handle them “honestly and ethically,” and in the case of conflicts involving directors, the

principal executive officer, and the principal financial officer, such Covered Persons are required

to “report any such conflict or potential conflict situations to the chairman of the audit

committee,” or to the “chairman of the board of directors.” The Code also sets forth the

Company’s policy to “fully and fairly disclose the financial condition of the Company,” and

promote “full, fair, accurate, timely and understandable disclosure in all Company reports

required to be filed with or submitted to the [SEC].” As such, Covered Persons are responsible

for ensuring that the Company’s public reports are “complete, fair and understandable,” and that

the Company’s books and records “fully and fairly reflect all Company transactions in

accordance with accounting principles generally accepted in the [U.S.].” As alleged herein,

Defendants violated their own Code of Ethics and thereby acted intentionally and/or recklessly in

committing the acts complained of herein.

WONDER AUTO’S REPORTED REVENUES FOR 2008 AND 2009 WERE MATERIALLY OVERSTATED

38. Wonder Auto’s 2008 10-K stated that the Company experienced increased market

demand for its products which fueled a 38.3% or $39.1 million increase in sales revenue to

$141.2 million as compared to $102.1million in sales revenue for 2007. In addition, according to

the 2008 10-K, Wonder Auto reported a $10.8 million increase in gross profit in 2008 to $36.4

million as compared to $25.6 million in 2007 and net income for 2008 of $18.9 million as

compared to a loss of $3.8 million in 2007.


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39. Defendants represented in the 2008 10-K that the Company’s revenue recognition

policy was as follows:

Revenue from sales of the Company’s products is recognized when

the significant risks and rewards of ownership have been

transferred to the buyer at the time when the products are put into

use by its customers, the sales price is fixed or determinable and

collection is reasonably assured.

40. According to Wonder Auto’s 2009 10-K, the Company continued to experience

significant growth in sales revenues, gross profit and net income in 2009. Specifically, the 2009

10-K reported that the Company experienced a 49.5% increase is sales revenues to $211 million

in 2009 as compared to $141.2 million in sales revenues in 2008, which increase was fueled by

increased market demand for starter and alternator products and its acquisition of Jinan

Worldwide. In addition, Wonder Auto reported a 41% increase in gross profit, or $14.9 million,

to $51.4 million in 2009 as compared to $36.4 million in 2008, and a 20.9% increase in net

income for 2009 to $22.9 million as compared to net income of $18.9 million in 2008.

41. Defendants represented in the 2009 10-K that the Company’s revenue recognition

policy was as follows:

Revenue from sales of the Company’s products is recognized when

the significant risks and rewards of ownership have been

transferred to the buyer at the time when the products are put into

use by its customers, the sales price is fixed or determinable and

collection is reasonably assured.


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42. As admitted by the Audit Committee in its September 29, 2011 Report, however,

the representations as to reported revenues for 2008 and 2009 were false and the announced

revenue recognition policy was not followed by the Company. Specifically, the Audit

Committee found that:

(a) “the Company’s Wanyou subsidiary recognizes revenue on export sales at

the time of shipment of product”

(b) “the Company has engaged in consignment sales in which the revenue was

recognized before the inventory was sold,” resulting in an overstatement of 2008

sales by more than $439,722 and an overstatement of 2009 sales by at least

$393,400;

(c) “the Company failed to properly account for certain sales in which product

was returned or deemed unusable,” which had the effect of overstating 2008

revenue by at least $2,125,321.

43. The 2008 10-K, as filed with the SEC, included separately signed certifications by

Defendants Zhao and Yuan pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a)

as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, attesting, inter alia, that:

(a) Based on my knowledge, this report does not contain any untrue statement

of a material fact or omit to state a material fact necessary to make the statements

made, in light of the circumstances under which such statements were made, not

misleading with respect to the period covered by this report; and

(b) Based on my knowledge, the financial statements, and other financial

information included in this report, fairly present in all material respects the


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financial condition, results of operations and cash flows of the registrant as of,

and for, the periods presented in this report.

44. Defendants Zhao and Yaun each also signed certifications pursuant to 18 U.S.C.

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, attesting

that:

(a) The Company’s Annual Report on Form 10-K for the fiscal year ended

December 31, 2008 (the “Report”), fully complies with the requirements of

Section 13(a) of the Securities Exchange Act of 1934; and

(b) Information contained in the Report fairly presents, in all material

respects, the financial condition and results of operation of the Company.

45. The 2008 10-K, as filed with the SEC, included separately signed certifications by

Defendants Zhao and Yuan pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a)

as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, attesting, inter alia, that:

(a) Based on my knowledge, this report does not contain any untrue statement

of a material fact or omit to state a material fact necessary to make the statements

made, in light of the circumstances under which such statements were made, not

misleading with respect to the period covered by this report; and

(b) Based on my knowledge, the financial statements, and other financial

information included in this report, fairly present in all material respects the

financial condition, results of operations and cash flows of the registrant as of,

and for, the periods presented in this report.


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46. Defendants Zhao and Yaun each also signed certifications pursuant to 18 U.S.C.

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, attesting

that:

(a) The Company’s Annual Report on Form 10-K for the fiscal year ended

December 31, 2009 (the “Report”), fully complies with the requirements of

Section 13(a) of the Securities Exchange Act of 1934; and

(b) Information contained in the Report fairly presents, in all material

respects, the financial condition and results of operation of the Company.

47. These representations were also materially false and misleading for the reasons

set forth above.

THE STATE OF THE COMPANY’S INTERNAL CONTROLS WERE MISREPRESENTED

48. In the 2008 10-K, Defendants represented that the Company maintained an

“effective” system of disclosure controls and procedures, which it acknowledged are defined by

the SEC to “include, without limitation, controls and procedures designed to ensure that

information required to be disclosed by us in the reports that we file or submit to the SEC under

the Exchange Act is accumulated and communicated to our management, including our principal

executive officer and our principal financial officer, or persons performing similar functions, as

appropriate to allow timely decisions to be made regarding required disclosure.” The 2008 10-K

further represented that Defendants Zhao and Yuan had evaluated the design and operating

effectiveness of these disclosure controls and procedures as of December 31, 2008 and that they

concluded that the Company’s disclosure controls and procedures were effective as of December

31, 2008.


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49. In the 2009 10-K, Defendants made the same representation that the Company

maintained an “effective” system of disclosure controls and procedures, which it acknowledged

are defined by the SEC to “include, without limitation, controls and procedures designed to

ensure that information required to be disclosed by us in the reports that we file or submit to the

SEC under the Exchange Act is accumulated and communicated to our management, including

our principal executive officer and our principal financial officer, or persons performing similar

functions, as appropriate to allow timely decisions to be made regarding required disclosure.”

The Company represented in the 1Q Form 10-Q that Defendants Zhao and Yuan had evaluated

the design and operating effectiveness of these disclosure controls and procedures as of

December 31, 2009 and that they concluded that the Company’s disclosure controls and

procedures were effective as of December 31, 2009.

50. Defendants Zhao and Yuan also included the following representations regarding

Wonder Auto’s internal controls in the respective certifications they each filed with the 2008 10-

K pursuant to 18 U.S.C. Section 1350:

(a) The registrant's other certifying officer and I have disclosed, based on our

most recent evaluation of internal control over financial reporting, to the

registrant's auditors and the audit committee of the registrant's board of

directors (or persons performing the equivalent functions):

1. all significant deficiencies and material weaknesses in the design

or operation of internal control over financial reporting which are

reasonably likely to adversely affect the registrant's ability to

record, process, summarize and report financial information; and


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2. any fraud, whether or not material, that involves management or

other employees who have a significant role in the registrant's

internal control over financial reporting.

51. The respective certifications of Defendants Zhao and Yaun pursuant to 18 U.S.C.

Section 1350 filed in connection with the 2009 10-K contained the same representations:

(a) The registrant's other certifying officer and I have disclosed, based on our

most recent evaluation of internal control over financial reporting, to the

registrant's auditors and the audit committee of the registrant's board of

directors (or persons performing the equivalent functions):

1. all significant deficiencies and material weaknesses in the design

or operation of internal control over financial reporting which are

reasonably likely to adversely affect the registrant's ability to

record, process, summarize and report financial information; and

2. any fraud, whether or not material, that involves management or

other employees who have a significant role in the registrant's

internal control over financial reporting.

52. These representations were also materially false and misleading, as admitted by

the Audit Committee in its September 29, 2011 Report, which found that:

(a) The Company lacks reliable systems and internal controls timely

and properly to track and account for costs associated with inventory,

including inventory, obsolescence, defective product and the reworking of

inventory. These deficiencies call into question the Company’s ability


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properly to calculate its inventory valuation cost of sales and gross

margin; and

(b) The Company lacks sufficient qualified and competent accounting

personnel and internal controls.

THE TRUTH BEGINS TO EMERGE

53. On March 1, 2011, Wonder Auto filed a Form 8-K with the SEC stating

that two of the Company’s subsidiaries “recorded period sales and cost of sales based on

when usage reports were provided by customers” which “did not always exactly

correspond to the financial reporting periods.” The Company further stated that as a

result of these “cut-off errors,” “sales, cost of sales and net income for individual

financial reporting periods (annually and quarterly) have been misstated” and that its

2008, 2009 and quarterly interim results for these years should no longer be relied on for

this reason. Nevertheless, the Company stated that it expected “the net effect of these

adjustments on the Company’s financial statements will be an increase in revenues and

income in 2008 and 2009.” The Company further stated that it “continues to expect to

meet the previously announced guidance for revenue and profit.”

54. As a result, the Company was not in a position to timely file its Form 10-K

for its fiscal year ended December 31, 2010. This led to the Company’s receipt on March

23, 2011 of a NASDAQ Staff determination letter that the Company had failed to meet

the requirements for continued listing on the NASDAQ and was subject to delisting.

Nevertheless, the Company again reaffirmed its expectation that it would meet the prior

guidance it had provided for 2010. The Company’s stock was delisted by the NASDAQ

on May 6, 2011 and last traded on that day at $5.42 per share.


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55. On May 12, 2011, the Company filed a Form 8-K and accompanying press

release with the SEC providing notice of delisting and indicating that the “Audit

Committee, with the assistance of professional advisors, has undertaken an internal

investigation concerning certain investment and acquisition transactions.” This was the

first disclosure by the Company of potential issues with its prior acquisitions, but no

details were provided at that time.

56. On May 20, 2011, the Company filed a Form 8-K and accompanying press

release with the SEC indicating that it had received a second letter from the NASDAQ

with regard to its failure to timely file its quarterly report for its first quarter ended March

31, 2011. The Form 8-K went on to reveal that the investigation it was conducting was in

response to an unidentified report that “alleges that the Company had engaged in several

transactions without properly disclosing their related-party nature.” No further details

were provided at that time.

57. Then, on July 15, 2011, the Company filed another Form 8-K to reveal

that on and effective July 12, 2011, Defendant Zhao had resigned as Chief Executive

Officer and President of Wonder Auto, Defendant Yuan had resigned as Chief Financial

Officer of the Company, and Zeng had been appointed acting Chief Executive Officer.

By a Form 8-K filed with the SEC on July 29, 2011, the Company disclosed the

appointment of a new Chief Financial Officer.

58. On August 24, 2011, the Company filed a Form 8-K with the SEC

indicating that it had received a letter from the Listing Qualifications Department of the

NASDAQ indicating that there had been a NASDAQ staff determination that listing of

the Company’s securities on NASDAQ was no longer warranted due to, inter alia, the


- 27 -

concerns raised that the Company failed to disclose details of an acquisition and that a

series of acquisitions were related-party transactions as well as that corporate funds may

have been misappropriated in these related-party transactions.

59. On September 9, 2011, the Company filed a Form 8-K and accompanying

press release with the SEC indicating that the NASDAQ had determined, pending a

delisting hearing, to permit the Company’s stock to begin trading as of the opening on

September 12, 2011 but only on the over-the-counter bulletin board. With regard to the

Audit Committee’s investigation, the Company stated “the Audit Committee is still

conducting its investigation into certain alleged related-party transactions and other

matters as well as whether the Company’s financial statements have been manipulated

and falsified by former senior corporate officers.”

60. When Wonder Auto common stock commenced trading on September 12,

2011, it opened at $.85 per share and closed at $2.46 per share – a 55% decline since

trading was halted. Due to continued uncertainty, Wonder Auto common stock dropped

to around $1 per share over the next two weeks.

61. The Company’s Audit Committee Report was publicly disclosed with a

Form 8-K filing and press release on October 5, 2011.

62. As of the filing of this Complaint, Wonder Auto common stock still only

trades on the over-the-counter-bulletin board and traded at $0.96 per share as of

November 30, 2011. In addition, the Company has still not filed its 2010 10-K or any

financial statements covering any period since then.


- 28 -

CLASS ACTION ALLEGATIONS 63. Lead Plaintiff brings this action as a class action pursuant to Federal Rules of

Civil Procedure 23(a) and 23(b)(3) on behalf of itself and all persons and entities other than

Defendants who purchased or otherwise acquired the common stock of Wonder Auto between

March 30, 2009 and May 6, 2011, inclusive (the “Class”). Excluded from the Class are

Defendants named herein, members of the immediate family of each of the Defendants, any

person, firm, trust, corporation, officer, director or other individual or entity in which any

Defendant has a controlling interest or which is related to or affiliated with any of the

Defendants, and the legal representatives, agents, affiliates, heirs, successors-in-interest or

assigns of any such excluded party.

64. The members of the Class are so numerous that joinder of all members is

impracticable. As of September 30, 2010, Wonder Auto had approximately 34 million shares

outstanding and during the Class Period approximately 272 million shares of Wonder Auto

common stock traded on the NASDAQ. The precise number of Class members is unknown to

Lead Plaintiff at this time but is believed to be in the thousands. In addition, the names and

addresses of the Class members can be ascertained from the books and records of Wonder Auto

and/or its transfer agent. Notice can be provided to such record owners by a combination of

published notice and first-class mail, using techniques and a form of notice similar to those

customarily used in class actions arising under the federal securities laws.

65. The members of the Class are located in geographically diverse areas and are so

numerous that joinder of all members is impractical. While the exact number of Class members

is unknown to Lead Plaintiff at this time, and can only be ascertained through appropriate

discovery, Lead Plaintiff believes there are, at a minimum, thousands of members of the Class.


- 29 -

66. Common questions of law and fact exist as to all members of the Class and

predominate over any questions affecting solely individual members of the Class. Among the

questions of law and fact common to the Class are:

(a) Whether Defendants engaged in acts or conduct in violation of the

securities laws as alleged herein;

(b) Whether Defendants misrepresented the financial results of Wonder Auto,

concealed related-party transactions and misrepresented the effectiveness

of the Company’s internal controls;

(c) Whether Defendants acted knowingly or recklessly in making the alleged

materially false and misleading statements;

(d) Whether the market price of the Company’s common stock during the

Class Period was artificially inflated because of Defendants’ conduct

complained of herein; and

(e) Whether members of the Class have sustained damages and, if so, the

proper measure of damages.

67. Lead Plaintiff’s claims are typical of the claims of the members of the Class

because Lead Plaintiff and the members of the Class sustained damages arising out of

Defendants’ wrongful conduct in violation of federal law as complained of herein.

68. Lead Plaintiff will fairly and adequately protect the interests of the members of

the Class and has retained counsel competent and experienced in class and securities litigation.

Lead Plaintiff has no interests antagonistic to or in conflict with those of the Class.

69. A class action is superior to other available methods for the fair and efficient

adjudication of this controversy since joinder of all members of the Class is impractical.


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Furthermore, because the damages suffered by individual Class members may be relatively

small, the expense and burden of individual litigation make it impossible for the Class members

individually to redress the wrongs done to them. There will be no difficulty in the management

of this action as a class action.

FRAUD ON THE MARKET PRESUMPTION

70. Lead Plaintiff will rely, in part, upon the presumption of reliance established by

the fraud-on-the-market doctrine in that:

(a) Defendants made public misrepresentations or failed to disclose material

facts regarding Wonder Auto’s financial condition and the effectiveness of

its internal controls during the Class Period;

(b) the omissions and misrepresentations were material;

(c) the common stock of the Company were actively traded throughout the

Class Period on the NASDAQ, an efficient and open market;

(d) the misrepresentations and omissions alleged would tend to induce a

reasonable investor to misjudge the value of the Company’s common

stock; and

(e) Lead Plaintiff and the members of the Class, without knowledge of the

misrepresented facts, purchased Wonder Auto common stock between the

time Defendants failed to disclose and/or misrepresented material facts

and the time the truth was fully disclosed.

71. Based upon the foregoing, Lead Plaintiff and the members of the Class are

entitled to a presumption of reliance upon the integrity of the market.


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THE SAFE HARBOR PROVISION IS INAPPLICABLE

72. The statutory safe harbor provided for forward-looking statements under certain

circumstances does not apply to the allegedly false statements pleaded in this Complaint. The

statements alleged to be false and misleading herein all relate to then-existing facts and

conditions. In addition, to the extent certain of the statements alleged to be false may be

characterized as forward-looking, they were not adequately identified as “forward-looking

statements” when made, and there were no meaningful cautionary statements identifying

important factors that could cause actual results to differ materially from those in the purportedly

forward-looking statements. Alternatively, to the extent that the statutory safe harbor is intended

to apply to any forward-looking statements pleaded herein, Defendants are liable for those false

forward-looking statements because at the time each of those forward-looking statements was

made, Defendants had actual knowledge that the particular forward-looking statement was

materially false or misleading.

COUNT I For Violations of Section 10(b) and Rule 10b-5 Thereunder

73. Lead Plaintiff incorporates by reference and repeats and realleges each of the

foregoing paragraphs as if fully set forth herein.

74. During the Class Period, Defendants carried out a plan, scheme and course of

conduct which was intended to and, throughout the Class Period, did: (i) deceive the investing

public, including Lead Plaintiff and the Class members, as alleged herein; and (ii) cause Lead

Plaintiff and the members of the Class to purchase Wonder Auto common stock at artificially

inflated prices. In furtherance of this unlawful scheme, plan and course of conduct, Defendants,

and each of them, took the actions set forth herein.


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75. Defendants (a) employed devices, schemes, and artifices to defraud; (b) made

untrue statements of material fact and/or omitted to state material facts necessary to make the

statements not misleading; and (c) engaged in acts, practices, and a course of business which

operated as a fraud and deceit upon the purchasers of the Company’s common stock in an effort

to maintain artificially high market prices for Wonder Auto common stock in violation of

Section 10(b) of the Exchange Act and Rule 10b-5. Defendants are sued either as primary

participants in the wrongful and illegal conduct charged herein or as controlling persons as

alleged below.

76. Defendants directly and indirectly, by the use, means or instrumentalities of

interstate commerce and/or of the mails, engaged and participated in a course of conduct that

misrepresented Wonder Auto’s true financial results and concealed related-party transactions by

which Company funds were paid for no valid reason.

77. Defendants employed devices, schemes, and artifices to defraud, while in

possession of material adverse non-public information and engaged in acts, practices, and a

course of conduct as alleged herein which included the making of, or the participation in the

making of, untrue statements of material facts and omitting to state material facts necessary in

order to make the statements made about Wonder Auto’s financial results and internal controls,

in the light of the circumstances under which they were made, not misleading, as set forth more

particularly herein, and engaged in transactions, practices and a course of business which

operated as a fraud and deceit upon the purchasers of Wonder Auto common stock during the

Class Period.

78. Defendant Zhao’s primary liability, and controlling person liability, arises from,

inter alia, the facts alleged hereinabove as well as the following facts: (i) Defendant Zhao was


- 33 -

the Chief Executive Officer and Chairman of the Board of Wonder Auto during the Class Period

until his resignation from those positions on July 12, 2011; (ii) by virtue of his responsibilities

and activities as Chief Executive Officer of Wonder Auto and prior equity and control positions

in at least two of the companies acquired by Wonder Auto during the Class Period for which the

related-party nature of those transactions was concealed from Lead Plaintiffs and the Class; (iii)

from his relationship with Magic and allowing Company facilities to be used by Magic; (iv) he

participated in the creation, development and reporting of the Company’s financial results for

public revelation; and (v) he personally disseminated to the investing public, on behalf of the

Company, information which he knew or recklessly disregarded was materially false and

misleading.

79. At all relevant times, Zhao was acting within the scope of his employment by

Wonder Auto. Accordingly, Zhao’s knowledge, actions, and motives may be attributed to

Wonder Auto as well as those of its other senior executives.

80. Defendant Yuan’s primary liability, and controlling person liability, arises from,

inter alia, the facts alleged hereinabove as well as the following facts: (i) Defendant Yuan was

the Chief Financial Officer of Wonder Auto during the Class Period until his resignation from

that position on July 12, 2011; (ii) by virtue of his responsibilities and activities as Chief

Financial Officer of Wonder Auto; (iii) from allowing Company facilities to be used by Magic;

(iv) he participated in the creation, development and reporting of the Company’s financial results

for public revelation; and (v) he personally disseminated to the investing public, on behalf of the

Company, information which he knew or recklessly disregarded was materially false and

misleading.


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81. As a result of the dissemination of the materially false and misleading information

and failure to disclose material facts, as set forth above, the market prices of Wonder Auto

common stock were artificially inflated during the Class Period and due to the decline in the

price of Wonder Auto common stock due to the revelations of Defendants’ misrepresentations

and omissions detailed herein, Lead Plaintiff and the members of the Class have suffered

significant damage.

82. Lead Plaintiff and the members of the Class purchased Wonder Auto common

stock during the Class Period in ignorance of the false and misleading nature of the

representations and/or omissions described above and the deceptive and manipulative devices

employed by Defendants. Lead Plaintiff and the members of the Class purchased Wonder Auto

common stock during the Class Period in reliance on either the integrity of the market and/or

directly on the statements and reports of Defendants.

83. Had Lead Plaintiff and the members of the Class known of the material adverse

information not disclosed by Defendants named in this Count, or been aware of the truth behind

Defendants' material misstatements, they would not have purchased or acquired Wonder Auto

common stock, or, if they had purchased or acquired such stock, they would not have done so at

the artificially inflated prices which they paid.

84. As a direct and proximate result of the wrongful conduct by the Defendants, Lead

Plaintiff and the members of the Class suffered damages in connection with their purchases of

Wonder Auto common stock during the Class Period.

85. By virtue of the foregoing, Defendants have violated Section 10(b) of the

Exchange Act, and Rule l0b-5 promulgated thereunder.


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COUNT II Violation of Section 20(a) Of

the Exchange Act Against the Individual Defendants

86. Lead Plaintiff repeats and realleges each of the foregoing paragraphs as if fully set

forth herein.

87. Defendants Zhao and Yuan acted as controlling persons of Wonder Auto within

the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level

executive positions as CEO or CFO of Wonder Auto, and their participation in and/or awareness

of the Company’s operations and/or intimate knowledge of the financial condition of the

Company, as alleged herein, Defendants Zhao and Yuan had the power to influence and control

and did influence and control, directly or indirectly, the decision-making of the Company,

including the content and dissemination of the various statements which Lead Plaintiff contends

are false and misleading. Specifically, Zhao and Yuan had control over the public statements at

issue which they personally made.

88. As set forth above, Wonder Auto violated Section 10(b) and Rule 10b-5 by its

acts and omissions as alleged in this Complaint. By virtue of their positions as control persons,

Defendants Zhao and Yuan are similarly liable pursuant to Section 20(a) of the Exchange Act.

As a direct and proximate result of the wrongful conduct of Zhao and Yuan, Lead Plaintiff and

the members of the Class suffered damages in connection with their purchases of the Company’s

common stock during the Class Period.

WHEREFORE, Lead Plaintiff prays for relief and judgment, as follows:

A. Determining that this action is a proper class action and certifying Lead Plaintiff

as the class representative under Rule 23 of the Federal Rules of Civil Procedure and Lead

Plaintiff’s counsel as counsel to the Class;


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B. Awarding compensatory damages in favor of Lead Plaintiff and the Class

members against all Defendants, jointly and severally, for all damages sustained as a result of

Defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon;

C. Awarding Lead Plaintiff and the Class their reasonable costs and expenses

incurred in this action, including counsel fees and expert fees; and

D. Such other and further relief as the Court may deem just and proper.

JURY TRIAL DEMANDED

Lead Plaintiff hereby demands a trial by jury.

Dated: December 2, 2011 GOLD BENNETT CERA & SIDENER LLP Solomon B. Cera Thomas C. Bright 595 Market Street, Suite 2300 San Francisco, California 94105 Tel: ( 415) 777-2230 Fax: (415) 777-5189 Email: [email protected] Email: [email protected] Attorneys for Lead Plaintiff

KLAFTER OLSEN & LESSER LLP By: /s/Jeffrey A. Klafter Jeffrey A. Klafter Two International Drive, Suite 350 Rye Brook, NY 10573 Tel: (914) 934-9200 Fax: (914) 934-9200 Email: [email protected] Liaison Counsel





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CERTIFICATE OF SERVICE

I, Jeffrey A. Klafter, liaison counsel for the Plaintiff, hereby certify that on December 2,

2011, I filed the foregoing with the Clerk of the Court using the Court’s CM/ECF system which

will send electronic notification of such filing to all counsel of record in the within action.

Furthermore, a copy of the foregoing was delivered to all counsel of record in the related actions

via electronic mail.

/s/Jeffrey A. Klafter Jeffrey A. Klafter


Documents

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW …securities.stanford.edu/filings-documents/1047/... · - 2 - funnel tens of millions of dollars of Company funds directly or