CHICAGO STOCK EXCHANGE ("CHX") BUYER - CHINA CASIN GROUP STOCK TRADING HALTED BY SHENZHEN STOCK EXCHANGE

CHX OWNERSHIP TO POTENTIALLY FALL UNDER CHINESE GOVERNMENT CONTROL CASIN GROUP DEFAULTED ON HUNDREDS OF MILLIONS OF DOLLARSSTOCK COLLATERALIZED LOANS TO

CHINESE GOVERNMENT CONTROLLED BANK 1

Opaque China Casin Group and owner/Chairman ShengJu Lu Hid Hundreds of Millions of Dollars in Collateralized Stock Loans with Chinese Government controlled, scandal-plagued HengFeng "Evergrowing" Bank.2 Publicly t raded Casin affiliate was ha lted by regulators.

Casin announces first year 2017 net profit down 81-85%, liabilities exceed shareholders equity, creating negative net worth . 3 HengFeng Bank demands more collateral, Casin stock price has collapsed from $69 Yuan to Zero - M ore than $1 billion market value disappeared - Google Finance 4

This raises the substantial r isk that CHX would become property of the Chinese government ­owned HengFeng Bank when the bank collects on Casin's unpaid loans.

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See Bloomberg: Casin Group share price: "Trading has been halted for 000838:CH" https://www.bloomberg.com/quote/000838:CH. i See Caixin Finance: "Hengfeng Bank Shaken by Management Feuds, Regulatory Inquiries." http:Uwww.caixinglobal.com/2016-ll­22/101009986.html. 3 See Reuters: Casln Guoxlng Property Development sees FY 2017 Hl net profit down 80.9 pct to 84.9 pct. http:f/www.reuters.com/artlcle/brlef-casln-guo><lng-property-devclopment-ldUSL4N1K33WU. • See Google Finance: Casin stock price chart : https://www.google.com/finance?cid=70330S.

1

1

•!• On Feb 5, 2016, China's Chongqing Casin Group ("Casin") and Chicago Stock Exchange ("CHX")

announced that CHX would be acquired by a brand new, empty shell, North American Casin Holdings, Inc. ("NA Casin") - touting Casin as a "diversified holding company.''5

•!• Casin is owned/controlled by its non-English speaking Chairman ShengJu Lu, who was described by his non-English speaking deputy - NA Casin CEO, Yong Xiao in his comment letter to the SEC as the man who

"owns and controls Casin Development (Code: 000838), a public company on China's A share market."6

•!• Casin's Chairman, ShengJu Lu hid hundreds of millions of Dollars in Collateralized Stock Loans with Chinese Government owned, and scandal plagued, HengFeng "Evergrowing" Bank.7 Lu used the stock of Casin Development (000838) as collateral for cash loans to masquerade as a "diversified holding company," including money to acquire the Chicago Stock Exchange.8

•!• Since the delay of the CHX approva l, Casin Development (000838) stock has crashed, its trading was

halted by the Shenzhen Stock Exchange authorities. citing "massive, undisclosed collateralized stock loans by its largest shareholder - Chongqing Casin Group."9 Casin stock price dropped from $69 Yuan to Zero. More than $1 billion worth of market va lue was lost. See: Google Finance. 10 Bloomberg11

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~ See CHX press release dated February 5, 2016: Chinese InvestorGroup to Acquire Chicago Stock Exchange. http:ljwww.businesswire.com/news/hame/2016020500S113/en/lnvestor-Group-Acgulre-Chicago-St ock-Exchange. 6

See SEC Comment Letter Submitted by President of North America Casin Holdings, Inc .• at •4 (March 1, 2017). 7

See Caixin Finance: "Hengfeng Bank Shaken by Management Feuds. Regulatory Inquiries." http://www.caixinglobal.com/2016-11­22/101009986.html. 1

See N. 7., infra. 9

See Chinese government-run National Enterprise Credit Information Publicity System: http://www.gsxt.gov.cn/lndex.htrnl. 10

See Google Finance: Casin stock price chart: https:ljwww.gaogle.com/finance?cid=703305. 11

See Bloomberg. CASIN "Trading has been halted for 000838:CH): https:ljwww.bloombers.com/guote/000838:CH.

2

•!• Since then, Casin has announced first year 2017 net profit down 81-85%. Its liabilities exceed shareholder equity, suggest ing a negative net worth, potentially teetering towards bankruptcy. 12

•!• The Chinese government run HengFeng Bank has demanded more collateral from Casin and Lu. Casin

has no collateral (the stock is worthless) to support the cash loan it took from the government bank, giving the Chinese government a lien over Casin and ShengJu Lu (who is also the father of proposed CHX "investor" Jay Lu, a student of Pasadena City College, 13 whose father's debts are defaulting to the Chinese government-run bank.

THE CLASSIC STOCK "PUMP AND DUMP"

I. Casin Collateralized Loans From a Chinese Government Bank With Its Own Stock, Indirectly Mortgaged CHX to the Chinese Bank.

•!• On Feb 5, 2016, China Casin Group ("Casin") and Chicago Stock Exchange ("CHX") announced

that CHX would be acquired by Casin, touting Casin as a "diversified holding company."14 But public data and stock charts indicate Casin appears to be a classic "pump and dump" penny stock manipulation that hinges on the outcome of the proposed Casin-CHX acquisition. 1~

•:• Within days of Casin's CHX acquisition announcement, t he share price for Casin's only publicly listed subsidiary Casin Development Co. Ltd. (Shenzhen Stock Exchange stock code: 000838,

which went public via reverse merger in 2015 16) shot up 3,000% to RMB 69 (or $10.46) per share

from RMB 2 (or $0.30) per share. This event was driven by news of the CHX acquisition, as per Google Finance . 17

•!• Investment biogs in China tie Casin's CHX acquisition announcement to the hyped share price of

Casin Development (000838).18

•!• Between March 2016 and M ay 2017, Casin's owner and Chairman ShengJu Lu borrowed

hundreds of millions of dollars in cash from the Chinese government owned HengFeng Bank19,

using his and his shell company Chongqing Hengyi Investment Co. Ltd.'s entire share holdings in

the public vehicle Casin Development (code: 000838} as collateral for the massive stock loans.

•!• The source for this information is found by visiting the official Chinese government operated

national database: National Enterprise Credit Information Publicity System20, and entering

12 See Reuters: Casln Guoxlng Property Development sees FY 2017 Hl net profit down 80.9 pct to 84.9 pct.

http://www.reute rs.com/article/brie f-casin-guoxin g-pro perty-d evelopm e nt -IdUS L4N l K33WU. 11

See Jay Lu's life journey school paper posted onllne as a student of Pasadena City College: https://prezi.com/r-wgzzw4apry/risirig-to-the­challenge/?webgl=0. 14

See CHX press release dated February s, 2016: Chinese Investor Group to Acquire Chicago Stock Exchange. bttp://www.businesswire.com/news/home/20l6020SOOS113/en/lnvestor-Group-Acguire-Chicago•Stock-Exchange. 15

See MSN Money: Casin stock chart, the classic "pump and dump." http://www.msn.com/en-us/monev/stockdetails/fi-137.1.000838.SHE. 16

See Sina finance: History of Casln Development. http://financc.sina.eom.cn/rea1stock/company/sz000838/nc.shtm1. 17

See Google Finance: https://www.google.com/f1nance?cid=70330S. 11

See Sina finance website, China's most popular financial news channel: http://guba.sina.eom.cn/?s=bar&name=sz000838. 19

See Reuters: "China central bank f1nds 40 banks in violation of Interbank rules." https://www.reuters.com/article/us-chlna-banks-reaulation­idUSKBNlAH2ZM. 20

See http://www.gsxt.gov.cn/lndex.html.

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•:• NA Casin CEO, Yong Xiao, aka "Jackson Xiao" has himself even publically touted Casin's

ownership of Casin Development (000838) in filings with the SEC, claiming the company to be

"healthy and worth $1.3 Billion dollars."22 (picture below Xiao's March 1, 2017 comment letter

to the SEC). The stock has been halted by regulators since May 2017, now is worth $0. 23

n See Chinese government-run National Enterprise Credit Information Publicity Syst em: http://www.gsxt.gov.cn/ lndex.html. 22

See SEC Comment Letter Submitted by President of North America Casln Holdings, Inc., at •4 (March 1, 2017). 23

See Google f inance: https://www.google.com/ finance?cid=70330S.

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Chongqing Casin also has developed valuable mixed use property consisting of a five-star hotel, an IMAX cinema, restaurants, sports and leisure shops in Chongqing'sjiangbeiz11i Central Business District.

Casin Real Estate Development Co. Ltd was founded in 1996, and it has the First Grade Real Estate Development Qualification and Property Management Qualification. It has developed projects in Beijing, Zhengzhou and Chongqing in China. It is the controlling shareholder (59.65% ownership) ofCasin Development (Code: 000838), a public company on China's A share market (market cap: approximately $1.3 billion).

Casin Prope1ty Management Co. Ltd manages a total of30 million square feet of residential and commercial space and se1ves more than 100,000 residents.

To summarize. Chongqing Casin is a large, well-known and highly successful company in China. Mr. Lu is its Chaitman, founder and controlling stockholder. Anyone wanting to leam more about Chongqing Casin is encouraged to review our website at http://www.cgcasin.com.

II. Casin Development is in Loan Default and Any Ownership of CHX by Casin Would Become Chinese Government Property, As Would CHX.

•!• As the CHX acquisition stalled with SEC and Congressional input, Casin's share price quickly

collapsed. In May 2017, Casin shares trading on the Shenzhen Stock Exchange was halted by

Exchange authorities. According to public data from Google finance, Casin's share price

decimated to zero. 24 (See stock chart pictured below) 25:

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z• See Google Finance: "Casin Development Plunges 100%": https://www.google.com/flnance?cid=703305. 15 See Shenzhen Stock Exchange homepage: httQ://www.szse.cn/main/en/marketdata/guotes/lndex.shtml?code=000838.

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•:• ShengJu Lu's proposed acquisition of the Chicago Stock Exchange was financed by the state­

owned HengFeng Bank through its subsidiary, which lent cash to Casin to acquire CHX and other

commercial interests.26

•:• Casin's less-than-transparent collateralized stock loans are a funding scheme commonplace in

China, explained in a June 2017 Reuters article titled "In China, Stock-for-Loans Under Stress as

Markets Slide." 27

It is also public data located on China's National Enterprise Credit Information

Publicity System.28

•:• The loan from the Chinese bank was personally guaranteed by ShengJu Lu, with 97.8% of the

stock he owns in his only public vehicle - Casin Development Co. Ltd.29

•:• Artificially holding up Casin Development's stock price is directly related to ownership of the

CHX by Casin Development, according to publically available investor message boards in China.30

•:• The value of Casin Development stock skyrocketed to $10.46 per share (RMB 69 Yuan) on the

news of CHX's acquisition by Casin. Share price immediately cratered when the deal stalled. The

stock chart below mirrors a classic "pump and dump" market manipulation.

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-·,.... ,,l01 .,.,.;,:11"""' -•:• Casin share price has since fallen to zero, as trading of its stock was halted on the Shenzhen

stock exchange (code: 000838) in May 2017.31

•:• Now that the stock guaranteeing the loan from the government bank is gone, Casin's owner and

Chairman ShengJu Lu, along with Casin, must immediately repay that loan. This scenario mirrors

26 See SEC Comment Letter Submitted by President of North America Casin Holdings, Inc., at •3.4 {March 1, 2017).

a, See June 9, 2017 Reuters article: " In China, Stock.for-Loans Under Stress as Markets Slide". http:/Jwww.reuters.com/article/us-china· collateral-stocks-insight· idUSKBN1900TA 21

See above: Chinese government company database: National Enterprise Credit Information Publicity System.11 See above: Chinese government company database: National Enterprise Credit Information Publicity System. JO See Sina finance website, China's most popular financial newschannel: http ://guba.sina.com.cn/?s=>bar&name=sz000838 31 See Shenzhen Stock Exchange website: http:/Jwww.szse.cn/main/en/marketdata/guotes/index.shtml7code=000838

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what led to the instant bankruptcies of Lehman Brothers - collateralized stock loans were

immediately due when their underlying collateralized shares dropped below certain levels. 32

•!• ShengJu Lu and Casin are liable to the Chinese state bank for the loan to finance the CHX deal,

which raises the substantial likelihood that CHX will naturally become property of the Chinese

government.

•!• This scheme explains why Casin has used various Chinatown-based shell companies to own CHX

(hiding their true ownership), and has never filed with the Chinese central bank seeking required

regulatory permission to remit US dollar funding out of China to pay for the CHX acquisition. 33

CONCLUSION

CHX, CFIUS and SEC Division of Trading and Markets Missed The Casin Fraud But the SEC Commissioners and Congress Have Acted To Stop it.

Both Congress and the SEC seem to have understood the danger of such a murky transaction from its inception, helping CHX avert a major catastrophe down the road.

Congressman Pittenger and Commissioner Piwowar's observations that the Chinese business culture is "corrupt" and suffers from a major "lack of transparency," seem to have been accurate in terms of this proposed acquisition.34

The SEC and Congress should be applauded for their prudence in desiring to stay and deny this transaction. Still, the larger question now stands as to how could CFIUS have missed the fact that CHX buyers Casin and ShengJu Lu, are actually subject to a lien by a Chinese Government run state-bank. CFIUS reform is urgently needed now to ensure the safety of American infrastructure from ownership by foreign governments .

When there's smoke, there's fire. There is plenty of both in this opaque Chinese acquisition of CHX. During his Senate confirmation hearing on March 23, 2017, SEC Chair Jay Clayton promised Congress he would "hold non-US acquirers to the same standards as U.S. acquirers, including disclosure standards." CHX and government officials were grossly misled in this Chinese deal that undercuts our market integrity.

It's time for the SEC to enforce our securities laws and shoot down this opaque Chinese export that does not conform to our disclosure standards. CHX should be thankful that the SEC Commissioners and Congress have saved this tiny stock exchange by rejecting this misleading Casin deal.

32 See Bloomberg: Lehman: One Big Derivatives Mess. httos://www.bloomberg.com/news/aaicles/2008-10-07/lehman-one-big-derivatives· mess n See Reuters: China's New Rules on Yuan Transfer: http://www.reuters.com/article/us-china-yuan-idUSKBNl4M032 34Ch/cogo Exchange Sole l ooks Shaky os China Tensions Rise; David Michaels, Wall Street Journal (Aug 27, 2017),

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Commttte·e on Banking, Housing, and Urban Affairs Nomination· o/Mr. Jay Clayton

March, 23,.2017

Question 11

As you know, u,e SEC is currently reviewing the proposed acquisition ofthe Chicago Stock Exchange by a group ofChinese investors led by the Chongqing Casin Enterprise Oroup.

• Gi'ven Chongqing Casln' s various business lines in. Chinn including property development, ·insurance, and municipal commercial banks, and its likely ties to the Chinese government, in your opinion, does the poten~ial acquisition·raise U.S. moike~ integrity, transparency, and confidence concerns?

• lfconfinncd, what specific steps wili you and your staffundertake to thoroughly rev.!ew the near and long-terr)'I implications ofChongqirig CJisin'·S acquisition ofa U.$; exchange?

Itwould not beappropriate for me to commeo·t on a sp~c~ftc pcndhig proposal. If confirmed, one ofmy goals will be to hold no_n~U.S. acqu!r~rs to tbe Sll,ie ~t'!lndardin1s U.S. acquirers, incJudJng disclosure standards. Ifconfirmed, I will work with the sta'tT,anil my fellow Commissioners to·review this and aliy other proposal for consistency with the standards set forth in our s~curities laws.

33