HF Foods hid $7.4M in staff loans behind a fictitious supplier before going public

HF Foods Group, a food distributor serving Asian restaurants across the United States, went public through a reverse merger. Before the listing, management needed to remove roughly $7.4 million in staff-loan liabilities from the balance sheet. Instead of repaying or disclosing them, the company created a fictitious line of credit with a supplier that did not exist, and used the fake arrangement to reclassify the loans as ordinary-course business payments.

The SEC also found that company funds had been used to purchase and lease luxury and exotic vehicles for the benefit of the controlling family, recorded as business advances rather than compensation. Proxy statements and periodic reports contained materially false disclosures about related-party transactions and executive pay.

In June 2024 HF Foods agreed to pay a $3.9 million civil penalty and accept a cease-and-desist order covering antifraud, reporting, books-and-records, internal-controls, and proxy-solicitation violations.