1 STANLEY C. MORRIS, ESQ. (BAR No.

183620)
SCM@CORMORLLP.COM
2
BRIAN T. CORRIGAN, ESQ. (BAR No. 143188)
3 BCORRIGAN@ CORMORLLP.COM

4
CORRIGAN & MORRIS LLP
5 201 SANTA MONICA BOULEVARD, SUITE 475
SANTA MONICA, CALIFORNIA 90401-2212
6
TELEPHONE: (310) 394-2800
7 FACSIMILE: (310) 394-2825

8
Attorneys for Plaintiff
9 KEXUANYAO
10

11 UNITED STATES DISTRICT COURT

12 CENTRAL DISTRICT OF CALIFORNIA

13 KEXUANYAO,
Case No.:
14
Plaintiff,
15 DECLARATION OF KEXUAN YAO
vs. IN SUPPORT OF APPLICATION FOR
16 WRIT OF ATTACHMENT AND
TEMPORARY RESTRAINING
17 CRISNIC FUND, S. A.; ORDER AND OTHER RELIEF
ANTHONY GENTILE;
18
ED FURMAN;
19 and Does 1-10,
20
Defendants.
21

22
23

24

25

26
27
28
CORRIGA.." & MORRIS, LLP
ATTORNEYS AT LAw
201 SANTA MONICA BLVD.
SUITE 475 DECLARATION OF KEXUAN Y AO - 1
SANTA MONICA. CA. 90401
(310) 394-2800
 1 I, Kexuan Yao, declare as follows:
2 1. I am over eighteen years old. I have personal knowledge of the facts
3 stated herein and if called on would and could testify competently thereto.
4 2. I am the Chief Executive Officer of China Armco Metals, Inc.
5 (“China Armco”). China Armco is a publicly traded U.S. company that imports,
6 sells and distributes a variety of metal ore to the metal refinery industry and
7 recycles metal in China. China Armco’s common stock is quoted on the NYSE
8 Amex under the symbol "CNAM".
9 3. Although I speak and read English, I am not completely fluent in
10 English.
11 4. I own more than 5 million shares of China Armco stock, which is
12 greater than 34% of all the issued and outstanding shares of China Armco.
13 Attached hereto at Exhibit 1 is a true and correct copy of an excerpt from China
14 Armco’s May 17, 2010 periodic filing with the Securities and Exchange
15 Commission (“SEC”) documenting that China Armco had a total 14,355,532
16 shares issued and outstanding as of May 10, 2010.
17 5. My China Armco stock has not been registered with the United States
18 Securities and Exchange Commission (“SEC”).
19 6. Raymond Xia (“Xia”) is an employee of China Armco whom I often
20 ask to help me with certain tasks. Beginning in late May, I asked Xia to assist me
21 in obtaining a loan using my China Armco Stock as collateral. I have reviewed
22 Xia’s declaration submitted concurrently herewith having to do with my attempt to
23 obtain a stock loan and to the best of my knowledge, all of Xia’s attestations in his
24 declaration are true and correct.
25 7. On or about May 21, 2010, Xia showed me an email purportedly from
26 Ed Furman (“Furman”) with an attachment the described financial services
27 provided by Ayuda Funding Corp. (“Ayuda”), which included loans collateralized
28 by restricted stock, such as Yao’s. Attached hereto at Exhibit 2 is true and correct
CORRIGAN & MORRIS, LLP
ATTORNEYS AT LAW
201 SANTA MONICA BLVD.
SUITE 475 DECLARATION OF KEXUAN YAO - 2
SANTA MONICA, CA. 90401
(310) 394-2800
 1 copy of that May 21, 2010 email and attachment.
2 8. On June 7, 2010, I instructed Xia to write an email to Ed Furman
3 (“Furman”), a loan broker, to express my interest in borrowing money with my
4 China Armco shares posted as collateral. A true and correct copy of Xia’s email is
5 attached hereto at Exhibit 3.
6 9. On June 9, 2010, Xia handed me an email and proposed loan term
7 sheet purportedly from Furman on behalf of Furman’s client, Crisnic Fund. That
8 proposal was for a $2.8 million loan, for 5 years, at 3% simple interest, based on
9 my pledge of 1.3 million shares of my China Armco stock as collateral. On June 9,
10 2010, I approved and executed the term sheet. A true and correct copy of the email
11 its attachment are attached hereto at Exhibit 4.
12 10. On the morning of June 11, 2010, I reviewed an email purportedly
13 drafted by Ed Furman to Xia. That email stated, among other things: “As I also
14 mentioned earlier, his wire will be sent within 24 hours after confirmation from our
15 clearing firm that his collateral has been received.” A true and correct copy of that
16 email is attached hereto at Exhibit 5.
17 11. That same June 11, 2010 email from Furman also had attached a
18 document entitled: “Structured Transaction Agreement.” To the best of my
19 knowledge, Crisnic never signed the Structured Transaction Agreement. Attached
20 hereto at Exhibit 6 is a true and correct copy of the Structured Transaction
21 Agreement.
22 12. Later on in the day on June 11, 2010, Xia showed me an email that
23 purported to be between Furman and Anthony Gentile (“Gentile”) specifying the
24 location and account number for me to send my China Armco stock to Crisnic, via
25 electronic share transfer. Attached hereto at Exhibit 7 is a copy of that email.
26 13. On June 14, 2010, I asked Xia to send an email to Furman explaining
27 that I would need a legal opinion before I could transfer my shares to Crisnic
28 without restrictive legend. Attached hereto at Exhibit 8 is a copy of that email.
CORRIGAN & MORRIS, LLP
ATTORNEYS AT LAW
201 SANTA MONICA BLVD.
SUITE 475 DECLARATION OF KEXUAN YAO - 3
SANTA MONICA, CA. 90401
(310) 394-2800
 1 14. In reliance on the proposed term sheet, I prepared, with the assistance
2 of Xia, a letter to Action Stock Transfer (“Action”), the stock transfer agent for
3 China Armco. That letter requests that the restrictive legend be removed from my
4 1.3 million shares of China Armco stock and requested that those shares be
5 electronically transferred to Crisnic’s brokerage account number 4121035. A true
6 and correct copy of that letter to the Action, dated June 15, 2010, is attached
7 hereto at Exhibit 9.
8 15. On June 21, 2010, I asked Xia to send Furman an email inquiring
9 about the legal opinion he had agreed to obtain ensuring the transaction complied
10 with the securities laws and enclosed an executed copy of the Structured Loan
11 Transaction Agreement. I asked Xia to attach attached copies of my stock
12 certificates with the words “RESTRICTED STOCK” printed in bold capitals
13 across the face. A true and correct copy of that email and the attachments are
14 attached hereto at Exhibit 10.
15 16. On June 22, 2010, Xia showed me an email that purported to be from
16 Furman and a legal engagement letter and from New York lawyer, Sunny Barkats
17 (“Barkats”). The email stated that Furman would be paying $4,500 for Barkats to
18 represent me and ensure the transaction was entirely legal. A true and correct copy
19 of that email and the attachment are attached hereto at Exhibit 11.
20 17. On June 23, 2010, Xia showed me a copy of the Structured Loan
21 Transaction document that expressly stated that it was between Crisnic and me. At
22 the signature block, however, Gentile executed the agreement only on behalf of
23 “IFG”, but not “Crisnic”, the party to the agreement. A true and correct copy of
24 that Agreement received on June 23, 2010 is attached hereto at Exhibit 12.
25 18. On June 23, 2010, I instructed Xia to transfer my 1.3 million shares
26 of stock to Crisnic anticipating that I would received the loan proceeds no later
27 than five business days later. Attached hereto at Exhibit 13 is a copy of the email
28 Xia sent to Furman and China Armco’s transfer agent at my direction.
CORRIGAN & MORRIS, LLP
ATTORNEYS AT LAW
201 SANTA MONICA BLVD.
SUITE 475 DECLARATION OF KEXUAN YAO - 4
SANTA MONICA, CA. 90401
(310) 394-2800
 1 19. On June 25, 2010, Xia showed me a letter that I believed to be drafted
2 by my lawyer, Barkats. Xia told me that Barkats had requested that I sign the letter.
3 I quickly reviewed the letter, signed it, and instructed Xia to return it to Barkats. A
4 true and correct copy of that email and attached representation letter is attached
5 hereto at Exhibit 14.
6 20. On June 28, 2010, Xia showed me a copy of Barkats’ legal opinion to
7 Action that stated in his legal opinion it was legal to transfer my 1.3 million shares
8 of China Armco to Crisnic without any restrictive legends. Barkats opined that the
9 restrictive legends could be removed legally under SEC exemption from
10 registration Rule 144 (k). A true and correct copy of Barkats’ June 25, 2010 legal
11 opinion letter is attached hereto at Exhibit 15.
12 21. On June 28, 2010, Xia showed me an email from China Armco’s
13 transfer agent confirming that 1.3 million of my China Armco shares had been
14 electronically transferred to Crisnic’s brokerage account at Transcend Capital LP.
15 A true and correct copy of that email is attached hereto at Exhibit 16.
16 22. On June 29, 2010, I became aware that an unsual volume of China
17 Armco shares had traded on that day and the stock price had dropped precipitously.
18 I immediately became suspicious that Crisnic was selling my stock. However, at
19 that time, I was assured orally by both Gentile and Furman that the collateral
20 shares had never been sold and were held by Crisnc.
21 23. I recently reviewed Yahoo’s web site which showed that
22 approximately 2.2 million China Armco shares traded on June 29, 2010. According
23 to the Yahoo web site report, this represented a shocking increase in trading
24 volume for China Armco shares, which had a trading volume of only 168,000
25 shares the day before and its price had dropped from $3.75 to $3.25 during that
26 high volume trading day. Attached hereto at Exhibit 17 is a true and correct copy
27 of the historic stock price for China Armco from Yahoo web site.
28 24. On June 29, 2010, Xia showed me a document entitled Addendum A-
CORRIGAN & MORRIS, LLP
ATTORNEYS AT LAW
201 SANTA MONICA BLVD.
SUITE 475 DECLARATION OF KEXUAN YAO - 5
SANTA MONICA, CA. 90401
(310) 394-2800
 1 1 to the Structured Transaction Agreement. Thereafter, on June 30, 2010, I signed
2 the Addendum A-1 that specified I would receive approximately $2.5 million in
3 five (5) business days from receipt of collateral (June 28 2010). A copy the
4 executed Addendum A-1 is attached hereto at Exhibit 18.
5 25. On June 30, 2010, counsel for China Armco sent Crisnic’s broker,
6 Transcend, a letter advising that he believed Crisnic was selling China Armco
7 Stock in violation of the securities laws. Attached hereto at Exhibit 19 is a true
8 and correct copy of that letter.
9 26. On June 30, 2010, I instructed Xia to send an email to Furman
10 demanding payment of the $2.5 million in loan proceeds. Attached hereto at
11 Exhibit 20 is a true and correct copy of that email.
12 27. Attached hereto at Exhibit 21 is a true and correct copy of a DTC
13 report dated July 1, 2010. That DTC report shows that as of July 1, 2010, very
14 little, if any, of Yao’s stock appears to remain held by Crisnic at Transcend, which
15 clears its trades through Penson Financial.
16 28. On July 1, 2010, I reviewed an email from Furman that was
17 purportedly from Gentile stating the following:
18 Here is the e-mail from the fund. You
19 need to contact Yao and have him contact your
20 firm's attorney to send a Retraction letter
21 ASAP. Nothing will happen until this occurs.
22

23 My reputation with the firm is on the

24 line and they have work to do. Until the law
25 firm sends a retraction letter, an apology to
26 both me and the brokerage firm, and an
27 indemnification letter, I won’t be speaking
28 with them, or sending monies. Tell them to do
CORRIGAN & MORRIS, LLP
ATTORNEYS AT LAW
201 SANTA MONICA BLVD.
SUITE 475 DECLARATION OF KEXUAN YAO - 6
SANTA MONICA, CA. 90401
(310) 394-2800
 1 what I ask and then they’ll get their wire, until
2 then I don’t want to speak to anyone about
3 their deal.
4 A true and correct copy of that email is attached hereto at Exhibit 22.
5 29. On July 2, 2010, Gentile sent Xia, and others, an email stating the
6 following:
7 This letter is to inform you that Crisnic
8 Fund, S.A (CF) will not be sending anything to
9 anyone, nor will Penson Financial Services,
10 Inc. (PFSI). Until such time we are in
11 possession of indemnification letters for CF,
12 Transcend Capital, LLC (TC), Penson Financial
13 Services, Inc., (PFSI), and Anthony Gentile
14 personally. In addition both CF’s and TC’s
15 legal must be paid. We will also require letters
16 of apology to TC and CF from the law firm that
17 sent the letter. Until such time as we are in
18 possession of the above items, we will not
19 commit to a funding date.”
20 A true and correct copy of that email is attached hereto at Exhibit 23.
21 30. As of July 21, 2010, I had not received any of the $2.5 million loan
22 proceeds I had been promised would arrive no later than July 6, 2010.
23 31. On July 21, 2010, I authorized my counsel to issue a demand letter to
24 Crisnic. Five days later on July 26, 2010, Crisnic wired $1 million to my account,
25 which is 1.5 million less than I was entitled to receive as proceeds of the loan.
26 32. On July 26, 2010, I authorized my attorney to offer to rescind the
27 entire transaction with Crisnic and to return the $1 million partial payment.
28 Crisnic has refused all offers to rescind the transaction.
CORRIGAN & MORRIS, LLP
ATTORNEYS AT LAW
201 SANTA MONICA BLVD.
SUITE 475 DECLARATION OF KEXUAN YAO - 7
SANTA MONICA, CA. 90401
(310) 394-2800
 I declare under penalty of perjury under the laws of the United States that
2 the foregoing is true and correct. Executed this _ day of August 2010 at San
3 Mateo, California.
4

5 Kexuan Yao
6

10

11
12

13
14

15

16

17

18

19

20
21

22

23

·24

25

26
27

28
CoalUCAN" MOUlS, LLP
AnORNE'S AT Lt.w
201 SANlAMOOICAB'VD.
SUIT{ 475 DECLARATION OF KEXUAN YAO - 8
SANTA MONICA. CA. 90401
(310) 394-2800