Shares in Chinese telecommunications company ZTE closed more than 23% higher in Hong Kong on Wednesday after a US judge on ruled that the company should be allowed to end its five-year probation from a 2017 guilty plea.
The ruling came on the final day of the company’s probation for illegally shipping US technology to Iran and North Korea.
Trading in ZTE shares had been suspended before markets opened in Shenzhen and Hong Kong on request from the company pending an announcement, after the decision by the US district judge in Texas.
Its Shenzhen-listed stock rose nearly 10% on Wednesday. The company’s shares had declined earlier this month after word of the possible probation violation surfaced.
ZTE had been accused of violating probation over an alleged conspiracy to bring Chinese nationals to the US to conduct research at ZTE through visa fraud.
A former ZTE research director and a Georgia Institute of Technology professor allegedly conspired to bring Chinese nationals to the US to conduct research at ZTE from at least 2014 through 2018 while on J-1 visas sponsored by the university.
While ZTE has not been charged in the visa case, which is pending in Atlanta, the judge, Ed Kinkeade, held a hearing in Dallas last week on the fraud allegation as a possible violation of ZTE’s probation.
In his Tuesday ruling, the judge found ZTE was legally responsible for the actions of the former ZTE director.
But he decided to not take any further action against ZTE, which had already reached the maximum term of probation and, ZTE argued, had already been fined the maximum as well.
Guilty Plea Deal
As part of its 2017 guilty plea deal, ZTE paid $892 million. There was an “open question about legal tools left for the court,” the judge wrote.
Despite the favourable ruling, the judge encouraged the government to pursue any reasonable charges and criminal or civil penalties against the company.
The visa issue was not the first problem that surfaced for ZTE since the plea deal.
In 2018, the US Commerce Department found ZTE made false statements about disciplining executives tied to the illegal shipments to Iran and, as a result, issued a total ban on the company buying US components.
ZTE, crippled by the move, paid a $1 billion penalty and agreed to change its leadership and cooperate with a second 10-year monitor, as part of a Commerce Department agreement lifting the ban.
The judge took action in 2018 over the false statements too, extending ZTE’s probation and court-appointed monitor from three to five years.
In his ruling on Tuesday, the judge noted that ZTE argued the visa-fraud related events occurred more than three years ago, and that new leadership had brought an improved export compliance program.
“The company has made strides,” the judge said, adding that ZTE’s export control and compliance programmes were effectively “nonexistent” when it was originally sentenced.
He said he considered ZTE’s compliance a mitigating factor, but that its record of compliance could be summarised in one word: “sometimes”.
ZTE and the US Department of Justice did not immediately respond to requests for comment.
The professor charged in the visa case, Gee-Kung Chang, has pleaded not guilty. The status of the former ZTE research director, Jianjun Yu, is unclear. ZTE said he left the company in 2019.
- Reuters with additional editing by Sean OMeara