By Dena Aubin
NEW YORK, Oct 19 (Reuters) - A unit of Australia's Macquarie Group MQG.AX has agreed to pay $7.4 million to settle shareholder allegations that it underwrote a securities offering for Puda Coal without disclosing that the Chinese mining company was an empty shell.
Filed in 2011, the securities fraud lawsuit said Macquarie Capital USA helped sell $108 million of shares for then-New York Stock Exchange-listed Puda Coal in 2010 while knowing that the company's main coal business had been transferred to its chairman and then sold or pledged as collateral to an investment fund.
The lawsuit said Macquarie received an investigative report revealing the transfer of the coal business six days before the 2010 offering but did not act on it.
The preliminary settlement was disclosed in a court filing on Monday and must be approved by a Manhattan federal judge. The underwriters denied all charges of wrongdoing, the filing said.
The settlement is the latest legal fallout for Macquarie over its underwriting for Puda. In March, Macquarie agreed to pay $15 million to settle U.S. Securities and Exchange Commission charges that it misled investors about the 2010 offering.
Puda's shares collapsed in 2012 after a research report disclosed the transfer of Puda's 90 percent stake in its main asset, Shanxi Coal. Puda's shares have been delisted and the company is no longer in business.
The lawsuit sought damages for investors who bought the company's shares between November 2009 and April 2011.
The shares became worthless after Puda's coal assets were transferred, leaving only a shell company with no operations or revenue, the lawsuit said.
Puda Chairman Ming Zhao and Chief Executive Liping Zhu were charged by the SEC with fraud in 2012.
The lawsuit also accused Brean Murray Carret & Co, a joint underwriter on Puda's 2010 share offering, of failing to do its own due diligence to verify that Puda owned Shanxi Coal.
Brean agreed to pay $1.2 million to settle shareholders' claims, according to Monday's filing.
Macquarie spokesman Rishi Sharma confirmed that a settlement has been reached and said the company is going through the court approval process. Lawyers and a spokesmen for Brean could not immediately be reached for comment.
The case is In Re Puda Coal Securities Inc Litigation, U.S. District Court, Southern District of New York, No 11-cv-2598