Initial Decision Release No. 1399

Administrative Proceeding

File No. 3-17886

UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

In the Matter of

China Biopharma, Inc.,

China Linen Textile Industry, 

Ltd.,

China Water Group, Inc.,

Scout Exploration, Inc., and

Teryl Resources Corp.

Initial Decision of Default

as to China Linen Textile 

Industry, Ltd.

March 31, 2020

Appearances: Robert F. Schroeder, Neil J. Welch, Jr., and David S. Frye 

for the Division of Enforcement,

Securities and Exchange Commission

Before: Jason S. Patil, Administrative Law Judge

Summary

This initial decision revokes the registration of the registered securities of 

Respondent China Linen Textile Industry, Ltd., due to its failure to file 

required periodic reports with the Securities and Exchange Commission.1

Introduction

On March 21, 2017, the Commission issued an order instituting 

proceedings (OIP) pursuant to Section 12(j) of the Securities Exchange Act of 

 

1 The registrations of China Biopharma, Inc., China Water Group, Inc., 

Scout Exploration, Inc., and Teryl Resources Corp were revoked on default. 

China Biopharma, Inc., Initial Decision Release No. 1127, 2017 SEC LEXIS 

1253 (ALJ Apr. 27, 2017), finality order, Securities Exchange Act of 1934 

Release No. 81127, 2017 SEC LEXIS 2063 (July 11, 2017).
2

1934. The OIP alleges that China Linen has a class of securities registered 

with the Commission pursuant to Exchange Act Section 12(g) and is delinquent 

in its periodic filings. Because China Linen is located in China, the 

Commission’s Office of International Affairs attempted to serve the OIP on it 

through the process required by the Hague Convention on the Service Abroad 

of Judicial and Extrajudicial Documents in Civil or Commercial Matters, done

Nov. 15, 1965, 20 U.S.T. 361, 658 U.N.T.S. 163. Three years later, the Chinese 

authorities have failed to return a certificate of any kind despite every 

reasonable effort to obtain a certificate by the Division of Enforcement and 

Office of International Affairs. On March 3, 2020, I found that the prerequisites

for default judgment under article 15 of the Hague Service Convention were 

met. China Biopharma, Inc., Admin. Proc. Rulings Release No. 6738, 2020 SEC 

LEXIS 633 (ALJ). As detailed in that order and prior orders, the Division 

attempted or considered many other methods of service. I ordered China Linen

to show cause by March 18, 2020, why the registration of its securities should 

not be revoked by default. Id. at *9. To date, China Linen has not appeared or 

filed an answer, responded to the show cause order, or otherwise defended this 

proceeding.

Findings of Fact

China Linen is in default for failing to defend the proceeding. See OIP at 

3; 17 C.F.R. §§ 201.155(a)(2). Accordingly, as authorized by Rule of Practice 

155(a), 17 C.F.R. § 201.155(a), I find the following allegations in the OIP to be 

true.

China Linen Textile Industry, Ltd. (Central Index Key No. 1336655) is a

former Cayman Islands corporation2 located in Heilongjiang Province, China,

with a class of securities registered with the Commission pursuant to 

Exchange Act Section 12(g). The company is delinquent in its periodic filings 

with the Commission, having not filed any periodic reports since it filed a Form 

20-F for the period ended December 31, 2011.3 As of March 16, 2017, the 

company’s stock (symbol “CTXIF”) was quoted on OTC Link, had five market 

makers, and was eligible for the “piggyback” exception of Exchange Act Rule 

15c2-11(f)(3).

 

2 The Registrar of Corporations for the Cayman Islands struck China Linen 

from the register of companies in 2015. Mot. for Service by Pub. (Feb. 28, 2019), 

Frye Decl. ¶ 6, Ex. 7.

3 I take official notice of the record of China Linen’s public filings with the 

Commission on the Commission’s EDGAR public website as authorized by Rule 

of Practice 323, 17 C.F.R. § 201.323.
3

In addition to its repeated failure to file periodic reports, China Linen

failed to heed a delinquency letter sent to it by the Commission’s Division of 

Corporation Finance requesting compliance with its periodic filing obligations 

or, through its failure to maintain a valid address on file with the Commission 

as required by Commission rules, did not receive such a letter.

Conclusions of Law

Exchange Act Section 13(a) and the rules promulgated thereunder require 

issuers of securities registered pursuant to Exchange Act Section 12 to file with 

the Commission current and accurate information in periodic reports. 

Specifically, Rule 13a-1 requires issuers to file annual reports. See 17 C.F.R. 

§ 240.13a-1. Compliance with these reporting requirements is mandatory. 

America’s Sports Voice, Inc., Exchange Act Release No. 55511, 2007 SEC 

LEXIS 1241, at *12 (Mar. 22, 2007), recons. denied, Exchange Act Release No. 

55867, 2007 SEC LEXIS 1239 (June 6, 2007). Scienter is not required to 

establish violations of Exchange Act Section 13(a) and Rule 13a-1. See SEC v. 

McNulty, 137 F.3d 732, 740-41 (2d Cir. 1998); SEC v. Wills, 472 F. Supp. 1250, 

1268 (D.D.C. 1978). China Linen failed to timely file periodic reports. As a 

result, China Linen violated Exchange Act Section 13(a) and Rule 13a-1.

Sanction

Under Exchange Act Section 12(j), the Commission is authorized, “as it 

deems necessary or appropriate for the protection of investors,” to revoke the 

registration of a security or suspend its registration for a period not exceeding 

twelve months if it finds, after notice and an opportunity for hearing,4 that the 

issuer of the security has failed to comply with any provision of the Exchange 

Act or rules thereunder. In determining what sanctions will adequately protect 

investors, the Commission “consider[s], among other things, the seriousness of 

the issuer’s violations, the isolated or recurrent nature of the violations, the 

degree of culpability involved, the extent of the issuer’s efforts to remedy its 

past violations and ensure future compliance, and the credibility of its 

assurances, if any, against further violations.” Gateway Int’l Holdings, Inc., 

Exchange Act Release No. 53907, 2006 SEC LEXIS 1288, at *19–20 (May 31, 

2006).

China Linen’s failures to file required periodic reports are serious because 

the failures constitute violations of a central provision of the Exchange Act. 

The purpose of periodic reporting is “to supply investors with current and 

 

4 As I have already found, the notice requirement is satisfied. China 

Biopharma, Inc., 2020 SEC LEXIS 633, at *6–9.
4

accurate financial information about an issuer so that they may make sound 

[investment] decisions.” Id. at *26. The reporting requirements are the 

primary tool that Congress “fashioned for the protection of investors from 

negligent, careless, and deliberate misrepresentations” in the sale of securities. 

Eagletech Commc’ns, Inc., Exchange Act Release No. 54095, 2006 SEC LEXIS 

1534, at *12 (July 5, 2006) (quoting SEC v. Beisinger Indus. Corp., 552 F.2d 

15, 18 (1st Cir. 1977)). China Linen’s violations are also recurrent in that it 

repeatedly failed to file periodic reports for seven years. See Nature’s Sunshine 

Prods., Inc., Exchange Act Release No. 59268, 2009 SEC LEXIS 81, at *20 (Jan. 

21, 2009) (failing to file seven required periodic reports due over a two-year 

period is recurrent); id. at *22 n.27 (explaining that the Commission may 

consider conduct not alleged in the OIP in assessing appropriate sanctions); 

Impax Labs., Inc., Exchange Act Release No. 57864, 2008 SEC LEXIS 1197, at 

*25–26 (May 23, 2008) (respondent’s failure to make eight filings over an 

eighteen-month period considered recurrent). 

China Linen is culpable because it failed to heed the delinquency letter 

sent to it by the Division of Corporation Finance. Even if China Linen did not 

receive the letter due to its failure to maintain a valid address on file with the 

Commission as required by Commission rules, the other factors weigh in favor 

of revocation, and scienter is not necessary to establish grounds for revocation. 

See China-Biotics, Inc., Exchange Act Release No. 70800, 2013 SEC LEXIS 

3451, at *37 & n.60 (Nov. 4, 2013). In any event, there is no indication that its 

violations were inadvertent or accidental. Id. Finally, China Linen has not 

answered the OIP or otherwise participated in the proceeding to address 

whether it has made any efforts to remedy its past violations, and it has made 

no assurances against further violations.

Considering these delinquencies, it is necessary and appropriate for the 

protection of investors to revoke the registration of each class of China Linen’s

registered securities.

Order

Pursuant to article 15 of Hague Convention on the Service Abroad of 

Judicial and Extrajudicial Documents in Civil or Commercial Matters and 

Rules 111 and 155 of the Commission’s Rules of Practice, I GRANT the Division 

of Enforcement’s motion for default and sanctions.
5

Pursuant to Section 12(j) of the Securities Exchange Act of 1934, I ORDER 

that the registration of each class of registered securities of Respondent China 

Linen Textile Industry, Ltd., is REVOKED.5

This initial decision shall become effective in accordance with and subject 

to the provisions of Rule 360, 17 C.F.R. § 201.360. Pursuant to that rule, a 

party may file a petition for review of this initial decision within twenty-one 

days after service of the initial decision. A party may also file a motion to 

correct a manifest error of fact within ten days of the initial decision, pursuant 

to Rule 111, 17 C.F.R. § 201.111(h). If a motion to correct a manifest error of 

fact is filed by a party, then a party shall have twenty-one days to file a petition 

for review from the date of the order resolving the motion to correct a manifest 

error of fact. This initial decision will not become final until the Commission 

enters an order of finality. 17 C.F.R. § 201.360(d). The Commission will enter 

an order of finality unless a party files a petition for review or a motion to 

correct a manifest error of fact or the Commission determines on its own 

initiative to review the initial decision as to a party. Id. If any of these events 

occur, the initial decision shall not become final as to that party. Id.

A respondent has the right to file a motion to set aside a default within a 

reasonable time, stating the reasons for the failure to appear or defend and 

specifying the nature of the proposed defense. 17 C.F.R. § 201.155(b). The 

Commission can set aside a default at any time for good cause. Id.

_______________________________

Jason S. Patil

Administrative Law Judge

 

5 This order applies to all classes of China Linen’s securities registered 

under Exchange Act Section 12, whether or not such securities are specifically 

identified by ticker symbol or otherwise in this initial decision.