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1 Violations of the Federal Securities Laws against Gulf Resources, Inc., (“Gulf 2 Resources” or the “Company”) alleges the following based upon personal 3 knowledge as to himself and his own acts, and information and belief as to all other 4 matters, based upon, inter alia, the investigation conducted by and through his 5 attorneys, which included, among other things, a review of the Defendant’s public 6 documents, conference calls and announcements made by the Defendants, United 7 States Securities and Exchange Commission (“SEC”) filings, Chinese State 8 Administration of Industry and Commerce (“SAIC”) filings, wire and press releases 9 published by and regarding Gulf Resources, securities analysts’ reports and 10 advisories about the Company, and information readily obtainable on the Internet. 11 Plaintiff believes that substantial evidentiary support will exist for the allegations 12 set forth herein after a reasonable opportunity for discovery. 13 NATURE OF THE ACTION 14 1. This is a federal securities class action on behalf of a class consisting

15 of all persons other than Defendants who purchased common stock of Gulf 16 Resources during the period between March 16, 2009 and April 26, 2011, 17 inclusively (the “Class Period”). Plaintiff seeks to recover damages caused by 18 Defendants’ violations of the Securities Exchange Act of 1934 (the “Exchange 19 Act”). 20 2. Throughout the class period, Defendants made false and misleading 21 statements about the Company’s financial performance. 3. Gulf Resources overstated its and income for fiscal 2009 by a 22 multiple of 10x or $100 million and overstated revenue by a multiple of 1,000x or 23 $30 million. 24 4. Defendants kept two sets of books, one filed with the SEC and 25 provided to U.S. investors that paints a picture of a thriving company with over 26 $110 million of revenue and $30.5 million of in fiscal 2009. Another, 27 28

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1 set of books, filed with Chinese regulators, show the Company barely keeping its 2 head above water, with $10.5 million of revenue and $38,000 of net income. 3 5. For fiscal 2008, Gulf similarly overstated its revenue by $82.7 million. 4 Instead of earning $87.5 million of revenue, it really earned $4.8 million of 5 revenue. And rather than earning a profit of $22.4 million as it reported for 2008, 6 Gulf really earned a net loss of over $127,000. 7 6. Maintaining two materially different sets of financial records is the 8 classic hallmark of fraud. 9 7. Gulf’s chairman, Ming Yang, owns and runs the Haoyuan Group an 10 industrial holding company (“Haoyuan”). 1 Haoyuan Group holds a significant 11 interest in Gulf Resources (approximately 11.9%) according to Gulf’s public 12 statements. 13 8. Yang failed to disclose that Haoyuan’s two principal subsidiaries are 14 active direct competitors of Gulf Resources. Undisclosed to shareholders, Gulf’s

15 chairman has been simultaneously operating Haoyuan and utilizing the resources 16 and of Gulf Resources for the benefit of Haoyuan. 17 9. Defendants also failed to disclose material related party transactions in 18 violation of generally accepted accounting principles (“GAAP”) rendering Gulf’s 19 financial statements false and misleading under SEC regulations. 20 10. Gulf’s second biggest customer is Shouguang City Rongyuan 21 Chemical Company Limited (“Rongyuan”). Defendants failed to disclose that the Haoyan Group, which is owned by Gulf’s Chairman Ming Yang, is a 74% owner of 22 Rongyuan. Ya Fei Ji, a Gulf Director, owned 18% of Rongyuan. 2 23 24 1 Several Chinese websites, including two governmental websites, indicate that 25 Ming Yang is also the Chairman of Board of Haoyuan Group. 26 http://gh.weifang.gov.cn/Article.asp?ArticleId=1217 http://sgqyjxh.com/xiehuizuzhi/huiyuanmingdan.htm 27 2 Based on review of SAIC filings. Ming Yang and Ya Fei Ji transferred their 28 ownership in Rongyuan to what appears to be “straw men” in January 2010,

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1 11. This means that the more than $20 million of sales revenue Gulf 2 earned from Rongyuan in fiscal 2008 and 2009 are undisclosed related party 3 transactions in violation of GAAP and SEC regulations. 4 12. Defendants also failed to disclose in its fiscal 2009 that 5 Shouguang Hongye Trading Company Limited (“Hongye”) was one of its three 6 principal suppliers. Hongye is a related party, owned and controlled by Haoyan 7 Group, Ming Yang, his wife and their son. 8 13. The Company also concealed its Chief Executive Officer’s sordid past 9 as Chief Financial Officer of China Finance, Inc., a company behind a series of 10 well-known stock frauds involving reverse mergers of Chinese companies going 11 public in U.S. capital markets. 12 14. China Finance brought a large number of small-cap Chinese 13 companies to the United States markets in exchange for equity in these companies, 14 which China Finance sold at a profit before the companies were exposed as

15 fraudulent. 16 15. On April 26, 2011, a report was issued publicly by Glaucus Research 17 which asserted that the Company had materially overstated its revenue and net 18 income, engaged in undisclosed related party transactions, concealed its CEO’s 19 past, and as a result of all of these actions, had defrauded shareholders. 20 16. In particular, the report claimed that (1) $20 million of sales to 21 Rongyuan were undisclosed related party transactions; (2) Chinese regulatory filings showed that the Company’s had materially overstated its revenue and 22 income; (3) Gulf’s Chairman Yang secretly used the assets of Gulf to operate two 23 businesses that he owned that directly compete with Gulf’s two operating 24 subsidiaries; and (4) the Company’s CEO had concealed a sordid past in China 25 Finance, a company that took fraudulent small-cap Chinese companies public in US 26 27 according to Rongyuan’s SAIC filings. The straw man that received Ming Yang’s 28 74% ownership in Rongyuan was a 28 year old woman named Cuiping Liu.

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1 markets via reverse mergers. 2 17. The public allegations of fraud in the Glaucus report caused the 3 Company’s stock price to fall $1.16 per share or over 30% on heavy trading 4 volume, causing substantial financial damages to investors. 5 JURISDICTION AND VENUE 6 18. The claims asserted herein arise under and pursuant to Sections 10(b) 7 and 20(a) of the Exchange Act, (15 U.S.C. §78j(b) and 78t(a)), and Rule 10b-5 8 promulgated thereunder (17 C.F.R. §240.10b-5). 9 19. This Court has jurisdiction over the subject matter of this action 10 pursuant to §27 of the Exchange Act (15 U.S.C. §78aa) and 28 U.S.C. § 1331. 11 20. Venue is proper in this Judicial District pursuant to §27 of the 12 Exchange Act, 15 U.S.C. § 78aa and 28 U.S.C. § 1391(b)-(d). 13 21. In connection with the acts, conduct and other wrongs alleged in this 14 Complaint, the Defendants, directly or indirectly, used the means and

15 instrumentalities of interstate commerce, including but not limited to, the United 16 States mails, interstate telephone communications and the facilities of the 17 NASDAQ and the OTC:BB. 18 PARTIES 19 22. Plaintiffs Zachary Lewy, Sampson Daruvalla, William, Spiegelberg 20 and Ioannis Zoumas purchased Gulf Resources securities on the NASDAQ at 21 artificially inflated prices during the Class Period and have been damaged thereby. Plaintiffs’ PSLRA certifications previously filed with the Court are incorporated by 22 reference herein. 23 23. Defendant Gulf Resources is a Delaware Corporation with its principal 24 executive offices located at Cheming Industrial Park, Shouguang City, Shangdong, 25 Peoples’ Republic of China (“PRC”). 26 24. Gulf Resources’ operations are conducted through its two operating 27 subsidiaries, Shouguang City Haoyuan Chemical Company Limited (“SCHC”) and 28

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1 Shouguang Yuxing Chemical Industry Co., Limited (“SYCI”). Both companies are 2 organized under the laws of the PRC. SCHC manufactures and sells bromide and 3 crude salt, and SYCI manufactures industrial chemical products used in oil and gas 4 field exploration, oil field drilling, wastewater processing, papermaking chemical 5 agents, and inorganic chemicals. 6 25. All of Gulf’s revenue and income is generated by its two operating 7 subsidiaries SYCI and SCHC. 8 26. At all relevant times herein, the Company’s common stock was 9 actively traded on the NASDAQ under the ticker “GFRE” or on the OTC BB under 10 the ticker “GFRE”. 11 27. Defendant Ming Yang (“Yang”) was, at all relevant times, Chairman 12 of Gulf Resource’s Board of Directors. 13 28. Yang was simultaneously legal representative of SCHC and SYCI at 14 all relevant times. 3 As the legal representative of SCHC and SYCI, Yang was

15 required to sign the subsidiaries’ audited financial statements filed with the SAIC 16 annually. Yang therefore had actual knowledge that Gulf materially overstated its 17 revenue and income. 18 29. In a Proxy Statement filed with the SEC on October 10, 2009, the 19 Company stated that as of July 29, 2009, Defendant Yang held 14,793,259 shares. 20 The breakdown of shares was 6,481,526.5 shares owned by Defendant Yang's wife, 21 1,674,800 shares owned by Defendant Yang's son, and 4,124,732.5 shares owned by a company of which Defendant Yang was the controlling shareholder, with the 22 remainder (2,512,200 shares) held by Defendant Yang himself. In a proxy 23 statement filed with the SEC on April 30, 2010, the Company indicated that as of 24 "April 28, 2009" [sic -- 2010], Defendant Yang held 13,391,454 shares. The proxy 25 26 3 Based on SAIC filings of SCHC and SYCI. Ming Yang was also the Chairman of 27 SCHC during the Class Period according to SCHC’s filings with Chinese tax 28 authorities.

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1 statement indicated that Defendant Yang's wife only held 5,079,721 shares, 2 meaning that she had sold 1,401,805.5 shares, or approximately 25% of her 3 holdings (and approximately 10% of Defendant Yang's holdings). Defendant Yang 4 never filed the required report on Form 4 with the SEC to announce the sale. 5 Moreover, according to a lock-up agreement dated May 10, 2009, Defendant Yang, 6 his wife, and the other officers and directors of Gulf Resources agreed not to sell 7 their shares in a public transaction until March 9, 2011 -- making Defendant Yang's 8 wife's sale all the more suspicious. 9 30. In that time period, Gulf shares traded between $8.52/share and 10 $14.74/share, meaning that Ming Yang, his wife and son, made between $11 and 11 $20 million. 12 31. Defendant Xiaobin Liu (“Liu”) was at all relevant times Gulf 13 Resources’ Chief Executive Officer and one of its Directors. 14 32. Defendant Min Li (“Li”) was at all relevant times Gulf Resources’

15 Chief Financial Officer. 16 33. Defendants Li, Liu, and Yang are collectively referred to as the 17 “Individual Defendants.” 18 34. Gulf Resources, Liu, Li, and Yang are collectively referred to herein as 19 the “Defendants.” 20 35. Defendants’ fraudulent scheme: (i) deceived the investing public 21 regarding Gulf Resources’ business, operations, management and the intrinsic value of Gulf Resources’ common stock; and (ii) caused plaintiff and other members of 22 the Class to purchase Gulf Resources securities at artificially inflated prices. 23 36. During the Class Period, the Defendant Yang and Gulf Resources and 24 its subsidiaries and affiliates were privy to non-public information concerning the 25 Company’s business, finances, products, markets, and present and future business 26 prospects, via access to internal corporate documents, conversations and 27 connections. Because of possession of such information, the Defendants knew or 28

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1 recklessly disregarded the fact that the adverse facts specified herein had not been 2 disclosed to, and were being concealed from, the investing public. 3 37. Individual Defendants’ had direct access to and reviewed the adverse 4 undisclosed information about the Company’s business, operations, and financial 5 statements. 6 38. Throughout the Class Period, the Defendants were able to control the 7 content of the various SEC filings, press releases and other public statements 8 pertaining to the Company during the Class Period. The Defendants had access to 9 the documentation of filings alleged herein to be misleading prior to or shortly after 10 their issuance and/or had the ability and/or opportunity to prevent their issuance or 11 to cause them to be corrected. Accordingly, the Defendants are responsible for the 12 accuracy of the public reports and press releases detailed herein, and are therefore 13 primarily liable for the representations contained therein. 14 SUBSTANTIVE ALLEGATIONS

15 39. The Class Period begins on March 16, 2009, when Gulf Resources 16 filed with the SEC its annual report on Form 10-K for FY 2008. 17 40. The Class Period and ends on April 26, 2011, when the Glaucus 18 Research Group issued a thoroughly-researched report indicating that Gulf 19 Resources had overstated its revenue and income, engaged in undisclosed related 20 party transactions, concealed the Chairman’s use of Gulf’s assets to further his 21 competing businesses and concealed CEO Liu’s checkered role in connection with several well-publicized stock fraud schemes. 4 22

23 24 4 Glaucus Research Group describes itself as a research firm dedicated to helping 25 capital markets investors navigate treacherous financial waters in search of great 26 investment opportunities. Glaucus stated that the April 26, 2011 report was a result of Glaucus Research Group’s thorough investigation, including personal visits to 27 each of Gulf Resources’ factories, interviews with government officials in China, 28 and reviews of Gulf Resources’ public filings and other documents.

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1 I. False And Misleading Financial Statements 2 The False 2008 10-K 3 41. On March 16, 2009, the Company issued its annual report on SEC 4 form 10-K for ended December 31, 2008 (“2008 10-K”). 5 42. The 2008 10-K falsely reported that Gulf earned consolidated revenue 6 of $87.5 million and $22.4 million of net income for fiscal year 2008. 7 43. Plaintiffs’ counsel obtained financial statements filed by Gulf’s two 8 subsidiaries (SYCI and SCHC) with both the PRC State Administration for 9 Industry and Commerce (“SAIC”) 5 and PRC State Administration of Taxation 10 (“SAT”) 6. 11 44. The financial statements that Gulf’s two operating subsidiaries filed 12 with the Chinese regulators, the SAIC and SAT, showed Gulf really earned only a 13 fraction of the revenue and income it reported in its 2008 10-K. 14 45. The financial statements filed with the SAIC and SAT indicate the true 15 financial performance of Gulf Resources because: 16 • Under PRC law, penalties for filing false SAIC filings include fines and revocation of the entity’s business license; 17 • If an entity’s business license is revoked, the People’s Bank of China 18 requires all bank accounts of that entity be closed; 19 • Without a business license the entity cannot legally conduct any business. 20 • The financial statements Gulf Resources filed in the PRC with the SAIC are required to be audited by Chinese CPA firms in conformance with 21 Chinese GAAP. 22

23 5 The SAIC (State Administration for Industry and Commerce) is the Chinese government body that regulates industry and commerce in China. It is primarily 24 responsible for business registrations, issuing and renewing business licenses and 25 acts as the government supervisor of corporations. All Chinese companies are required to file audited financial statements with the Chinese government annually 26 or bi-annually.

27 6 The SAT (State Administration of Taxation) is PRC equivalent of the 28 Internal Revenue Service in the U.S.

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1 • Under PRC law, filing false tax documents is a crime subject to severe criminal and civil penalties, including imprisonment; 2 • Chinese GAAP are substantially the same as U.S. GAAP. In particular 3 for for sales of product U.S. GAAP, Chinese GAAP and Gulf’s stated revenue recognitions policy are the same. 4

5 46. The 2008 10-K overstated revenue by $82.7 million. Gulf really 6 earned revenue of only $4.8 million in fiscal 2008. 7 47. In the 2008 10-K Gulf overstated net income by $22.5 million. 8 Indeed, Gulf actually lost over $127,000, rather than earning $22.4 million of profit 9 as it falsely claimed in its 2008 10-K. The 2008 10-K Fails to Disclose the Related Party Nature of Gulf’s 10 Business 11 48. The 2008 10-K stated that Rongyuan was Gulf’s second biggest 12 customer for its chemical business purchasing $6.7 million of product from Gulf. 13 49. The 2008 10-K also failed to report that Rongyuan, from which it 14 reported revenue of $6.7 million in fiscal 2008 was secretly owned and controlled 15 by Gulf’s Chairman Ming Yang in violation of GAAP and SEC regulations that 16 require disclosure of all material related party transactions. 17 50. The 2008 10-K stated that its Chairman was owned Haoyan Group 18 which owned 11.9% of Gulf’s outstanding stock. However, Defendants failed to 19 disclose that Haoyuan’s two principal subsidiaries are active direct competitors of 20 Gulf Resources. Gulf’s chairman has been simultaneously operating Haoyuan and 21 utilizing the resources and assets of Gulf Resources for the benefit of Haoyuan. 22 51. SEC regulation S-K required Gulf to disclose its officers and directors 23 employment history in the 2008 10-K. In describing the past employment of Gulf 24 CEO Xiaobin Liu, the 2008 10-K purported to list his previous employment. The 25 2008 10-K failed to disclose that Liu served as the Chief Financial Officer for 26 China Finance, the notorious promoter of Chinese stock frauds. 27 The 2008 10-K’s False SOX Certifications 28

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1 52. Defendants Li, Liu, and Yang signed the false and misleading 2008 2 10-K. Defendants Li and Liu signed the accompanying Sarbanes-Oxley Act of 3 2002 (“SOX”) certifications, attesting to the accuracy of the Company’s financial 4 statements. 5 The False 2009 10-K 6 53. On March 2, 2010, the Company issued its annual report for fiscal 7 2009 on Form 10-K (“2009 10-K”) containing false and misleading financial 8 statements. 9 54. The 2009 10-K falsely states that Gulf had earned revenue of $110.7 10 million and net income of $30.6 million. 11 55. In truth, audited financial statements filed by Gulf’s two operating 12 subsidiaries, SCHC and SYCI, with Chinese regulators (SAIC, SAT) show that 13 Gulf really earned only $10.6 million of revenue and $38 thousand of net income 14 for fiscal 2009.

15 56. Thus, Defendants overstated Gulf’s 2009 revenue by $100 million and 16 its net income by $30.5 million. 17 The 200910-K Fails to Disclose the Related Party Nature of Gulf’s 18 Business 19 57. The 2009 10-K stated that Rongyuan was Gulf’s second biggest 20 customer for its chemical business purchasing $11.44 million of product from Gulf 21 in 2009 and $6.7 million of product from Gulf in 2008. 58. The 2009 10-K failed to report that Rongyuan, from which it reported 22 revenue of $11.44 million in 2009 and $6.7 million in fiscal 2008 was secretly 23 owned and controlled by Gulf’s Chairman Ming Yang in violation of GAAP and 24 SEC regulations that require disclosure of all material related party transactions. 25 59. The Company’s 2009 10-K and 2010 10-K, however, failed to disclose 26 that its top customer Rongyuan was a related party. 27 60. The 2009 10-K reported that Hongye was one of Gulf’s three largest 28

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1 suppliers of raw materials. However, it failed to disclose that Hongye is owned and 2 controlled by Haoyan Group, Yang, his wife and their son. 7 3 61. Several Chinese yellow page websites show Hongye Trading is a 4 subsidiary of Haoyuan Group. Wenxiang Yu- Mingyang's wife is the legal 5 representative of Hongye Trading. 6 62. Wenxiang Yu-Mingyang's wife is listed as the contact person of 7 Hongye Trading. 8 63. The 2009 10-K stated that its Chairman s owned Haoyan Group, which 9 owned 11.9% of Gulf’s outstanding stock. However, Defendants failed to disclose 10 that Haoyuan’s two principal subsidiaries are active direct competitors of Gulf 11 Resources. Gulf’s chairman has been simultaneously operating Haoyuan and 12 utilizing the resources and assets of Gulf Resources for the benefit of Haoyuan. The 13 Company’s 2009 10-K and 2010 10-K, however, failed to disclose that its top 14 customer Rongyuan was a related party.

15 64. SEC regulations required Gulf to disclose its officers and directors 16 employment history in the 2009 10-K. In describing the past employment of Gulf 17 CEO Xiaobin Liu, the 2009 10-K purported to list his previous employment. The 18 2008 10-K failed to disclose that Liu served as the Chief Financial Officer for 19 China Finance, the notorious promoter of Chinese stock frauds. 20 The 2009 10-K’s False SOX Certifications 21 65. Defendants Li and Liu signed the false and misleading 2009 10-K, as well as the accompanying SOX certifications, attesting to the accuracy of the 22 Company’s financial statements. 23 The False 2010 10-K 24 66. On March 16, 2011, the Company issued its annual report for fiscal 25 26 7 Gulf’s 2010 10-K reports that Hongye, onf of Gulf’s principal suppliers in 2010 is 27 a related party but contradicts the 2009 10-K in stating that Gulf did not purchase 28 any materials from Hongye in 2009.

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1 2010 on Form 10-K (“2010 10-K”) containing false and misleading financial 2 statements. 3 67. The 2010 10-K was false and misleading for the same reasons as the 4 2009 10-K was false and misleading described above. 5 68. The 2010 10-K overstated Gulf’s 2009 revenue by $100 million and its 6 net income by $30.5 million. 7 The 2010 10-K Fails to Disclose the Related Party Nature of Gulf’s 8 Business 9 69. The 2010 10-K also failed to disclose that Rongyuan, Gulf’s second 10 biggest customer in 2008 and 2009, generating $20 million of revenue for Gulf in 11 2008 and 2009, was secretly owned and controlled by Gulf’s Chairman Yang, until 12 January 2010 when he transferred his interest to a straw man. 13 70. The 2010 10-K also failed to disclose that Chairman Yang operated 14 two businesses that directly competed with Gulf’s operating subsidiaries, SCHC

15 and SYCI. 16 71. The 2010 10-K also failed to disclose that Gulf’s CEO Xiaobin Liu 17 was the Chief Financial Officer for China Finance, the notorious stock promoter of 18 several similarly fraudulent Chinese reverse merger scams. 19 The 2010 10-K’s False SOX Certifications 20 72. Defendants Li, Liu, and Yang signed the false and misleading 2010 21 10-K. Defendants Li and Liu also signed the accompanying SOX certifications, attesting to the accuracy of the Company’s financial statements. 22 Gulf’s False Interim Quarterly Reports and SOX Certifications During 23 the Class Period 24 73. All of Gulf’s quarterly reports on form 10-Q filed with the SEC during 25 the Class Period are also false and misleading for all of the same reasons described 26 above. The fraudulent quarterly reports are as follows: 27 a) Filed May 11, 2009, for the first quarter ended March 31, 2009; 28

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1 b) Filed August 10, 2009, for the second quarter June 30, 2009; 2 c) Filed November 9, 2009, for the third quarter ended September 30, 2009; 3 d) Filed May 11, 2010, for the first quarter ended March 31, 2010; 4 e) Filed August 16, 2010, for the second quarter ended June 30, 2010; and 5 f) Filed November 15, 2010, for the third quarter ended September 30, 2010. 6 74. Defendants Li and Liu signed all of the above-listed false and 7 misleading quarterly reports on form 10-Q, as well as their accompanying SOX 8 certifications, falsely attesting to the accuracy of the Company’s financial 9 statements. 10 Additional Evidence that Gulf’s 2008, 2009 and 2010 10-K’s 11 Overstated Revenue and Income 12 Bromine Production Doesn’t Add Up 13 75. In its 2008 10-K, 2009 10-K, and 2010 10-K, Gulf Resources 14 repeatedly boasted that “[a]ccording to figures published by the China Crude Salt

15 Association, we are one of the largest manufacturers of bromine in China, as 16 measured by production output.” 17 76. These statements were false when made. 18 77. According to a December 2010 report issued by CCM International 8 19 Ltd., neither Gulf Resources nor its subsidiaries are listed among the top 30 20 bromine producers in China. 21 78. According to the CCM report “there are around 100 producers of bromine, [and] 30 main producers have controlled most of [the] production lines 22

23 8 24 CCM stands for China Chemicals Market a company dedicated to providing high quality business and corporate Market Data and Primary Intelligence across 25 agriculture, biotechnologies, life sciences, renewable energies, printing and 26 packaging, and specialty chemicals. (See Who Is CCM , available at http://www.cnchemicals.com/ About/AboutUs.shtml (last visited Sep. 5, 2011).) 27 The December 2010 report was a result of thorough research efforts, including over 28 250 calls with industry participants.

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1 with output accounting for 93.6% of the total in China in 2009.” 2 79. The CCM report states that the annual output of bromine in China was 3 157,000 tons in 2010 and 107,665 in 2009. The report further identifies the top five 4 producers, each of which produced less than 20,000 tons of bromine per year: 5 2009` 2010 6 Shandong Haihua Group Co. Ltd. 15,000 20,000

7 Souguang Fukang Pharmaceutical 12,000 20,000 Co. Ltd. 8 Shandong Yuyuan Group Co. Ltd 10,000 15,000

9 Weifang Longwei Industrial Co. Ltd. 10,000 15,000

Shandong Futong Chemical Co. Ltd. 9,000 10,000 10

11 80. These output figures stated in the CCM report render the production 12 figures in Gulf Resources’ Form 10-Ks highly improbable. 13 81. In its 2008 10-K, 2009 10-K, and 2010 10-K, Gulf Resources reported 14 bromine production of 17,648 tons in 2007, 28,673 in 2008, 34,930 in 2009, and 15 34,672 in 2010. 16 82. These figures, if they were true, would have placed Gulf Resources at 17 the very top of the top 30 producers list in the CCM report and would have made 18 Gulf Resources responsible for over 40% of China’s bromine production in 2010. 19 83. An investigation conducted by market analysts could not locate China 20 Crude Salt Association, the entity that Gulf relies on for its claims to being one of 21 China’s largest producers of bromine. 22 84. Accordingly, the statements in the 2008 10-K, 2009 10-K, and 2010

23 10-K regarding its bromine production were false when made. And provide further 24 evidence that Gulf overstated its revenue and income in its annual reports for fiscal

25 2008, 2009 and 2010. 26 85. Based on the and sales figures reported in Gulf Resources’ 27 2008 10-K, 2009 10-K, and 2010 10-K, the Company turned its inventory between 59 and 209 times each year: 28

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1

Inventory Sales Turn-Over Rate 2 2008 $418,259 $87,488,334 209 Times

3 2009 $650,332 $110,276,908 169.5 Times

4 2010 $2,679,899 $158,335,023 59 Times

5 Financial Metrics Don’t Add Up 6 86. Moreover, based on the revenue and earnings before interest, taxes, 7 and (“EBITDA”) figures reported in the 2010 10-K, Gulf 8 Resources’ profit margin is over 50%. 9 87. An interview with a bromine industry expert reveals that Great Lakes 10 Chemical, the largest methyl bromide supplier in the United States, operates under 11 a inventory-sales turn-over rate of five times and a profit margin of below 10%. 12 88. Similarly, an analysis of the public filings of Shandong Haihua Group 13 Company Ltd., one of the “principal competitors” identified in Gulf Resources 14 Form 10-Ks, operates under a inventory-sales turn-over rate of seven times and a 15 profit margin of below 20%. 16 89. Compared against the figures reported by Great Lakes and Shandong 17 Haihua, the inventory and sales figures stated in Gulf Resources’ 2008 10-K, 2009 18 10-K, and 2010 10-K are improbable. 19 90. Accordingly, the inventory and sales figures stated in Gulf Resources’ 20 2008 10-K, 2009 10-K, and 2010 10-K were false when made. 21 Regulatory Filings with the PRC Don’t Add Up 22 91. Moreover, Gulf Resources’ subsidiaries, SCHC and SYCI, in their

23 filings with Chinese regulators reported much lower turn-over rates that are more in 24 line with those reported by Great Lakes and Shandong Haihua.

25 92. In their respective filings with the SAIC in China, both SCHC and SYCI reported sales and inventory figures that indicate a turn-over rate of under 26 10.1 times or less in 2008 and 2009: 27

28 SCHC Inventory Sales Turn-Over Rate

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1 2008 ¥3,276,383 ¥17,866,278 5.5 Times

2 2009 ¥3,750,558 ¥37,834,290 10.1 Times

3 SYCI Inventory Sales Turn-Over Rate

4 2008 ¥3,690,380 ¥9,298,743 2.5 Times

2009 ¥4,129,196 ¥31,074,806 7.5 Times 5 6 93. The improbability of Gulf Resources reported turn-over rates render its 7 revenue and inventory figures false and misleading. 8 94. On January 12, 2011, Cao Xia —a well-known Chinese analyst and 9 respected teacher at the Shanghai National Accounting Institute who was the first to 10 challenge 25 of the 125 companies that the Chinese Securities Regulatory 11 Commission has pressed charges against—issued an article on his blog analyzing 12 GFRE’s financial reporting. Based on his detailed analysis, Cao Xia concluded that

13 “I suspect that GFRE overstated production capacity, production and sales. This 14 company conducted large scale of financial fraud by overstating income along with

15 overstating increased assets (, receivable and fixed assets). Its largely 16 overstated revenue caused its extremely high turnover rate and abnormally low 17 ratio.” 18 95. The article by Cao Xia provided an analysis similar to the above described analysis to concluded that Gulf’s SEC financial statements are false. The 19 article is incorporated by reference herein. 20 96. In their respective 2009 SAIC filings, the combined revenue reported 21 for Gulf’s two operating subsidiaries, SCHC and SYCI is far less than those 22 reported to the SEC in Gulf Resources’ 2009 10-K: 23

Reported to SAIC Reported to SEC Overstatement 24

INCOME STATEMENT 25 $10,595,202 $110,276,908 $99,681,705

26 of Revenues $9,986,825 $61,402,820 $51,415,994

Expenses $328,634 $68,036,074 $67,707,439 27

Operation Income $134,837 $42,240,834 $42,105,996 28

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1 Income Tax Paid $144,044 $11,184,398 $11,040,353

2 Net Income $38,375 $30,591,415 $30,553,039

BALANCE SHEET 3 Cash $20,803,558 $45,536,735 $24,733,176

4 Receivables $3,992,961 $14,960,002 $10,967,040

5 Inventory $1,019,926 $650,332 ($369,594)

Current Assets $30,825,091 $63,707,412 $32,882,320 6 Total Assets $39,367,522 $146,423,168 $107,055,645

7 Liabilities $6,051,423 $12,040,198 $5,988,774

Stockholders’ $33,316,099 $134,382,970 $101,066,870 8 Equity 9 10 97. These conflicting figures between the Company’s SAIC filings and 11 SEC filings indicate that the Company kept two materially different sets of books. 12 The financial statements the Company filed with the SAIC report only a tiny

13 fraction of the revenues and income contained in the financial statements filed with 14 the SEC. Differences in Accounting Rules Cannot Explain Two Sets of Books 15 98. There are no significant differences between Chinese GAAP and US 16 GAAP. According to a Consultation Paper entitled CESR’S ADVICE ON THE 17 EQUIVALENCE OF CHINESE, JAPANESE AND US GAAPS, prepared by The 18 Committee of European Securities Regulators, noted that differences between US 19 GAAP and International Accounting Standards (“IAS”) were: 9 20 21 Not significant - General principles are consistent between the two GAAPS, 22 but there are some differences of detail which are unlikely to affect investors' 23 decision making as long as there is full disclosure of accounting policies and 24 sufficient information provided under US GAAP. 25 99. The report noted that there were “[n]o significant differences between 26 27 9 Available at http://www.iasplus.com/europe/0712cesrequivalence.pdf 28

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1 ASBE 14, the China GAAP standard for revenue recognition, and IAS 18, the IAS 2 equivalent.” See Id. pg 35. 3 100. Gulf’s 2010 10-K states “We recognize revenue, net of value added 4 tax, when persuasive evidence of an arrangement exists, delivery of the goods has 5 occurred, customer acceptance has been obtained, which means the significant risks 6 and ownership have been transferred to the customer, the price is fixed or 7 determinable and collectability is reasonably assured. The Chinese accounting 8 standard governing revenue recognition, ASBE 14, is similar. 10 It states: 9 Chapter II Revenue from Selling Goods 10 Article 4 No revenue from selling goods may be recognized unless the 11 following conditions are met simultaneously: 12 (1) The significant risks and rewards of ownership of the goods have been 13 transferred to the buyer by the enterprise; 14 (2) The enterprise retains neither continuous management right that usually

15 keeps relation with the ownership nor effective control over the sold goods; 16 (3) The relevant amount of revenue can be measured in a reliable way; 17 (4) The relevant economic benefits may flow into the enterprise; and 18 (5) The relevant incurred or to be incurred can be measured in a reliable 19 way. 20 101. Accordingly, there are no significant differences between US GAAP 21 and Chinese GAAP for recognizing revenue for the sale of goods in Gulf’s case. And differences between U.S. GAAP and Chinese GAAP are not the cause of the 22 huge differences in revenue and income between Gulf’s SEC filed financial 23 statements and its China filed SAIC and SAT financial statements. Fraud is the 24 only plausible explanation for the differences. 25 26 10 Accounting Standards for Enterprises No. 14 – Revenues; Promulgation 27 date: 02-15-2006; Effective date:01-01-2007; Department: China Ministry of 28 Finance; Subject: Accounting.

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1 2 II. Related Party Transactions are Violations of GAAP Rendering the 3 Financial Statements False and Misleading 4 102. Generally Accepted Accounting Principles (“GAAP”), Statement of 5 Standards (“SFAS”), and SEC regulations required the 6 Company to disclose all material related party transactions. 7 103. SFAS No. 57 and No. 850 provide that a ’s “[f]inancial 8 statements shall include disclosures of material related party transactions.” SFAS 9 No. 57 ¶ 2; 850-10-50-1. 10 104. “Related party transactions” include those between “an enterprise and 11 its principal owners, management, or members of their immediate families” and 12 those between a company and its “affiliates.” SFAS No. 57 ¶ 1; 850-10-05-3. 13 “Affiliate” includes any company that is under common control or management 14 with the public company. SFAS No. 57 ¶ 24(a, b); 850-10-20. 15 105. Disclosures of related party transactions shall include 16 • the nature of the relationship involved; 17 • a description of the transactions for each period for which income statements are presented and such other information necessary to an 18 understanding of the effects of the transactions on the financial statements; 19 • the dollar amount of transactions for each of the periods for which income 20 statements are presented; and 21 • amounts due from or to related parties as of the date of each presented and, if not otherwise apparent, the terms and manner of 22 settlement. SFAS No. 57 ¶ 2; 850-10-50-1. 23 106. Defendant Yang, the Company’s former CEO and current Chairman of 24 its Board, is also Chairman of the Board and founder of Haoyuan Group. 25 107. The 2008 and 2009 10-Ks stated that Gulf Resources’ second largest 26 customer for 208 and 2009 Rongyuan. 27 108. The 2010 10-K stated that Gulf Resources’ largest customer was 28

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1 Rongyuan, accounting for 13.2% of its bromine revenue and 24.3 of its crude salt 2 revenue. Rongyuan accounted for 10.6% of Gulf Resources’ total 2010 revenue. 3 109. Rongyuan has the same phone number, fax number, and address, as 4 Haoyuan. 5 110. Rongyuan’s SAIC filings show that Yang owned 74% and Gulf 6 Director Ya Fei Ji owned 18% of Rongyuan from 2006 to at least January 2010. 7 111. Further, Chinese regulatory filings show that Rongyuan has the same 8 address as Haoyuan. 9 112. Rongyuan’s Web site has the name “Haoyuan” in the URL address. 10 113. Therefore, Rongyuan is operated as a subsidiary of Haoyuan. 11 114. Under GAAP rules, Rongyuan is a related party to Gulf Resources. 12 CHAIRMAN YANG CONCEALED THAT HIS COMPANIES COMPETE 13 WITH GULF RESOURCES 14 115. Ming Yang is the chairman and founder of Gulf Resources.

15 116. Shandong Haoyuan Industry Group Ltd. (“Haoyuan Group”) is a 16 privately-owned Chinese conglomerate, owned by Ming Yang and his wife 17 Wenxiang Yu. Several Chinese websites, including two governmental websites, 11 18 indicate that Ming Yang is also the Chairman of Board of Haoyuan Group. 19 117. Haoyuan Group is a competitor of SYCI. As of May 18, 2011 when 20 our investigator obtained their SAIC filings, those filings show the two companies 21 share very similar business scope. 22 Haoyuan Group SYCI Production and sales of plastic Production and sales of chemical products, 23 woven bags, petroleum machinery plastic woven bags, petroleum machinery 24 parts and labor protective parts, oil field additives, paper production 25 appliance; oilfield drilling chemical additives, plastic products and 26

27 11 http://gh.weifang.gov.cn/Article.asp?ArticleId=1217 28 http://sgqyjxh.com/xiehuizuzhi/huiyuanmingdan.htm

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1 technology services; oil field waste anti-corrosion insulation projects. 2 water treatment; anti-corrosion 3 insulation projects. 4 118. In addition, Haoyuan Group owns a subsidiary which is also in 5 chemical manufacturing business- Shouguang City Shengbang Chemical Company 6 Limited. 12 7 119. Gulf did not disclose that its chairman and his family own a competing 8 business. 9 120. GFRE uses Haoyuan Group’s address in its SEC filings. 10 121. In its SEC filings, Gulf’s address of principal executive offices and zip 11 code is 99 Wenchang Road, Chenming Industrial Park, Shouguang City, Shandong, 12 China 262714. But this address does not belong to either one of Gulf Resources' 13 two operating subsidiaries – SCHC and SYSC. Instead, it belongs to Haoyuan 14 Group. Since its registration in March 2006, Haoyuan Group has been using the 15 same address in its SAIC filings. 16 CEO Xiaobin Liu Concealed his Role at Disgraced China Finance 17 122. The Company’s Chief Executive Officer was Defendant Liu. 18 Defendant Liu’s biography omitted the position he had been Chief Financial Officer 19 of China Finance as late as 2004. 20 123. According to its SEC filings, China Finance “provid[ed] financial 21 support and services [...] to privately-owned small and medium sized enterprises in 22 China when they seek access to capital or to be acquired by a United States reporting company [in a reverse merger]”. 23 124. China Finance would be compensated for its services through equity 24 ownership of these companies. 25 125. Many of these companies were later determined to be fraudulent, or to 26

27 12 Haoyuan Group’s website shows that Shouguang City Shengbang 28 Chemical Company Limited is one of its subsidiaries.

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1 have such serious undisclosed weaknesses in internal controls that their shares were 2 nearly valueless. Accordingly, the stock price for the common stock of many of 3 these companies collapsed after allegations of fraud – that is, when trading in the 4 companies’ shares was not permanently halted altogether. 5 126. China Finance would customarily dispose of the equity it held in these 6 fraudulent companies at elevated prices before the fraud was discovered. 7 127. China Finance provided financing to Gulf Resources in exchange for 8 6% of the equity in Gulf Resources. Seven days after China Finance’s investment, 9 Defendant Liu was installed as Gulf Resources’ Chief Executive Officer. Had 10 Defendant Liu disclosed his past affiliation with China Finance, it would have been 11 apparent that he was installed to provide favorable treatment to China Finance. 12 128. The Company failure to disclose Defendant Liu’s ties to China 13 Finance renders each of its SOX certifications false because the certifications 14 requires disclosure of “all significant deficiencies and material weaknesses in the

15 design or operation of internal control over financial reporting which are reasonably 16 likely to adversely affect the registrant’s ability to record, process, summarize and 17 report financial information” and “any fraud.” 18 III. Auditors Run for the Exits 19 129. Between 2007 and 2010, the Company dismissed two auditors. 20 130. In February 2010 – less than three weeks before the filing of the 2009 21 10-K – the Company dismissed Morison Cogen, LLP (“MCO”) under suspicious 22 circumstances. 23 131. A year before the dismissal, MCO warned investors about the 24 possibility of fraud at the Company. In the 2008 10-K, MCO identified two 25 “material weaknesses” in the effectiveness of the Company’s internal controls: 26 a. Insufficient complement of accounting personnel with the appropriate level of accounting knowledge, 27 experience and training in the application of accounting 28 principles generally accepted in the United States

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1 commensurate with reporting requirements. 2 b. Inability to timely and properly recognize issuance 3 of share-based compensation 4 132. BDO Limited, the Hong Kong member of the BDO International 5 network, completed the Company’s in less than three weeks, an unusually 6 short period of time for a newly hired with little familiarity with the 7 Company’s books, records, and accounting practices. 8 133. In September 2010, the Company retained Deloitte Touche & 9 Tohmatsu (“DTT”) to investigate and report on the Company’s internal controls. 10 134. The Company kept the findings of DTT’s investigation secret. 11 135. After receiving DTT’s findings, Richard Khaleel, an independent 12 director and a member of the audit committee of the Board, resigned. Khaleel is the 13 sole director who is a United States citizen and subject to the jurisdiction of the 14 United States. 15 IV. The SEC Has Warned Of Chinese Reverse Merger Companies (“RCMs”) Like Gulf Resources 16 17 136. Chinese reverse mergers have been a magnet for disreputable stock 18 promoters, leading the SEC to issue warnings about investing in companies like 19 Gulf Resources. 20 137. Shielded by the geographic distance of thousands of miles and 21 operating under a regulatory framework that is a world apart from the SEC’s 22 oversight, RCMs have few incentives to provide complete and accurate disclosures

23 to American investors. An August 28, 2010 article in Barron’s by Bill Alpert and 24 Leslie P. Norton entitled, “Beware This Chinese Export,” discusses the enforcement

25 problems that American regulators face when dealing with Chinese companies that 26 trade on U.S. exchanges through RCMs. The article states that “[t]he SEC’s enforcement staff can’t subpoena evidence of any fraudulent activities in China, 27 and Chinese regulators have little incentive to monitor shares sold only in the U.S.” 28

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1 138. U.S. regulators have finally begun to take notice of the manipulation 2 and fraud endemic in RCMs. The SEC has recently established a task force to 3 investigate investors’ claims regarding the impropriety and fraud of RCMs trading 4 on the U.S. markets. SEC Commissioner Luis A. Aguilar (the “Commissioner”) 5 discussed Chinese reverse mergers and the process of “backdoor registration,” 6 stating: 7 In the world of backdoor registrations to gain entry into the U.S. public market, the use by Chinese companies has 8 raised some unique issues, even compared to mergers by 9 U.S. companies. Two important ones are: • First, there appear to be systematic concerns with 10 the quality of the auditing and financial reporting; and 11 • Second, even though these companies are 12 registered here in the U.S., there are limitations on the ability to enforce the securities laws, and for investors to recover their losses when disclosures are found to be 13 untrue, or even fraudulent. 14 I am worried by the systematic concerns surrounding the quality of the financial reporting by these companies. In 15 particular, according to a recent report by the staff of the Public Company Accounting Oversight Board (PCAOB), 16 U.S. auditing firms may be issuing audit opinions on the financials, but not engaging in any of their own work. 17 Instead, the U.S. firm may be issuing an opinion based almost entirely on work performed by Chinese audit 18 firms. If this is true, it could appear that the U.S. audit firms are simply selling their name and PCAOB- 19 registered status because they are not engaging in independent activity to confirm that the work they are 20 relying on is of high quality. This is significant for a lot of reasons, including that the PCAOB has been prevented 21 from inspecting audit firms in China 22 139. On June 9, 2011, the SEC issued an Investor Bulletin warning 23 investors about investing in companies that enter U.S. markets through RCM “... 24 there have been instances of fraud and other abuses involving reverse merger 25 companies.” “Given the potential risks, investors should be especially careful when 26 considering investing in the stock of reverse merger companies,” said Lori J. 27 Schock, Director of the SEC’s Office of Investor Education and Advocacy. 28

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1 2

3 Applicability of Presumption of Reliance: 4 Fraud-on-the-Market Doctrine

5 6 140. At all relevant times, the market for Gulf Resources common stock 7 was an efficient market for the following reasons, among others: 8 (a) The Company’s stock met the requirements for listing, and was listed and actively traded on a national exchange in a 9 highly efficient and automated market; 10 (b) More than 2% of Gulf Resources’ outstanding shares were 11 traded in the public markets on a weekly basis providing a 12 strong presumption of an efficient market in Gulf Resources 13 shares; 14 (c) As a regulated issuer, Gulf Resources filed periodic public 15 reports with the SEC; 16 (d) Gulf Resources regularly communicated with public investors 17 via established market communication mechanisms, including 18 through regular disseminations of press releases on the 19 national circuits of major newswire services and through 20 other wide-ranging public disclosures, such as 21 communications with the financial press and other similar 22 reporting services; 23 (e) Gulf met the requirements for filing an S-3 registration 24 statement during the Class Period; 25 (f) Gulf Resources was followed by several securities analysts 26 employed by major brokerage firms who wrote reports that 27 were distributed to the sales force and certain customers of 28

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1 their respective brokerage firms during the Class Period. Each 2 of these reports was publicly available and entered the public 3 marketplace; and 4 141. As a result of the foregoing, the market for the Company’s common 5 stock promptly digested current information regarding Gulf Resources from all 6 publicly available sources and reflected such information in Gulf Resources’ stock 7 price. Under these circumstances, all purchasers of the Company’s common stock 8 during the Class Period suffered similar injury through their purchase of Gulf 9 Resources’ common stock at artificially inflated prices, and a presumption of 10 reliance applies. 11 PLAINTIFF’S CLASS ACTION ALLEGATIONS 12 13 142. Plaintiff brings this action as a class action pursuant to Federal Rules 14 of Civil Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all persons

15 who purchased common stock of Gulf Resources during the Class Period and who 16 were damaged thereby. Excluded from the Class are the officers and directors of 17 the Company at all relevant times, members of their immediate families and their 18 legal representatives, heirs, successors or assigns and any entity in which 19 Defendants have or had a . 20 143. The members of the Class are so numerous that joinder of all members 21 is impracticable. Throughout the Class Period, the Company’s common stock was actively traded on the NASDAQ or OTC:BB. While the exact number of Class 22 members is unknown to Plaintiff at this time, and can only be ascertained through 23 appropriate discovery, Plaintiff believes that there are at least hundreds of members 24 in the proposed Class. Members of the Class may be identified from records 25 maintained by Gulf Resources or its transfer agent, and may be notified of the 26 pendency of this action by mail using a form of notice customarily used in 27 securities class actions. 28

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1 144. Plaintiff’s claims are typical of the claims of the members of the Class, 2 as all members of the Class are similarly affected by Defendants’ wrongful conduct 3 in violation of federal law that is complained of herein. 4 145. Plaintiff will fairly and adequately protect the interests of the members 5 of the Class and has retained counsel competent and experienced in class and 6 securities litigation. 7 146. Common questions of law and fact exist as to all members of the Class 8 and predominate over any questions solely affecting individual members of the 9 Class. Among the questions of law and fact common to the Class are: 10 (a) whether the federal securities laws were violated by Defendants 11 acts as alleged herein; 12 (b) whether statements made by the Defendants to the investing public 13 during the Class Period misrepresented material facts about the 14 business, operations, and management of Gulf Resources; and

15 (c) to what extent the members of the Class have sustained damages, 16 and the proper measure of damages. 17 147. A class action is superior to all other available methods for the fair and 18 efficient adjudication of this controversy since joinder of all members is 19 impracticable. Furthermore, as the damages suffered by individual Class members 20 may be relatively small, the and burden of individual litigation make it 21 impossible for members of the Class to redress individually the wrongs done to them. There will be no difficulty in the management of this action as a class action. 22

23 FIRST CLAIM 24 Violation of Section 10(b) of 25 The Exchange Act and Rule 10b-5 26 Promulgated Thereunder Against All Defendants 27 28

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1 148. Plaintiff repeats and realleges each and every allegation contained 2 above as if fully set forth herein. 3 149. During the Class Period, Defendants carried out a plan, scheme and 4 course of conduct which was intended to and, throughout the Class Period, did: (1) 5 deceive the investing public, including Plaintiff and other Class members, as 6 alleged herein; and (2) cause Plaintiff and other members of the Class to purchase 7 Gulf Resources’ securities at artificially inflated prices. In furtherance of this 8 unlawful scheme, plan and course of conduct, Defendants took the actions set forth 9 herein. 10 150. Defendants (a) employed devices, schemes, and artifices to defraud; 11 (b) made untrue statements of material fact and/or omitted to state material facts 12 necessary to make the statements not misleading; and (c) engaged in acts, practices, 13 and a course of business that operated as a fraud and deceit upon the purchasers of 14 the Company’s securities in an effort to maintain artificially high market prices for

15 Gulf Resources’ securities in violation of Section 10(b) of the Exchange Act and 16 Rule 10b-5 thereunder. 17 151. Defendants, directly and indirectly, by the use, means or 18 instrumentalities of interstate commerce and/or of the mails, engaged and 19 participated in a continuous course of conduct to conceal adverse material 20 information about the business, operations and future prospects of Gulf Resources 21 as specified herein. 152. These Defendants employed devices, schemes, and artifices to defraud 22 while in possession of material adverse non-public information, and engaged in 23 acts, practices, and a course of conduct as alleged herein in an effort to assure 24 investors of Gulf Resources’ value and performance and continued substantial 25 growth, which included the making of, or participation in the making of, untrue 26 statements of material facts and omitting to state material facts necessary in order to 27 make the statements made about Gulf Resources and its business operations and 28

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1 future prospects in the light of the circumstances under which they were made, not 2 misleading, as set forth more particularly herein, and engaged in transactions, 3 practices and a course of business that operated as a fraud and deceit upon the 4 purchasers of Gulf Resources’ securities during the Class Period. 5 153. Defendants had actual knowledge of the misrepresentations and 6 omissions of material facts set forth herein, or acted with reckless disregard for the 7 truth in that they failed to ascertain and to disclose such facts, even though such 8 facts were available. Such material misrepresentations and/or omissions were done 9 knowingly or recklessly and for the purpose and effect of concealing Gulf 10 Resources’ operating condition and future business prospects from the investing 11 public and supporting the artificially inflated price of its securities. As 12 demonstrated by overstatements and misstatements of the Company’s financial 13 condition throughout the Class Period, if the Defendants did not have actual 14 knowledge of the misrepresentations and omissions alleged, they were reckless in

15 failing to obtain such knowledge by deliberately refraining from taking those steps 16 necessary to discover whether those statements were false or misleading. 17 154. Gulf Resources is liable for the acts of the Individual Defendants and 18 its employees under the doctrine of respondeat superior and common law 19 principles of agency as all of the wrongful acts complained of herein were carried 20 out within the scope of their employment with authorization. 21 155. The scienter of the Individual Defendants and other employees and agents of the Company is similarly imputed to Gulf Resources under respondeat 22 superior and agency principles. 23 156. As a result of the dissemination of the materially false and misleading 24 information and failure to disclose material facts, as set forth above, the market 25 price of Gulf Resources’ securities was artificially inflated during the Class Period. 26 In ignorance of the fact that market prices of Gulf Resources’ publicly-traded 27 securities were artificially inflated, and relying directly or indirectly on the false 28

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1 and misleading statements made by the Defendants, or upon the integrity of the 2 market in which the common stock trades, and/or on the absence of material 3 adverse information that was known to or recklessly disregarded by the Defendants, 4 but not disclosed in public statements by the Defendants during the Class Period, 5 Plaintiff and the other members of the Class acquired Gulf Resources common 6 stock during the Class Period at artificially high prices, and were, or will be, 7 damaged thereby. 8 157. At the time of said misrepresentations and omissions, Plaintiff and 9 other members of the Class were ignorant of their falsity, and believed them to be 10 true. Had Plaintiff and the other members of the Class and the marketplace known 11 the truth regarding Gulf Resources’ financial results, which was not disclosed by 12 the Defendants, Plaintiff and other members of the Class would not have purchased 13 or otherwise acquired their Gulf Resources securities, or, if they had acquired such 14 securities during the Class Period, they would not have done so at the artificially

15 inflated prices that they paid. 16 158. As a direct and proximate result of the Defendants’ wrongful conduct, 17 Plaintiff and other members of the Class suffered damages in connection with their 18 purchases of Gulf Resources’ securities during the Class Period. 19 159. This action was filed within two years of discovery of the fraud and 20 within five years of Plaintiffs’ purchases of securities giving rise to the cause of 21 action. 22 FIRST CLAIM 23 Violation of Section 20(a) of The Exchange Act 24 Against the Individual Defendants 160. Plaintiffs repeat and reallege each and every allegation contained 25 above as if fully set forth herein. 26 161. This Second Claim is asserted against each of the Individual 27 Defendants. 28

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1 162. The Individual Defendants, acted as controlling persons of Gulf 2 Resources within the meaning of Section 20(a) of the Exchange Act as alleged 3 herein. By virtue of their high-level positions as Chairman, CEO and CFO, agency, 4 and their stock ownership and contractual rights, participation in and/or awareness 5 of the Company’s operations and/or intimate knowledge of aspects of the 6 Company’s revenues and earnings and dissemination of information to the 7 investing public, the Individual Defendants had the power to influence and control, 8 and did influence and control, directly or indirectly, the decision-making of the 9 Company, including the content and dissemination of the various statements that 10 Plaintiffs contend are false and misleading. The Individual Defendants were 11 provided with or had unlimited access to copies of the Company’s reports, press 12 releases, public filings and other statements alleged by Plaintiffs to be misleading 13 prior to and/or shortly after these statements were issued, and had the ability to 14 prevent the issuance of the statements or to cause the statements to be corrected.

15 163. In particular, each of these Defendants had direct and supervisory 16 involvement in the day-to-day operations of the Company and, therefore, is 17 presumed to have had the power to control or influence the particular transactions 18 giving rise to the securities violations as alleged herein, and exercised the same. 19 164. As set forth above, Gulf Resources and the Individual Defendants each 20 violated Section 10(b) and Rule 10b-5 by their acts and omissions as alleged in this 21 Complaint. 165. By virtue of their positions as controlling persons, the Individual 22 Defendants are liable pursuant to Section 20(a) of the Exchange Act as they 23 culpably participated in the fraud alleged herein. As a direct and proximate result of 24 Defendants’ wrongful conduct, Plaintiffs and other members of the Class suffered 25 damages in connection with their purchases of the Company’s common stock 26 during the Class Period. 27 166. This action was filed within two years of discovery of the fraud and 28

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1 within five years of Plaintiffs’ purchases of securities giving rise to the cause of 2 action. 3

4 WHEREFORE, Plaintiff prays for relief and judgment, as follows: 5 (a) Determining that this action is a proper class action, designating 6 Plaintiff as Lead Plaintiff and certifying Plaintiff as a class representative under 7 Rule 23 of the Federal Rules of Civil Procedure and Plaintiff’s counsel as Lead 8 Counsel; 9 (b) Awarding compensatory damages in favor of Plaintiff and the 10 other Class members against all Defendants, jointly and severally, for all damages 11 sustained as a result of Defendants’ wrongdoing, in an amount to be proven at trial, 12 including interest thereon; 13 (c) Awarding plaintiff and the Class their reasonable costs and 14 expenses incurred in this action; and

15 (d) Such other and further relief as the Court may deem just and 16 proper. 17 JURY TRIAL DEMANDED 18 Plaintiff hereby demands a trial by jury. 19 20 Dated: September 12, 2011 Respectfully submitted, 21 THE ROSEN LAW FIRM, P.A. 22

23 24

25 Laurence M. Rosen, Esq. (LR 5733) 26 THE ROSEN LAW FIRM, P.A. 27 355 South Grand Avenue, Suite 2450 Los Angeles, CA 90071 28

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1 Telephone: (213) 785-2610 2 Facsimile: (213) 226-4684 Email: [email protected] 3 4 and

5 Francis A. Bottini, Jr., Esq. (SBN 175783) 6 Chapin Fitzgerald Sullivan & Bottini LLP 550 West C Street, Suite 2000 7 San Diego, CA 92101 Telephone: (619) 241-4810 8 Facsimile: (619) 955-5318 Email: [email protected] 9

10 Lead Counsel for Plaintiffs and the Class 11 12

13 14

15 16 17 18 19 20 21 22

23 24

25 26 27 28

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