One of the most distinct securities litigation filing trends during the last twelve months has been the filing of securities class action lawsuits against U.S.-listed companies based or operating in China. With a phenomenon this well-established, it is only natural that the trend should begin to evolve, which seems to be what has happened in connection with a couple of new filings during this past week.
Yahoo: First, according to their June 6, 2011 press release (here), plaintiffs' attorneys have filed a securities class action lawsuit in the Northern District of California against Yahoo , its CEO Carol Bartz, and director and co-founder Jerry Yang. Yahoo is of course a well-established U.S.-based company. But the lawsuit relates to Yahoo's investment in its Chinese-based strategic partner, Alibaba Group Holdings Limited, which is China's largest e-commerce company. (Yahoo owns about 40% of Alibaba Group.)
The lawsuit arises out of the well-publicized dispute between Yahoo and Alibaba over the March 31, 2011 restructuring of a unit of Alibaba (Alipay) that resulted in Alibaba's CEO's ownership of 100% of Alipay. The complaint alleges that Alibaba and Yahoo received only about $45 million for Alipay, which allegedly is worth more than $5 billion. The complaint further alleges that Yahoo failed to disclose this information to investors until May 10, 2011. When Yahoo released the information in a periodic SEC filing, its share price declined. The complaint alleges that the delay in releasing the information misled investors.
The fact that the defendant in this case is a mainstream U.S. company makes this new lawsuit different from the many cases that have been filed recently against Chinese companies. But the case has certain features in common with those other suits, other than the obvious China connection. For example, both the alleged lack of transparency surrounding a critical corporate transaction and the allegations of self-dealing involving senior Chinese management are the kinds of allegations that have appeared in many of the prior suits against Chinese-linked companies. Alison Frankel's June 8, 2011 article on Thompson Reuters News & Insight has further comments on the Chinese litigation connection of the new Yahoo lawsuit.
Sino-Forest Corporation: The second of the two recent lawsuits involves Sino-Forest Corporation. Sino-Forest's name has been in the news recently after the publication of analyst reports that the company has significantly overstated its forestry assets and revenues. The company's share price declined sharply and the company announced that is has formed a special committee to investigate the allegation.
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Read other items of interest from the world of directors & officers liability, with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.
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