In its comments about the elevated level of filings against U.S.-listed Chinese companies during the first months of 2011 in its mid-year report on securities class action litigation (here), Cornerstone Research noted both that the total number of such companies is relatively small and even made second-half projections based on the assumption that there would be no further litigation in the year's final six months involving Chinese companies that had obtained their U.S. listings by way of a reverse merger. But as the year's second half has progressed, lawsuits involving U.S.-listed Chinese companies have continued to be filed. Signs are that there will be even more filings ahead.
The latest U.S- listed Chinese company to be targeted is SinoTech Energy Ltd. According to news reports, on August 19, 2011, plaintiffs' filed a securities class action lawsuit in the Southern District of New York against the company, its directors and officers, and its offering underwriters. The company was the subject of an August 16, 2011 Internet post by the online research firm (and short seller) Alfred Little. Among other things, the report claimed that the company, its largest customers and suppliers "are likely nothing more than empty shells with little or no sales or income."
In an August 17, 2011 response, the company said that its board of directors is "not aware of inaccuracy with respect to material facts or material omission contained in its previous public reports and filings with the United States Securities and Exchange Commission," and called the Alfred Little report "inaccurate and defamatory." The company also noted that as a short seller, Alfred Little stands to profit by driving down the company's share price.
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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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