U.S. Listed Chinese Companies Attracting Scrutiny, Securities Suits

U.S. Listed Chinese Companies Attracting Scrutiny, Securities Suits

For reasons I am sure they find good and sufficient, Chinese companies have been seeking listings on the U.S. securities exchanges. The Chinese companies (or at least some of them) have also been discovering an added side-effect of a U.S. listing - that is, exposure to a class action lawsuit under the U.S. securities laws.

The latest Chinese company to be sued is RINO International Corporation, which has its headquarters in Dalian, in China's Liaoning province. As reflected in their November 15, 2010 press release (here), plaintiffs' lawyers have filed a complaint against the company and certain of its directors and officers in the Central District of California.

The complaint (which can be found here) alleges that in RINO's SEC filed annual report for fiscal 2009, RINO reported $193 million of revenue, but in the annual report RINO filed for 2009 with the China State Administration for Industry and Commerce, it reported only $11 million of revenue. This discrepancy, "along with other accounting inconsistencies and questionable transactions between RINO and its management, has raised red flags and prompted an internal review."

RINO joins a growing list of Chinese companies that have been named as defendants in securities class action lawsuits in the U.S. in 2010. There have been as many as 14 new securities class action lawsuits filed against foreign domiciled in 2010 (out of a total of about 154 new lawsuits filed this year), but seven of the 14 (including the new lawsuit against RINO) involve Chinese companies.

The other six Chinese companies to be sued are Fuqi International (about which refer here), China Natural Gas (here), China-Biotics (here), Duoyuan Printing (here), Duoyuan Global Water (here), and China Green Agriculture (here). Interestingly six of the seven have been filed just since the last week of August 2010, all of which of course were filed after the U.S. Supreme Court's decision in the Morrison case (about which refer here), which seemingly narrowed the range of foreign-domiciled companies U.S. private securities litigation exposure.

Taken collectively, these lawsuits could be interpreted to suggest that at least some Chinese companies have experienced some difficulties adapting to the burdens and responsibilities involved with a U.S. listing.

Read U.S. Listed Chinese Companies Attracting Scrutiny, Securities Suits in its entirety at the D&O Diary, a blog by Kevin LaCroix.