One of the most distinct securities
litigation filing trends during the last twelve months has been the filing
of securities class action law suits 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.
Inevitably, a securities class action lawsuit filed. In
certain respects, this new lawsuit filing is similar to many of the prior suits
involving Chinese companies, based as it is on allegations of accounting and
reporting misrepresentations. What makes this suit different is that it has
been filed in Canada, by a Canadian law firm, as reflected in the law firm's
June 8, 2011 press release (here).
Sino-Forest's shares are listed on the Toronto stock exchange and the lawsuit
has been filed in the Ontario Superior Court of Justice.
Sino-Forest, meanwhile, has struck
back at the analyst, whom the company claims is a short-seller spreading
misinformation about the company in order to profit by driving down the
company's share price. Sino-Forest has threatened litigation. Indeed, several
of the Chinese companies that have suffered share price declines (and
securities class action lawsuits) following negative analysts' reports have
taken a similar approach. A June 6, 2011 Bloomberg article (here)
reports that several of these companies have even initiated litigation against
So with the filing of these two new lawsuits, it appears
that the securities litigation filing trend involving China-linked companies is
developing. These latest filings involve, in the case of the Yahoo lawsuit, a
company's whose connection to China is indirect and unrelated to the basic
public identity of the company. In the case of the Sino-Forest filing, the trend
has expanded to reach beyond just the Chinese companies whose shares are traded
in the U.S.
There undoubtedly will be even further variations as this
latest securities litigation filing trend continues to develop. Up until this
point, I have been keeping a pretty careful tally of the filings against the
Chinese and China-linked companies. Not counting the two lawsuits described
above, there have been 24 lawsuits filed in 2011 against Chinese and
China-linked companies, out of about 102 new lawsuit total so far this year.
But as the types of lawsuits become increasingly diverse, it clearly is going
to be increasingly challenging to maintain definitional clarity about exactly
what I am counting. I suppose I will have to start deploying Roger Maris type asterisks
in presenting my tallies.
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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