Chinese companies that listed securities on U.S. stock exchanges have been hit hard by shareholder actions. Not all of the suits involve allegations of FCPA offenses, but many do.
On his D&O Diary, Kevin LaCroix talked today about the lastest report from NERA Economic Consulting on securities litigation against non-U.S. companies.
About the China companies, he said:
While there were only few [cases against Chinese companies] filed in 2008 and 2009, in 2010, there were 15, and in 2011, there were 34, representing 17 percent of all 2011 securities class action lawsuits filings and nearly two-thirds of all securities suits involving non-U.S. companies. . . . The report notes with respect to the suits against Chinese companies that “this wave of litigation appears unlikely to re-emerge,” not only because rules regarding reverse mergers (the principal mechanism by which Chinese companies have obtained U.S listing) have become stricter, but also because Chinese companies “have become less likely to seek a U.S. listing, due to an increased perceived cost of litigation.”
As we’ve said before, not all Chinese companies are crooked but a lot of them didn’t belong on U.S. exchanges in the first place. Too many of the owners and managers never understood the complex and hyper-stringent U.S. accounting and compliance rules. And some made the expensive mistake of thinking what might be acceptable in China would work in the U.S.