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U.S. Judge Dismisses Class Action Over Xinhua Finance Media

January 1, 0001

 

中文 - Chinese


On February 26, 2009, the U.S. District Court of New York dismissed the class action lawsuit against Xinhua Finance Media (“Xinhua”), its CEO, former CFO, and the company’s IPO underwriters. This decision is important for Chinese companies listed on U.S. stock markets as it addressees many issues typically linked with Chinese companies’ IPO disclosures. Also, this decision shows that Chinese issuers can expect to receive careful and impartial examination in U.S. courts as U.S. issuers.

Xinhua is a leading media group in China with nationwide access to the upwardly mobile demographic. Plaintiffs filed the lawsuit in May 2007, immediately following the company’s March 2007 IPO of American Depository Shares. Plaintiffs alleged that the prospectus issued in connection with the IPO was misleading because it omitted certain material information and had thus inflated the stock price, including failing to disclose (i) that the former CFO, Singhal, was a defendant in a Racketeer Influenced and Corrupt Organizations (RICO) Act lawsuit in California and that he was involved with other companies that had regulatory issues; (ii) that the CEO and Chairman of the Board, Loretta Fredy Bush, allegedly invested in Xinhua using money from offshore accounts and loans for tax evasion purposes; and (iii) that Xinhua was allegedly involved in corporate transactions that enriched Singhal and Bush.

The federal court concluded that the plaintiffs failed to state a claim and dismissed the lawsuit. The court concluded that the plaintiffs failed to allege that the prospectus omitted “material” information -- that is, information that was necessary to make Xinhua’s prospectus disclosures not misleading. For example, the judge held that Xinhua’s disclosures about Bush as a whole focused on the experience that Bush and the rest of the team had with international media operations, and none of the omissions called into question this aspect of the management team’s experience. As to the allegation that Xinhua had failed to disclose certain information about the former CFO, Singhal, rendering the prospectus’s statement about the “strong and experienced management team” misleading, the court held that the statement was merely puffery and that any allegation that the omissions affected the veracity of that statement was immaterial. Finally, the court rejected the plaintiffs’ claim that the prospectus had failed adequately to disclose risks associated with the lawsuit in California because neither the statements nor the risk disclosure section of the prospectus as a whole suggested that every conceivable possibility of a negative event would be discussed in the prospectus.

Xinhua case is instructive to Chinese companies listed on U.S. capital markets because it involves Section 11 claims to which many Chinese companies listed on U.S. exchanges are susceptible. For example, Section 11 claims were asserted in the U.S. securities lawsuits against China Life and Fuwei Films. Section 11 of the Securities Act of 1933 makes it unlawful to make false statements or omissions of material facts in the registration documents filed in connection with an offering of securities.[1] The central inquiry in a Section 11 claim is whether the representations in a prospectus, taken together and in context, would have misled a reasonable investor. Certain aspects of Chinese companies’ operations may particularly heighten the risks of triggering Section 11 liability. For example, some privatization processes through which many listed companies obtain their main assets may be questionable under Chinese law because of the risks associated with any bankruptcy auction process and potential charges of disposing state-owned property in unfairly low price. In such cases, registration statements that do not caution investors on those potential risks may be alleged as misleading. Problems of the usually more opaque mainland parent company, such as commercial bribery, financial fraud, or non-arm’s length related party transactions, could also be imputed to the listed entity for disclosure purposes. Furthermore, many macro events within China can affect a company’s future, including the passage of new laws, a change in the exchange rate policy, a reorganization of the legal system or any policy change that may have an impact on economic growth. Failure to disclose sufficient information about such macro events might be actionable under Section 11 of the securities laws.

While the Xinhua decision is not by itself remarkable, it is another in the increasing number of U.S. securities lawsuits involving Chinese companies and should provide some comfort to Chinese companies concerned with their ability to get fair treatment in U.S. courts.

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[1] See 15 U.S.C. §77k(a) (2000).

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美国法官驳回针对新华财经传媒的集体诉讼

2009年2月26日,美国纽约地区法院驳回了针对新华财经传媒(“新华”)及其首席执行官、前首席财务官和首次公开募股承销商提起的集体诉讼。这对于在美国证券市场上市的中国公司来说是一个重要裁决,因为这一案件涉及了众多与中国公司首次公开募股的披露通常有关的问题。这一裁决也表明了中国的证券发行人能与美国的发行人一样受到美国法院仔细、公正的调查。

新华是一家中国领先的媒体集团,拥有覆盖全国的网络,主要受众为中国的新富一族。原告提起诉讼的时间为2007年5月,即2007年3月新华完成美国存托股份的首次公开募股后。原告诉称,该公司首次公开募股的招股书中遗漏了某些重要信息,致使该招股书产生误导,并使其股价虚高,未披露的重要信息包括:(i)前首席财务官Singhal曾是加利福尼亚州一起《反勒索及受贿组织法》诉讼中的被告,并与存在监管问题的另几家公司有牵连;(ii) 首席执行官兼董事会主席Loretta Fredy Bush涉嫌为逃税利用境外帐户和贷款资金投资于新华;以及 (iii) 新华曾涉嫌卷入使Singhal和Bush得利的公司交易。

联邦法院认为,原告未能证明其权利主张,因此驳回其诉讼请求。法院认为,原告未能证明被告未能在新华招股书中披露本应使该招股书披露不致产生误导的重大信息。例如,法官认为,新华关于Bush的披露总体而言主要是介绍Bush和其他团队成员的经验及其国际性媒体的经营,这些遗漏并未使人对管理团队的经验产生疑问。就新华未披露关于其前首席财务官Singhal的某些信息致使招股书中“实力雄厚和经验丰富的管理团队”的相关陈述产生误导的指控而言,法院认为该陈述仅仅是一种宣传手段,因未进行披露从而影响该陈述真实性的任何指控不具有实质性。最后,法院驳回了原告关于招股书未披露与加利福尼亚《反勒索及受贿组织法》诉讼有关的风险的主张,这是因为该陈述和招股书中风险披露章节的内容总体上均未表明将在招股书中讨论某一负面事件的所有可能性。

由于中国公司常常受到根据美国《1933年证券法》第11条提起的诉讼,因此,本案对于在美国上市的中国公司具有指导意义。例如,中国人寿和富维薄膜在美国就曾受到根据该条提起的证券诉讼。美国《1933年证券法》第11条规定,在证券发行的登记文件中进行虚假陈述或遗漏重大事实属于违法行为。[1] 在根据第11条提起的诉讼中将主要就招股书中的陈述,按照其整体和上下文理解是否会误导理性的投资者来展开调查。

中国公司经营中的某些方面特别容易引发第11条规定项下的责任。例如,由于任何破产拍卖程序的相关风险以及以不公平低价处置国有财产的潜在指控,许多上市公司试图通过获得其主要资产进行的私有化会受到调查。在这些情况下,未能就上述潜在风险提醒投资者的上市申请表将被指控为具有误导性。通常经营不透明的中国大陆母公司的一些问题,如商业贿赂、财务欺诈或非公平的关联方交易也会指责海外上市公司未进行披露。此外,中国的众多宏观事件也能影响公司的前景,包括通过新的法律、汇率政策变化、法律制度改革或对经济增长产生影响的任何政策变化。如不能披露足够的关于该类宏观事件的信息,有可能就成为根据美国《1933年证券法》第11条提起的诉讼中的被告。

新华一案的裁决本身并不太引人注目,但作为日渐增多的涉及中国公司的美国证券诉讼案件中的又一新案例,那些担心能否得到美国法院公正对待的中国公司应该能得到一些安慰。

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[1] 请参见15《美国法典》§77k(a) (2000).

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