Securities class action lawsuit filing activity seems to have picked right up in the New Year where last year’s filings left off, as what appears to be the first filed case of 2012 involves a U.S.-listed Chinese company. Camelot Information Systems, a Chinese-based company whose American Depositary Shares (ADS) trade on the NYSE, and certain of its directors and officers have been sued in a securities class action lawsuit dated January 5, 2012. A copy of the plaintiff’s complaint can be found here.
Camelot is a provider of IT business solutions. Unlike many of the other U.S.-listed Chinese companies that have been sued in securities suits involving Chinese companies, Camelot did not obtain its listing by way of a reverse merger; it actually conducted a full IPO, in July 2010. The company also conducted a secondary offering on December 9, 2010.
The company was the subject of an August 15, 2011 article on Seeking Alpha entitled “Extremely Cautious on Camelot Information Systems” (here) that questioned the company’s statements regarding its employees, revenue and other key business components. The company’s ADS price declined. On August 19, 2011, the company released its fiscal second quarter results and also lowered its guidance for fiscal 2011. Its ADS price declined further.
According to the plaintiffs’ lawyers’ January 5, 2012 press release (here), the complaint alleges that the defendants concealed from investors that:
(a) the Company’s IT professionals were not a competitive advantage to the Company and many were dissatisfied with Camelot, which would adversely affect Camelot’s ability to retain its customers; (b) the Company was suffering from undisclosed attrition of employees, which was having a negative impact on the Company’s ability to attract new customers; (c) Camelot did not have the large numbers of highly trained professionals at its disposal that it had represented; and (d) Camelot’s contract with its most important customer, IBM, was not as solid as represented, and would not be renewed on the same terms.
The complaint also names as defendants the offering underwriters that conducted the companies ADS offerings.
As I recently noted (here), lawsuits against U.S.-listed Chinese companies were one of the most significant parties of 2011 securities suit filings. The 39 lawsuits filed against Chinese companies represented nearly one fifth of all 2011 securities class action lawsuit filings. Although these filings were weighted to the first half of the year, there were 13 in the year’s second half, including two in December.
Eventually this filing trend will go away, as the plaintiffs’ lawyers sooner or later run out of additional Chinese companies to sue. But for now the filing trend appears to have carried over into the New Year, with the filing of this new lawsuit involving Camelot Information Systems.
Deloitte Must Produce Longtop Financial Documents: In an interesting development in connection with the SEC’s investigation of Longtop Financial Technology, a Chinese companies who had been delisted from a U.S. exchange, on January 4, 2012, a Magistrate Judge for the U.S. District Court for the District of Columbia ruled that Deloitte Touche Tohmatsu Ltd. must appear in court ad produce documents on work the firm did for Longtop. The Magistrate ruled that Deloitte could be compelled to appear even though it had not been served with a show-cause memorandum. A copy of the Maistrate’s january 4, 2012 order can be found here. A January 4, 2012 Blog of the Legal Times article discussing the ruling can be found here.