Thomson Reuters News & Insight
Featured Content from WESTLAW

New York Legal

  •  
  •  

Duoyuan Printing Chairman Guo watches his company's IPO launches on the floor of the New York Stock Exchange. REUTERS/BrendanMcDermid

Plaintiffs hit first roadblock in China fraud case

6/15/2011 COMMENTS (0)

NEW YORK, June 15 (Reuters) - Investors suing China-based Duoyuan Printing Inc for securities violations have already hit their first roadblock: locating some of the defendants.

The shareholder plaintiffs have not been able to serve legal papers on five of the company's current and former directors and officers named in the lawsuit, plaintiffs' lawyer Phillip Kim of the Rosen Law Firm said at a hearing in federal district court in New York on Wednesday. The company itself has been served.

Serving defendants with legal papers is an essential first step for a U.S. lawsuit to proceed.

The Duoyuan Printing case is one of a barrage of securities class-action cases that have hit China-based, U.S.-listed companies in the past year. More than 25 such companies have been sued since early 2010 for misrepresenting firm revenue to shareholders, failing to disclose transactions among company insiders or falsifying financial reports.

These cases, all at the very early procedural stages, could test shareholders' ability to recover losses from China-based companies. Plaintiffs face numerous obstacles, such as difficulty in pursuing evidence-gathering in China and limitations on their ability to collect judgments or legal awards.

The SEC is also pursuing an investigation of a string of China-based companies, including Duoyuan Printing, which it is probing over concerns that it didn't maintain adequate financial records.

At the Wednesday hearing, Kim said he didn't have necessary information such as personal addresses to locate the five defendants, who he believes reside in China. He said he could not get their personal addresses from the company.

Serving individuals in China is an arduous and costly process and requires a central Chinese authority to forward any requests to local Chinese courts, Kim explained to Reuters. A personal address would be helpful to those authorities.

Kim argued on Wednesday before U.S. District Judge George Daniels that the judge should allow for one of two alternatives: serving the employees through the company's U.S. office, in Wyoming; or compelling Duoyuan to turn over the individual defendants' addresses.

In a previous securities class-action case against a China-based company, LDK Solar Co, Ltd, plaintiffs succeeded in serving individual defendants by going the first route, Kim said.

Kim's arguments prompted Daniels to ask some pointed questions of the company's lawyer, Joel Mitnick of Sidley Austin.

"I want to know whether you will be helpful in this matter or stand in their way?" Daniels queried Mitnick.

"I think neither," responded Mitnick.

Mitnick added that the company didn't have any legal obligation to help provide the information to the plaintiffs.

"You have the opportunity, but maybe not the obligation," retorted Daniels.

But Daniels didn't let Kim, the plaintiffs' lawyer, off easy either. He challenged Kim to do a more thorough job seeking the addresses himself.

"I'll consider some substitute of service if it appears to be necessary," said Daniels.

After the hearing, Kim said he would persevere. "They will get served one way or the other," Kim said.

Mitnick, the Sidley lawyer, declined to comment on the proceedings.

The case is Perry v. Duoyuan Printing, U.S. District Court, Southern District of New York, No. 10-cv-07235.

For the plaintiffs: Co-lead counsel Pomerantz Haudek Block Grossman & Gross; and the Rosen Law Firm

For the company: Sidley Austin

(Reporting by Carlyn Kolker)


Register or log in to comment.

© 2012 Thomson Reuters