Walter Hutchens’ Blog

Xinhua reports here that the Harbin Intermediate People’s Court has rendered judgment in favor of shareholders against Daqing Lianyi and its underwriter Shenyin Wan Guo. This appears to be the first court judgment rendered after full trial in a joint litigation action (gongtong susong) in PRC private securities litigation. Judgments in earlier individual actions (dandu susong) against Daqing Lianyi were rendered earlier this month.

Xinhua reports that in this joint action 109 plaintiffs sued for RMB 3.04 million, with 98 of them being awarded a total of 1.87 million.

Guo Feng (editor of the PRC Securities Law Review and People’s Univ. prof.) is named as lead plaintiffs’ counsel. Xuan Weihua, another PRC lawyer active in PSL, also seems to have worked in the Harbin litigation against Daqing Lianyi. Xuan has written a book about PSL and is in the same law firm as Guo Feng.

It appears Yan Yiming from Jintian Cheng law firm represented a number of plaintiffs who obtained individual judgments earlier this month, based on comments on those judgments by Xuan made in an interview here.

Before any of this private enforcement, the CSRC already determined that Daqing Lianyi made false disclosure in its IPO materials and in its 1997 Annual Report. In both instances, the company reported vast profits that it had not actually made.

In this kind of litigation, PRC courts can award compensation to shareholders who 1) buy after bad disclosure is made and 2) sell after the falsity of such disclosure is revealed (the jie lu ri). In other words, if a shareholder sells shares before the jie lu ri, he or she is out of luck. Xuan indicates that the court denied recovery to many plaintiffs by its determination that the jie lu ri should be not the date that a major PRC newspaper reported that Daqing Lianyi was under CSRC investigation but when the CSRC a year later issued its final administrative penalty. In other words, if anybody sold shares after learning the company was under CSRC investigation (and many did, with the price tumbling), then those shareholders cannot sue because they sold their shares before the jie lu ri.