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Federal securities class action complants were down in the first half of 2011, according to Securities Class Action Filings—2011 Mid-Year Assessment, released July 26. Although overall activity was down, filings on Chinese reverse mergers and M&A activity rose over the last six months of 2010.
The report, prepared twice a year by the Stanford Law School Securities Class Action Clearinghouse in cooperation with Cornerstone Research, showed that in the first six months of 2011, 94 federal securities fraud class actions were filed. That is a 9.6% decrease from the second half of 2010, in which 104 filings were recorded.
However, Chinese reverse mergers and M&A activity were up in the first six months of 2011 over the last six months of 2010. In the first half of 2011, 24 filings related to Chinese reverse mergers made up 25.5% of all filings for the period. Despite the fact that, according to the report, Chinese companies tend to have small market capitalizations, as reported by AdvisorOne on Tuesday, Chinese reverse mergers have cost investors some $18 billion.
M&A filings totaled 21 for the period, equaling 22.3% of all filings. Together, the two kinds of activity made up 47.9% of all securities fraud class action complaints filed during the last six months; that is up from 32.7% in the last half of 2010.
In a commentary on the increase in Chinese reverse merger filings, Joseph Grundfest, director of the Stanford Clearinghouse, said, “The new kid on the block is the claim alleging that Chinese-based issuers have made false financial statements. The question remains as to whether or not this litigation will lead to meaningful recovery for plaintiffs. If plaintiffs successfully obtain large judgments in American courts, they may not be able to enforce their judgments against Chinese assets held by Chinese defendants in China.”
He added, “Addressing the problem of Chinese reverse mergers may require a higher degree of cooperation between the Chinese and American judicial systems than has ever occurred in U.S.–China relations.”
Additional information and the text of the full report are available at the Stanford Law School Securities Class Action Clearinghouse and Cornerstone Research websites.