Loeb & Loeb LLP achieved a significant defense victory for China Century Dragon Media Inc. (CCDM), a U.S.-based public company resident in China, when the U.S. District Court for the Central District of California dismissed a shareholder class action claiming that CCDM reported falsely inflated revenues to the SEC. The decision represents a legal bellwether for numerous U.S.-listed Chinese companies facing unsubstantiated fraud allegations stemmed from short seller attacks directed at the sector in recent months.
Shareholders of CCDM, an advertising company that sells ads on Chinese Central Television, cited discrepancies between the company’s SEC filings and revenue reported to the Chinese State Administration for Industry and Commerce (SAIC), as well as the resignation of CCDM’s auditors, as evidence of accounting fraud intended to mislead U.S. investors.
The U.S. District Judge dismissed the action concluding that the plaintiffs neglected to establish the accuracy or falsehood of either set of revenue figures in order to demonstrate that CCDM committed fraud. The judge’s ruling made a strong statement about plaintiffs’ obligation to plead with specificity, which brings into question a number of similar claims filed against U.S.-listed Chinese companies based on information disseminated by investors who hold a short position on the subject company’s stock.
“This decision sends the important message that plaintiffs need to present facts if they want to sufficiently allege fraud,” said Eugene Licker, head of Loeb & Loeb’s China Litigation, Enforcement and Arbitration Response (CLEAR) Team and attorney for China Century. “The claims here are the rote repetition of routine allegations voiced by short sellers, which themselves are frequently based on nothing more than self-serving innuendo and multiple level hearsay.”
Loeb & Loeb's China Litigation, Enforcement and Arbitration Response (CLEAR) Team represents U.S.-listed Chinese companies and affiliates, their officers and directors, and financial institutions and intermediaries involved in complex securities litigation, arbitrations and regulatory proceedings.