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By Nate Raymond
March 26 SinoTech Energy Ltd and three banks
that underwrote its initial public offering have agreed to pay
$20 million to settle a shareholder lawsuit accusing the Chinese
oilfield services company of defrauding investors.
The settlement, disclosed in filings late Monday in
Manhattan federal court, would mark one of the largest
recoveries in a series of U.S. lawsuits filed since 2010 over
alleged accounting fraud at China-based companies whose shares
trade in the United States.
Under the settlement, SinoTech would pay $2 million to
investors who bought its shares from November 2010 to August
2011. Citigroup Inc, Lazard Capital Markets and UBS
AG would pay another $18 million.
The accord does not resolve claims against the auditor Ernst
& Young, which continues to fight the lawsuit, court
papers show. The settlement must be approved by U.S. District
Judge Alison Nathan.
Citigroup declined comment. Representatives for the other
settling defendants did not respond to requests for comment.
The lawsuit, seeking class-action status, was filed in 2011
after a report by short sellers on Alfredlittle.com raised
questions about SinoTech's business. The report alleged that
SinoTech's largest suppliers and customers were shell companies.
The plaintiffs contended that SinoTech's prospectus
contained untrue statements and omitted material information,
and that the defendants later issued false and misleading
statements that inflated its stock price.
In October 2011, Nasdaq suspended trading in SinoTech, 11
months after the company raised $167 million in its IPO. It was
formally delisted in January 2012.
The U.S. Securities and Exchange Commission separately sued
SinoTech and its executives for securities fraud in April 2012.
The SEC reached settlements with SinoTech and two executives in
December, according to court papers.
SEVERAL SMALL SETTLEMENTS
Many U.S.-listed Chinese companies have seen their
accounting practices come under scrutiny in recent years. From
2010 to 2012, 68 companies based in China became subject to U.S.
securities class action lawsuits, NERA Economic Consulting said
in a report in January.
A handful of cases have settled, although the dollar amounts
are comparatively small.
In January, A-Power Energy Generation Systems Ltd,
some executives and its auditor agreed to a nearly $3.7 million
Wonder Auto Technologies Inc, which has been delisted, in
January agreed to a $3 million settlement.
Other settlements have included a $2 million accord with
Orient Paper Inc, an $800,000 settlement with China
Shenghuo Pharmaceutical Holdings Inc, and a $2.15
million settlement favoring investors in Fuwei Films (Holdings)
One of the largest recoveries came in Canada, where Ernst &
Young agreed to pay C$117 million ($118 million) to settle a
lawsuit by investors in the Chinese timber company Sino-Forest
The case is Anthale et al, v. SinoTech Energy Ltd et al,
U.S. District Court, Southern District of New York, No.
(Reporting by Nate Raymond in New York; editing by John