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By Faith Hung
TAIPEI, May 5 (Reuters) - Taiwan's financial regulators said on Monday they will file a suit against California-based Glaucus Research Group over "maliciously spreading rumors" against Asia Plastic, its first such move against a foreign company.
Short-seller Glaucus initiated coverage with a strong sell rating on Asia Plastic in late April, saying its financial reports were inflated. The report dragged down shares of the company by almost 35 percent in less than two weeks.
Under Taiwan's securities law, the most serious penalties for such an offence would be up to 10 years in prison and the company could be barred from conducting activies in Taiwan, Financial Supervistory Commission Chairman William Tseng said.
"We have made sure the research report was not factual... It has caused instability to the shares and the local stock market," Tseng told reporters.
Glaucus is well known for shorting stocks. Hong Kong-listed shares of Chinese child skincare products producer Prince Frog International slid as much as 12 percent on Oct 16 after the short-seller initiated coverage of the company with a "strong sell" rating.
Glaucus does not have an office in Taiwan, but the FSC can sue the company as the research report was issued in Taiwan, Tseng said.
Shares of Asia Plastics were 7 percent limit up on the news.
Glaucus did not reply immediately to emails from Reuters. (Editing by Kim Coghill)