(Reuters) - College e-learning firm ChinaCast Education Corp said it has filed for Chapter 11 bankruptcy to pursue claims of embezzlement against former executives while shielding itself from a class action lawsuit by investors.
Wednesday’s filing with the U.S. Bankruptcy Court in New York came a day after a U.S. District Court in Los Angeles awarded ChinaCast investors $65.8 million in damages in a class action accusing the firm of failing to disclose an embezzlement of company assets.
ChinaCast was one of hundreds of Chinese companies that entered the U.S. stock markets during the last decade through a reverse merger, a short-cut for going public by taking over a publicly traded company.
Dozens of such companies have faced lawsuits or enforcement actions for alleged securities fraud and have been delisted from U.S. exchanges.
ChinaCast, which is currently winding down its business, disclosed in May 2012 that it had been the victim of a financial fraud by company insiders. In its bankruptcy filing, the company said its Chapter 11 plan would establish a litigation trust to try to recover the embezzled funds.
The class action lawsuit by investors was filed in 2012 seeking damages for thousands of investors who bought ChinaCast shares between February 2011 and April 2012.
Investors had asked the Los Angeles court for a default judgment against ChinaCast in September, saying it had “simply disappeared” from the litigation and shown no desire to defend against the lawsuit. The company’s lawyers withdrew from the case in January, saying they had not been paid.
U.S. District Judge John Walter’s judgment makes investors the largest creditor of ChinaCast, the plaintiffs’ attorney Laurence Rosen said in an email on Thursday.
The U.S. Securities and Exchange Commission sued ChinaCast’s former chief executive Ron Chan Tze Ngon in 2013, accusing him of systematically looting the company by transferring money to a purported subsidiary that he secretly controlled.
The SEC won a nearly $49 million judgment against Chan in Manhattan federal court last year. Based on court filings it was not clear whether the agency got paid. The SEC said it did not disclose dealings with individuals.
ChinaCast went public in the United States in 2006 and traded on the NASDAQ exchange from 2007 until it was delisted in 2012 for failing to file its annual report.