Saturday, February 26, 2011
Sunday, February 20, 2011
Tuesday, February 15, 2011
A former student just passed along an interesting article on the problems US investors face in bringing actions under US securities laws against Chinese companies listed in US stock markets. I recommend it. I want to add a few points that aren't made in the article, though.
- The defendant in these suits is not always a Chinese company. In the example given in the article, the defendant, LDK Solar Co., Ltd., is actually a Cayman Islands corporation. Of course, it is in substance a Chinese company: it was set up with the sole purpose of holding the equity in a Chinese firm and then listing its shares abroad. But it is organized under the corporate law of the Cayman Islands, and that at times will make a difference.
- The defendant is not - or need not be - always a company. If there's fraud going on, there are fraudsters. The problems that apply in suing a company may not apply in suing a person, and of course vice versa. While a single person's wealth may not be enough to compensate defrauded investors, the prospect of a large adverse US judgment might be a deterrent to the many wealthy individuals in China who contemplate travel to, or property ownership in, the United States or any other jurisdiction that enforces US judgments. Thus, plaintiffs are not completely without leverage.
- If the defendant company is organized under Chinese law, it almost certainly has a provision in its Articles of Association calling for all shareholder disputes with the company or its management to be settled through arbitration. In other words, shareholders have agreed by contract never to sue in court.
- This provision is required by China's Securities Regulatory Commission in its Mandatory Provisions of Articles of Association of Companies Seeking Overseas Listing (到境外上市公司章程必备条款). [CORRECTION 20 Feb. 2011: The provision is required only in companies listing in Hong Kong; thanks to Joseph Wang for kindly pointing this out. It is allowed and I believe encouraged in companies listing elsewhere. The provision in fact appears in the Articles of at least some companies listed on US exchanges, and of course it would appear in the Articles of Chinese companies listed in Hong Kong that also issued shares or ADRs elsewhere.] The Provisions were promulgated in 1994 and, amazingly, are still in effect; the provision on arbitration was, to the best of my knowledge, intended to favor shareholders because the general opinion of Chinese courts at that time, even among Chinese government officials, was low. I don't know if the CSRC realized it was purporting to shut shareholders out of foreign courts as well. In effect, the rule makes US-style securities class actions impossible. The strength of the US-style class action is not only that it aggregates a number of small claims not worth suing over on their own, but also that it makes settlement possible, because non-parties can (contrary to the usual rule of civil procedure) be bound by the judgment. That can't happen in arbitration.
- "Wait," I hear you saying. "Are you kidding? Surely a company can't avoid the reach of federal securities law so easily!" And indeed, maybe not. I've often wondered what a US court would do if a Chinese defendant in a securities suit raised this provision as a defense. I tend to think it would find the provision void as against public policy. I once tried to verify this intuition when looking at an actual federal class action against a Chinese company organized under Chinese law but listed in the US. I went on Edgar and found the defendant's Articles of Association. I verified that they had the provision in question. I then looked at the briefs in the case and found the name of the lawyer and firm who handled the defense. And I emailed him to ask if he would be able to tell me whether this provision had been raised as a defense, and if not, why not. Never heard back. Coincidentally, shortly thereafter I had some friendly dealings with another partner in his firm. I asked that person to check with the lawyer in question to see if my email had been received and whether he felt comfortable answering it. Back came the answer: email received, but he'd rather not respond, even if only to say that he'd rather not respond. So I'll never know whether they declined to raise the arbitration provision as a matter of litigation strategy, or whether they just didn't notice it.
- Although I haven't researched the question systematically, I don't recall ever hearing of the arbitration provision being raised as a defense when US-listed Chinese companies are sued, and no lawyer or SEC person I've talked to has ever heard of this being done, either. So I think it remains merely an interesting theoretical question.
- Investors can't exactly say they weren't warned. I've looked in the "Risk Factors" section of a number of prospectuses of Chinese companies listing in the US, and my recollection is that they are typically pretty open about the possibility that the controlling shareholder may act against the interests of other shareholders or the company, and there's not a lot anyone will be able to do about it under anyone's law. The prospectus for the company mentioned in this article, LDK Solar, is no exception, warning investors as follows:
You will have limited ability to bring an action against us or against our directors and officers, or to enforce a judgment against us or them.
We are incorporated in the Cayman Islands and conduct substantially all of our operations in China through our wholly owned subsidiary established in China. Most of our current directors and officers also reside outside the United States. Substantially all of our assets and the assets of those persons are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States, in the Cayman Islands or in China in the event that you believe that your rights have been infringed under the applicable securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers. For more information regarding the relevant laws of the Cayman Islands and China, see “Enforceability of Civil Liabilities” in this prospectus.
But as we know, nobody ever reads the Risk Factors!
Wednesday, February 9, 2011
Last month, China's Ministry of Industry and Information Technology released for comment a set of draft regulations entitled Interim Measures for the Supervision and Administration of Order in the Internet Information Services Market (互联网信息服务市场秩序监督管理暂行办法) [Chinese | English (USITO translation)]. Here are the joint comments submitted by the ABA Sections on Antitrust Law and International Law.
The comments consist of about 12 pages of single-spaced English text preceded by a Chinese-language abstract of 3 double-spaced pages. Whether comments like this are ever read seriously and influence policymaking is, of course, open to question, but one has to try - and kudos to the lawyers who took the time to put these careful comments together. But it seems a shame that nobody took the final step of translating the comments into Chinese beyond the short abstract. For comments to be effectively circulated and discussed in Chinese policymaking circles, they have to be in Chinese. I don't think it's realistic to expect Chinese policymakers to be so concerned about the ABA's views that they will do the work of translation that the ABA couldn't be bothered to do itself. I'm pretty sure that when Chinese interest groups put their views to US policymakers, they do so in English. (I would make an exception for very high-level communications where verbal formulations matter, and refusing to use the recipient's language gives one deniability as to any particular meaning the recipient takes out of it.)
Monday, February 7, 2011
Friday, February 4, 2011
I have received this call for papers from the China-EU Law Journal. The accompanying email states:
The China-EU Law Journal is a peer-reviewed journal. It is published by Springer under the auspices of the China-EU Law School at the China University of Political Science and Law.
For manuscript submission and more information you may visit www.editorialmanager.com/celj
Here's a description I was sent:
This position is located in the U.S. Consulate Shanghai, China, Commercial Section. The incumbent will serve as an Intellectual Property Rights (IPR) Commercial Officer in Shanghai for the US&FCS and U.S. Patent and Trademark Office (USPTO). The position requires a law degree, and knowledge of all fields of IPR and international agreements governing IPR, including IPR office operation and administration, IPR training, and adherence to IPR standards of protection and enforcement. As an IPR Commercial Officer, the incumbent will act as a resource on Shanghai's intellectual property regime for other U.S. Government agencies. This position reports to the Commercial Service Principal Commercial Officer and must also coordinate with other parts of the U.S. Consulate in Shanghai and the USPTO.
Full job announcement here.
Wednesday, February 2, 2011
I have received the following announcement:
SUMMER 2011 INTERNSHIP ANNOUNCEMENT
Congressional-Executive Commission on China
Deadline: MARCH 1, 2011
The Congressional-Executive Commission on China (www.cecc.gov) is offering paid internships to qualified undergraduates, graduate students, or recent graduates this coming summer in Washington, D.C. Interns must be U.S. citizens. The application deadline is March 1 , 2011 for the Summer 2011 internship that runs from June to August, 2011. Summer internships are generally full-time; interns are expected to work 40 hours per week. See application instructions below.
CECC internships provide significant educational and professional experience for undergraduates, graduate students, or recent graduates with a background in Chinese politics, law, and society, and strong Chinese language skills.
Interns work closely with the Commission and its staff on the full array of issues concerning human rights, the rule of law, and governance in China (including criminal justice, democratic governance institutions, environmental problems, religious freedom, freedom of expression, ethnic minority rights, women's rights, etc.).
Interns perform important research support tasks (often in Chinese), attend seminars, meet Members of Congress and experts from the United States and abroad, and draft Commission analyses. Click here for CECC analysis of recent developments in the rule of law and human rights in China. Interns may also be trained to work with the Commission’s Political Prisoner Database, which has been accessible by the public since its launch in November 2004 (click here to begin a search).
The CECC staff is committed to interns’ professional development, and holds regular roundtables for interns on important China-related issues.
Summer 2011 interns will be paid $10/hour. Those unable to apply for the Summer internship may apply for the Fall (September-December) or Spring (February – May) internships. Further details are available on the Commission's Web site at http://www.cecc.gov/pages/general/employ.php.
- Interns must be U.S. citizens.
- Interns should have completed at least some China-related coursework. It is also desirable that they have some background in one or more of the specific human rights and rule of law issues in the CECC legislative mandate.
- Interns should be able to read Chinese well enough to assist with research in newspapers, journals, and on Web sites. More advanced Chinese language capability would be a plus. The successful candidate for an internship often will have lived or studied in mainland China, Hong Kong, or Taiwan.
- Although our interns are generally graduate students, or recent graduates, undergraduate students and others are also welcome to apply.
Application Instructions for Summer 2011:
Interested applicants should send a cover letter, resume, and the names and contact information for two references, to the CECC via e-mail to Judy Wright, Director of Administration at email@example.com by March 1, 2011. All requested materials must be submitted and received by the CECC. Incomplete applications will not be considered. Applications must be received by our office no later than 11:59 P.M. Eastern Time on March 1. Please discuss in your cover letter how your professional goals, interests, and background relate to the Commission's legislative mandate regarding human rights and the rule of law in China.