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Chinese Reverse-Merger Companies Draw Lawsuits

Publication Date: 
July 26, 2011
The New York Times
Azam Ahmed

A study by the Securities Class Action Clearinghouse and Cornerstone Research on reverse mergers, which was co-authored by Professor Joseph Grundfest, is featured in this New York Times article on the rise of Chinese Reverse-Merger lawsuits.

A few years back, Chinese reverse-merger companies were all the rage on Wall Street.

These days, they are experiencing a different kind of rage.

According to a new study, more than one-fourth of all federal securities class-action lawsuits filed so far this year come from investors in these China-based companies, which are listed on American exchanges through a backdoor method that circumvents the scrutiny of a conventional initial public offering. The companies do so by purchasing a defunct American-listed company, merging with it and then adopting its ticker symbol.



There have been 24 lawsuits filed in the first half of this year, 17 of which were filed in the second quarter, according to the study, by the Stanford Law School Securities Class Action Clearinghouse and Cornerstone Research in Boston. That compares with seven suits filed in all of 2010.