Recurring Tactics and Strategies in Securities Fraud Litigation Over Chinese Entities, and Defamatio
AmLaw Litigation Daily includes this interesting post by David Bario on recurring litigation patterns and tactics in securities fraud litigation regarding Chinese entities, as well as related lawsuits against short sellers who game the market with phony news. Note especially the perceived strategic importance of avoiding discovery. Key excerpts are set out below:
"Silvercorp’s preemptive strike against the short-sellers represents a bold new twist in the unfolding China securities litigation. But the company’s strategy is also risky. By potentially compelling the defendant Web sites and analysts to disclose any evidence they gathered concerning fraud at Silvercorp, the company could be undermining its own ability to defend against future securities fraud claims.
"Every client always asks, ‘can we, should we, and when should we file a defamation action [against short-selling analysts]’" said DLA Piper’s Perrie Weiner, who represents a dozen companies, auditors, and other China-linked defendants in class action and regulatory securities matters. "Our standard response is, ‘not until after the class action is at least past the motion to dismiss stage.’" (Weiner is not involved in litigation related to Silvercorp and emphasized that he was speaking only in general terms.)
Crucially for defendants, Weiner said, under the Private Securities Litigation Reform Act all discovery is stayed under after motions to dismiss are decided. "We do not think it’s an advisable position for issuers in China-related fraud cases to be filing defamation actions until they are at least past the motion to dismiss stage," he said. "If you sue the analysts, you motivate the analysts to come up with all the information and all the diligence they’ve done in China, which is really hard for a plaintiffs lawyer in the U.S. to ever get at, and you’re giving the plaintiffs lawyers a shot at discovery that they never would have had otherwise."