China MediaExpress 'fraudulent'
HK panel awards Starr US$77 million in damages for investment in Chinese firm
Bloomberg in Sydney and New York
China MediaExpress (CME), which obtained a US listing without an initial public offering by buying a listed firm, was a fraudulent enterprise, a Hong Kong arbitration panel ruled, awarding Starr International as much as US$77 million in damages.
Starr, run by former American International Group chief executive Maurice Greenberg, sued CME and its auditor Deloitte Touche Tohmatsu in Delaware in 2011, claiming Starr was fraudulently induced into investing in the Chinese firm, whose shares have been delisted.
CME's founding shareholders were ordered by the three-member panel to pay Starr the funds for not honouring an agreement to buy back its stake, according to its ruling on December 19, which was submitted as evidence on Tuesday in Starr's Delaware lawsuit. The panel rejected CME's claims that its video advertisement display business was destroyed by short-sellers.
"It's a very major event in the larger landscape because with all the controversy involving Chinese reverse-merger companies and their auditors, there's been no finding of liability" until now, said Lee Wolosky, a partner at Boies, Schiller & Flexner in New York, who is representing Starr.
The US Securities and Exchange Commission has deregistered the securities of almost 50 companies and filed fraud cases against more than 40 issuers and executives as part of its probe into the non-US-based firms. Many of them entered US capital markets through reverse mergers, in which a closely held firm buys a shell company already public on an exchange, allowing them to list shares without the scrutiny of a public offering.
Wolosky said the Hong Kong award should assist Starr with its lawsuit in Delaware against parties including Deloitte.
Wilfred Lee, a Deloitte spokesman in Hong Kong, did not respond to a request for comment. Deloitte resigned as CME's auditor in March 2011, saying it was no longer able to rely on representations of management.
An e-mail to CME's investor relations department was returned as undelivered.
CME was among the Chinese firms accused by Carson Block's Muddy Waters of financial irregularities. Its shares plunged 93 per cent in five months after Block's report in February 2011 accused it of manipulating its financial statements.