A US law firm has filed a class-action lawsuit in an American court against PetroChina and some of its executives for failing to disclose the corruption scandal affecting the oil giant and its state-owned parent, the China National Petroleum Corporation (CNPC).
Several former executives of PetroChina and CNPC are under investigation by the central government for corruption, including Jiang Jiemin , a former head of CNPC, PetroChina and the State-owned Assets Supervision and Administration Commission (Sasac). The investigation is believed to be linked to Zhou Yongkang , former security tsar and ally of fallen leader Bo Xilai .
Pomerantz Grossman Hufford Dahlstrom & Gross filed the lawsuit in the court of the Southern District of New York on behalf of all investors who bought US securities in the Chinese firm from April 26 last year to August 27, seeking unspecified damages from PetroChina and some of its executives, said a press release issued by the law firm.
PetroChina, listed in Shanghai and Hong Kong, has American depositary receipts traded in New York.
Although class-action lawsuits are not uncommon in the US, they should be regarded as important, said Daniel Roules, a Shanghai-based partner at US law firm Squire Sanders. "The damages will be based on the number of damaged investors, but class actions are always costly for a company. Even if PetroChina prevails, the costs of fighting the case will be high."
PetroChina cannot afford to ignore this lawsuit, otherwise the plaintiffs would win a default judgment, said Roules. "It does not matter that the investors are in the US and the misconduct may have occurred in China. The plaintiffs have grounds for claiming they have been harmed as investors."
The lawsuit alleges PetroChina failed to disclose that some of its senior officials were in non-compliance with its corporate governance directives and code of ethics, and that PetroChina was subject to investigation by the Chinese authorities.
PetroChina's financial statements "were materially false and misleading" during the period of the lawsuit, said Pomerantz.
If a company paid bribes and claimed them as legitimate expenses, that would be a falsification of financial statements, likely resulting in fines, said Roules.
"Perhaps most significant is the damage to reputation. Banks and capital markets will be less willing to put their money with a company that has earned a reputation for falsifying financial statements, so PetroChina's cost of doing business will increase as a result of the undisclosed corruption," he said.
A PetroChina spokesman declined to comment on the lawsuit. "The serious violations of some individuals have nothing to do with the company's corporate governance and strategy. Getting rid of corruption will benefit the company's development."