Mass lawsuits stem from success as mainland players appear on world map Lawyers from the United States armed with class actions are targeting Chinese-listed firms largely unused to this type of litigation, forcing them to prepare court defences, two lawyers said yesterday. Since China.com was sued in a US court in June 2001, Netease, China Life, UT Starcom, China Aviation Oil, Sina and 51job have faced class actions. 'We expect more like them,' said Meredith Landy, a partner at O'Melveny & Myers. 'Large class-actions are a benchmark of success. Chinese companies have come into their own.' Class-action lawsuits in the US are defined as 'groups of people suffering similar harm or losses caused by corporate misconduct, consumer frauds, defective products, business frauds and discrimination'. Ms Landy and colleague Seth Aronson are visiting Chinese clients of their law firm, some listed and some wanting to list, to advise them on how to prepare a defence against such lawsuits. 'Chinese firms are shocked by this, as are other non-US companies,' Mr Aronson said. 'It is an eye-opener. They could be required to produce millions of documents, as well as hard drives and electronic documents. The average cost to prepare and present these documents is US$2 million to US$7 million and in extreme cases could be more than US$100 million.' In a small case, plaintiffs ask for US$200 million to US$500 million in potential damages and, in many cases, seek billions but settle for a fraction of that amount. Ms Landy said that some of the plaintiff lawyers who had been to China to speak about plaintiff litigation were interested in mainland companies and may target them. 'They file about 200 cases a year. They are looking for low-hanging fruit, such as companies with weak internal controls and which speak indiscriminately to the market,' she said. 'They look at the trading history and buying and selling by the directors and at sharp declines in the stock price.' Another concern of the Chinese clients is the 2002 Sarbanes-Oxley Act, whose stricter regulatory and disclosure requirements have increased the cost of listing in the US by US$1 million to US$3 million and extended the time needed to complete the procedures. Ms Landy said that the act had made companies worldwide, not only in China, more cautious of listing because of the attendant risk and the costs attached. Stella Leung, a partner in the firm's China practice, said there remained a strong supply of Chinese high-technology and internet companies listing on the Nasdaq. 'We advise clients that an initial public offering is one way to raise finance but that there are many others.' Ms Landy said that for some companies it was important to access the US market because it gave them international credibility and the analysts were more focused.