Ex-CFO of China’s Longtop to pay $2.3 mln in U.S. investor lawsuit
20 June 2015
NEW YORK, June 19 (Reuters) – The former chief financial officer of Chinese technology company Longtop Financial Technologies has agreed to pay $2.3 million after a U.S. jury found that he acted recklessly in making untrue statements or omitting facts about the firm. The settlement with former CFO Derek Palaschuk was disclosed in papers filed in Manhattan federal court on Friday, seven months after the jury delivered its verdict in a rare securities class action trial. Neither a lawyer for Palaschuk nor the plaintiffs’ attorneys responded to requests for comment. The lawsuit, filed in 2011, was one of several cases launched around that time amid accounting scandals at Chinese companies trading on U.S. stock exchanges. When the New York Stock Exchange halted trading in Longtop in May 2011, the Xiamen-based company had a $1.08 billion market value. Days later, Longtop’s auditor, Deloitte Touche Tohmatsu CPA Ltd, resigned, citing “recently identified falsity” in the company’s financial records. Palaschuk, who had joined Longtop in 2006, tendered his resignation the same day. Before resigning, Palaschuk spoke with Longtop Chief Executive Officer Weizhou Lian. In an email presented at trial that talked about the call, Palaschuk said Lian “informed me the company had been a fraud since 2004”. In the lawsuit, lawyers for Longtop investors contended that Palaschuk missed “red flags” pointing to the fraud, but Palaschuck denied wrongdoing.In November, a jury found Palaschuk liable and ordered him to pay damages that lawyers for the plaintiffs estimate provided for a maximum recovery of $6.2 million, assuming all eligible investors submitted claims.
The investors had also sued Longtop and Lian, but neither appeared in court. A judge entered a $882.3 million default judgment against Longtop and Lian in 2013.
The trial was a rarity for a shareholder class action. Only 13 such securities cases have reached a verdict since 1995, when the laws governing them were changed, according to Adam Savett, director of class action services at Kurtzman Carson Consultants.
The lawsuit was brought by Danske Invest Management A/S and Pension Funds of Local No. 1, IATSE, on behalf of holders of Longtop’s American depositary shares traded from Feb. 21, 2008 through May 17, 2011.
The settlement is subject to approval by U.S. District Judge Shira Scheindlin.
The case is In re Longtop Financial Technologies Limited Securities Litigation, U.S. District Court, Southern District of New York, No. 11-03658