Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

RAPOPORT v. ASIA ELECTRONICS HOLDING CO.

March 7, 2000

ALAN RAPOPORT, ET AL., ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS,
V.
ASIA ELECTRONICS HOLDING CO., INC., DU QUINGSONG, FAN BAIYAN, LI LIANJIE, BARINGTON CAPITAL GROUP, L.P., AND VALUE INVESTING PARTNERS, INC., DEFENDANTS.



The opinion of the court was delivered by: Edelstein, District Judge.

ORDER & OPINION

Lead Plaintiffs Alan Rapoport and various other individuals ("Rapoport Group"), on behalf of themselves and all others similarly situated (collectively "Plaintiffs"), bring this uncertified securities class action, pursuant to Federal Rules of Civil Procedure ("Rules") 23(a) and (b)(3) and §§ 11, 12(a)(2), and 15 of the Securities Act of 1933 ("Securities Act"), against: (1) Defendant Asia Electronics Holding Co., Inc. ("Asia Electronics" or "Company") for allegedly violating the Securities Act through the issuance of common stock in a September 25, 1997 Initial Public Offering ("IPO") pursuant to the Company's materially false and misleading Registration Statement and Prospectus dated September 24, 1997 ("Prospectus") that purportedly failed to disclose that the Company's actions failed to comply with Chinese Law; (2) Defendants Du Quingsong, Mary Xia, Fan Baiyan, and Li Lianjie ("Individual Defendants"), officers and/or directors of the Company, as controlling persons of the Company with respect to the alleged violations; and (3) Defendants Barington Capital Group, L.P. and Value Investing Partners, Inc. ("Underwriter Defendants"), underwriters of the IPO, as participants in the alleged violations. Presently before this Court are Defendants' motions to dismiss Plaintiffs' claims pursuant to Rule 12(b)(6).

Background

This matter reaches the Court framed as a Rule 12(b)(6) motion. Accordingly, the facts recited herein are drawn predominantly from Plaintiffs' amended complaint.

A. Parties:

Plaintiffs are members of the Class who purchased or otherwise acquired Asia Electronics common stock pursuant to or traceable to the Company's September 25, 1997 IPO and were allegedly damaged thereby. See Amended Class Action Compl. ("Amended Compl.") at ¶¶ 11, 24. By order signed November 19, 1998, this Court appointed Plaintiffs to serve as lead plaintiffs on behalf of the class. See Order of Honorable David N. Edelstein dated Nov. 19, 1998 ("Edelstein Order").

Defendant Asia Electronics is a British Virgin Islands company that incorporated in January 1996 and went public via an IPO on September 25, 1997. See Amended Compl. at ¶¶ 2, 12, 15, 17. The Company, through its several China-based subsidiaries, develops and sells deflection yokes — electronic devices attached to color picture tubes in television sets and computer monitors. See id. According to the Prospectus, Asia Electronics is one of the largest independents manufacturers of deflection yokes in the world. See id. at ¶ 15.

The Individual Defendants, at all times relevant to this action, served as senior officers and/or directors of the Company. See id. at ¶ 13. The Underwriter Defendants, at all times relevant to this action, were engaged in the business of investment banking and underwriting and selling securities to the investing public, and were the lead underwriters of the IPO. See id. at ¶ 14.

B. Facts:

Through the Company's IPO, Asia Electronics sold 4.6 million shares of common stock at $8.00 per share, raising $36.8 million, $34.2 million of which went directly to the Company, the remainder of which went to pay the Underwriter Defendants. See id. at 19. Subsequent to the IPO, the Company posted steadily improving financial results and acquired a number of other companies. See id. at ¶ 18. By October 22, 1997, the price of Asia Electronics common stock had risen to $14.13 per share. See id.

Plaintiffs allege that on July 16, 1998, Asia Electronics then "shocked the market" when it announced in a press release that "its Chairman, defendant Du, was being questioned by the Disciplinary Committee of the Municipal Communist Party in Xianyang, China, where Asia Electronics' operations are conducted." Id. at ¶ 29. Plaintiffs observe that on July 16, 1998, on almost eight-times average trading volume, the market price of Asia Electronics common stock declined to $2.88 per share. See id. at ¶ 30. Plaintiffs also point to a July 24, 1998 press release through which the Company announced that "the Company's Chief Financial Officer, Li Lei, had also been detained for questioning by the Disciplinary Committee." Id. at ¶ 31. Finally, Plaintiffs note that on July 29, 1998, Asia Electronics common stock fell to $1.63 per share, and that at the time of the filing of the amended complaint, the stock traded in the range of $0.50 per share. See id. at ¶¶ 33-34.

First, the Prospectus stated that:

The Chinese legal system is based on written statutes and, unlike common law systems, decided legal cases in China have little precedential value. In 1979, China began the process of developing its legal system by undertaking to promulgate a comprehensive system of laws. On December 29, 1993, the National People's Congress promulgated the Company Law of The People's Republic of China ["PRC"]. . . . Pursuant to the Company Law, the State Council issued the "PRC Special Regulations on Overseas Offering and Listing of Shares by Joint Stock Limited Companies" to regulate joint stock limited companies that offer and list their shares overseas. The Company Law, the rules and regulations promulgated under it and legal prescriptions relating to Chinese companies provide the core of the legal framework governing the corporate behavior of companies, such as the Company's subsidiaries, and their directors and shareholders. Because these laws, regulations and legal requirements are relatively recent, their interpretation and enforcement involve significant uncertainty.

Prospectus at 8-9.

Second, according to the Prospectus:

Certain legal matters will be passed upon for the Company as to U.S. law by Proskauer Rose LLP, New York, New York and as to China law by Jun He Law Office, Beijing, People's Republic of China. The validity of the shares of Common Stock offered by this Prospectus and certain other legal matters are being passed on for the Company by Harney, Westwood & Riegels as to British Virgin Islands law. Certain legal matters will be passed upon for the Underwriters by Kramer, Levin, Naftalis & Frankel, New York, New York and, with respect to matters of Chinese law, by the Great Wall Law Offices, Shanghai, Peoples's Republic of China.

Id. at 59.

Finally, the Prospectus reads:

The PRC's legal system is based on written statutes under which prior court decisions may be cited as authority but do not have binding precedence. The PRC's legal system is relatively new, and the government is still in the process of developing a comprehensive system of laws, a process that has been ongoing sine 1979. Considerable progress has been made in the promulgation of laws and regulations dealing with economic matters such as corporate organization and governance, foreign investment, commerce, taxation and trade. Such legislation has significantly enhanced the ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.