International Implications: Chinese Ownership & The Courts in Ukraine

SEC Wakes Up to Reverse Merger Companies

Weeks after several Chinese reverse-merger companies have stopped trading in the US amid widespread fraud allegations, the Securities and Exchange Commission has issued a warning that, hey, maybe investors ought to think twice about those reverse-merger companies.  Okey doke!  Mark Gongloff relays from the Wall Street Journal Law Blog. 

The Securities and Exchange Commission issued an investor bulletin that said “there have been instances of fraud and other abuses involving reverse merger companies” and that investors “should be careful” when they consider investing in the companies’ stocks.

The SEC has said it is investigating the reverse-merger phenomenon, in which a private company merges with a publicly traded shell company to gain access to capital markets. Advocates of reverse mergers tout them as a quicker, less-expensive way for companies to go public, but critics say the process enables companies to avoid the scrutiny of their finances and operations that comes with a traditional initial public offering.

The SEC’S bulletin isn’t specifically aimed at Chinese companies, but those firms have been particularly active in using reverse mergers in recent years. In the last few months, about 40 Chinese companies, most of them reverse-merger firms, have acknowledged accounting problems or seen the SEC or U.S. exchanges halt trading in their stocks due to accounting concerns.

U.S. Court Serves as Winning Jursidiction for Ukrainians

Meanwhile, litigants shouldn’t assume they can easily avoid the reach of even smaller nations by taking their cases up in the U.S.

The Ukrainian government scored a victory in the U.S. court system last week when a federal judge ordered an Oregon company to pay $60 million to a Ukrainian government entity in a civil-racketeering lawsuit.

U.S. District Court Judge Ann L. Aiken entered a default judgment late Friday against Oregon-based Olden Group, ordering it to pay triple the amount sought by a Ukrainian government entity that alleged it was overcharged for vaccines by Olden and a Ukrainian company. This WSJ storylays out the case.

The lawsuit, filed last year, stems from an investigation ordered by Ukrainian President Viktor Yanukovych’s internal government watchdog unit into medical purchases during the prior administration, according to the complaint. The probe, assisted by U.S. investigative firm Kroll and others, led to the Oregon suit brought by Ukrainian medical-procurement agency Ukrvaktsina.

Read the full story by Dionne Searcy at the Wall Street Journal Law Blog.