SINGAPORE : US law firm Lerach Coughlin has commenced a class
action lawsuit against China Aviation Oil.
This is on behalf of shareholders who bought CAO shares between
February 5 and November 30, 2004.
The lawsuit was filed in New York on Wednesday and it alleged that
CAO had issued false and misleading statements about its business
and its prospects.
But when contacted by Channel NewsAsia, CAO said it had not been
served legal notice of the suit.
While local investors are holding back on legal action against
China Aviation Oil, US investors have made the first move.
They have filed a class action suit through US law firm Lerach
Coughlin, alleging that, contrary to CAO's prospectus, the company
did not have the necessary risk controls in place for hedging and
trading.
They also alleged that, contrary to its last private placement
offer documents, the funds raised were not used to fund an
acquisition, but rather to meet margin calls for derivative
losses.
And they argued that CAO's financial statements had been grossly
overstated, with the company hiding liabilities in excess of US$550
million in trading losses.
Lerach Coughlin is inviting other investors to join in its class
action lawsuit before March 6, 2005.
But according to one Singapore lawyer, any US judgement is not
enforceable in the Republic.
This means that even if the lawsuit succeeds, the plaintiffs will
only be able to seize any hard assets that CAO has in the US, which
may come to nothing given the current state of the company.
And he is advising shareholders against taking a similar type of
legal action in Singapore, as class-action lawsuits are restricted
in nature here.
Harish Kumar, Director, Advocate & Solicitor, Engelin Tay
Practice LLC, said, "Even if you are in a position to take action,
you of course realise that the company is hopelessly insolvent. Its
negative equity is in excess of 600 million dollars I understand.
In theory a cause of action is available against the company, in
reality of course there is really no prospect of recovery, unless
there is a successful restructuring and the company is allowed to
survive."
The Securities Investors' Association has also issued a statement
calling on investors not to embark on legal action.
It says it would be in the best interests of minority shareholders
to allow the current restructuring initiatives at CAO to continue.
- CNA