Investors sue Daqing Lianyi Petro
In a rare move, a group of individual shareholders is suing a listed company, demanding compensation for what they allege is illegal manipulation of the share price for the profit of company directors and their associates at their expense.
More than 20 shareholders of Daqing Lianyi Petrochemical, an A share which listed in Shanghai on May 23, 1999, filed suit in a local court in the eastern district of Beijing last Thursday. Daqing, in the northeast province of Heilongjiang, is China's largest oilfield.
The shareholders' case is that, in a prospectus issued on January 18 this year, the company proposed giving shareholders 10 shares for every 10 they held, a tempting offer that led to an increase in the share price of nearly one yuan that day.
On February 6, the company announced it was doubling its registered and share capital.
But, on February 20, it announced that a shareholders' meeting had decided to amend the original proposal and give shareholders two new shares for each 10 they held - instead of the original 10.
As a result of this announcement, the share price fell, in the space of a month, to 14.74 yuan from 19.08 yuan, causing a loss to shareholders of up to 20 per cent of the value of their holdings.
The suit accuses the company of intentionally misleading the public to buy its shares and pushing up the price, enabling the large shareholders and their associates who were given inside information to profit at the expense of the small shareholders.
Daqing Lianyi officials were unavailable for comment. On March 3 the company secretary said that it apologised for the losses incurred by investors and asked for their continued support.
China Academy of Social Sciences economist Yang Fan said he was not optimistic about the success of the law suit.
'The problem is inadequate evidence. If the plaintiffs are relying solely on the public statements of the company, that will not be enough. They have to prove the direct involvement of the board of Daqing Lianyi with those who profited from the movements in the share prices. For ordinary shareholders, that will be hard to do.'
Daqing Lianyi has already been the subject of official censure.
In November 1999, the China Securities Regulatory Commission and other official bodies found it guilty of falsifying its accounts and paying bribes to leaders of the Communist Party and government to obtain a listing illegally. It ordered administrative punishments for 39 of its staff, and criminal punishments for 10.
Small shareholders are at a disadvantage since the re-establishment of China's stock market in 1990. Of the shares of the 1,100 listed companies, about 60 per cent on average are not liquid, in the form of state or legal-person shares, giving small shareholders little or no say in the management. Only about 100 companies have floated more than 50 per cent of their shares.
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