Zhao Wei, the billionaire Chinese actress, faces class action along with her husband from hundreds of investors who suffered heavy losses because of their investments in a listed company that had been targeted for a takeover by the couple last year, according to lawyers representing the investors.
Wang Zhibin, a lawyer at Shanghai-based Bright & Young Law Firm, representing the small investors said they could seek roughly 30 million yuan in compensation because of misleading information disclosure linked to the takeover deal.
However, whether a lawsuit could be filed would depend on a final decision by the China Securities Regulatory Commission (CSRC), the stock market watchdog.
Last week, the CSRC barred Zhao, and her husband Huang Youlong, as well as the owner of Zhejiang Sunriver Culture, the target company in the takeover deal, from China’s securities markets for five years, for “seriously misleading the market”, according to a filing by Sunriver to the Shanghai Stock Exchange.
Lawyers said it could take another six months for the CSRC to reach a decision on the final punishment, since Huang announced through his Hong Kong-listed Sino Golf Holdings on November 10 that he would “submit a statement and plea to the CSRC to request a hearing” on the five-year ban.
Once a final ruling was given by the CSRC, lawyers could file a formal lawsuit, seeking compensation from the Zhao couple and Sunriver, as both would be listed as joint defendants, according to Wang.
“There are around 4,500 investors who so far have inquired from me about bringing up the class action, of which about 100 have sent their trading records to bring about the lawsuit,” he said.
According to Wang, the major accusation the investors want to make against the couple and Sunriver is “negligent misrepresentation”, meaning that the parties did not fully disclose important information related to the deal in a timely manner as decreed under China’s Securities Law.
Another Chinese lawyer said some of the investors who wanted to file the class action suit had incurred losses of millions of yuan from investing in shares of Sunriver.
“The proportion of such cases [negligent misrepresentation] only accounts for a tiny fraction of all the lawsuits related to China’s securities market,” said Xie Liang, a lawyer with Guangdong-based Huanyu Jingmao Law Firm that specialises in representing retail stock market investors.
“But this case should serve as a severe warning for other listed companies in China even though the case has been magnified because of Zhao’s fame,” he said.
Shares of Sunriver, formerly known as Zhejiang Wanjia, have fluctuated wildly since Zhao’s Longwei Culture & Media proposed to pay 3 billion yuan for a 29.1 per cent stake in the little known animation company at the end of last year.
Sunriver’s share price surged by the daily limit of 10 per cent in January after Zhao’s announcement of the takeover and plunged by 10 per cent in February after she said she would scale back because of financing difficulties.
The shares now trade at 9.2 yuan, 63.2 per cent lower from a high of 25 yuan in January.