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