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The Rise (and Fall?) of Chinese Reverse Merger Litigation, Contributed by Pamela L. Signorello, Troutman Sanders LLP

Monday, November 14, 2011
Over the past year and a half, anyone paying attention to the ever-changing landscape of securities litigation has witnessed a dramatic rise in the number of cases involving “Chinese reverse merger” companies. Quite understandably, what appear to have caught the attention of the plaintiffs’ bar are the often dramatic discrepancies in the financial figures presented in the reverse merger companies’ U.S. and China-based filings. Unfortunately for such companies and their directors and officers (and insurers), even the more recent influx of information into the market offering a seemingly “innocent” (non-fraud-based) explanation for the discrepancies has done little to quell the litigation fervor. Indeed, plaintiffs likely are only emboldened by the first decision recently issued on a motion to dismiss such litigation, in which the court credited at the pleading stage allegations derived almost exclusively from an admitted short seller concerning such discrepancies. Meanwhile, triggering those insurance coverage defenses typically applicable to cases involving fraudulent financials

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