NYSE Listing Exposes Foreign Firms to Liability For Corrupt Practices
From a recent filing in US Courts:
Broux v. PetroChina Co. Ltd., 13-cv-06180, U.S. District Court, Southern District of New York. PetroChina Co. was sued by Johan Broux, an investor in Belgium who claims the oil producer violated U.S. securities laws by failing to disclose corruption, exposing PetroChina to government investigations and penalties. Broux claimed that as a result PetroChina shares dropped more than 3.5 percent Aug. 28 on news that two Chinese government agencies were investigating company officials for corruption.
We find this to be so funny in that every Chinese company of any size has been giving emoluments (e.g. bribes – gifts – travel vouchers) to get ahead for decades. It is just a way of them getting along. Now, with their newly found “religion” to root out corruption, the rules there have certainly changed.
We expect that if this suit is pursued and is successful two things may well happen. The first thing I envision is a series of lawsuits against Chinese companies listed in the US. While there are not as many are left as they once were, we see this coming because as they are delisted because of audit insufficiencies or other improprieties, they are easy targets. It is somewhat like suing a fish because they are wet in a zone that prohibits water.
The second is a general flight from US listing for foreign firms. The US is still the most open and free large capital market – but it is by no means the “only” capital market. The US is losing out to other markets and has dropped as an over all percentage of public companies (by gross listing and public capital) are no longer in the United States.
So is this legitimate asset recovery for damage cause by corruption? If so, what would be the counter-argument be? Perhaps it might be something like “Without the ‘what you see as corrupt practices’ would there even be a business opportunity in China? It is unclear, but we can bet that if this succeeds there will be a rash of copycat litigation – as cases like this would seem to be easy pickings for the litigation circuit.