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China Auto Logistics Inc. Class Action Overview:
- Who: Investors sued luxury car retailer China Auto Logistics Inc., which imports luxury cars into China from the United States and other countries.
- Why: The investors allege the company has been “coopted by its controlling insiders to siphon off the company’s profits through undisclosed related party transactions.”
- Where: The lawsuit against China Auto Logistics Inc., a Nevada-based corporation, is being heard in New Jersey federal court.
Executives at luxury car retailer China Auto Logistics Inc. (CALI) must face investors in a class action lawsuit, a New Jersey federal judge has ruled.
The decision comes after CALI executives tried to get the lawsuit thrown out.
U.S. District Judge Claire C. Cecchi ruled that the arguments put forth by the current and former executives and directors — who are accused of diverting company profits to an ex-CEO and his family — did not stack up and the investors’ claims could move forward, Law360 reports.
Lead Plaintiffs Zhengyu He, Harold Brooks Moss, and Andrew Pagliara filed an amended complaint in November 2018, alleging CALI, a Nevada corporation that imports luxury cars into China from the U.S. and other countries, has been “coopted by its controlling insiders to siphon off the company’s profits through undisclosed related party transactions.”
The investors argue in their class action lawsuit the executives “maintained control over the company’s SEC filings, including by certifying CALI’s 2016 annual report,” Cecchi said, that former-CEO Tong Shiping and other managers “directed the company’s day-to-day operations and were privy to confidential proprietary information concerning the company’s financials.”
As CALI’s “false and misleading statements and the insiders’ misconduct came to light, the company’s stock price fell precipitously,” reads the class action lawsuit.
Cecchi also upheld that Shiping and former CALI CFO Wang Xinwei failed to disclose the transactions or the plot to divert the money to Shiping, and that they hindered an internal investigation, rejecting arguments from Shiping and Xinwei that the investors failed to establish a “strong inference of scienter,” Law360 reported.
In their motion for dismissal, the executives said that the investors did not “plead facts to show each individual defendant maintained actual power or influence, and do not connect each of the specific individual defendants to the allegedly fraudulent acts.”
However, Cecchi said that the securities violation had been “sufficiently alleged” by the investors, and they “satisfactorily detailed that each defendant was a ‘control person’ of the company in that they exercised ‘decision-making power’ over its business activities.”
She also argued that although the pair “argue that they did not ‘cover up anything’ with respect to the investigation,” “the most plausible inference” based on the accusations they improperly accessed employee data to hide their misconduct is that “Shiping and Xinwei actively impeded the investigation to conceal their fraud, including by wrongfully accessing their employees’ data.”
Have you ever worked for a company that faced a lawsuit over an SEC violation? Tell us your experience in the comments section!
The investors are represented by Laurence M. Rosen, Phillip Kim and Joshua Baker of The Rosen Law Firm PA and Peretz Bronstein of Bronstein Gewirtz & Grossman LLC.
The individual executives and directors are represented by Paul E. Paray of Paray Law Group LLC, Michael Gayan of Kemp, Jones & Coulthard LLP and David A. Kotler, Joni S. Jacobsen and Christopher S. Burrichter of Dechert LLP.
The CALI Securities Violation Class Action Lawsuit is Vanderhoef v. China Auto Logistics Inc. et al., Case No. 2:18-cv-10174, in the U.S. District Court for the District of New Jersey.
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