In all likelihood, in the mind of Johan Broux (and his lawyers at Pomerantz Grossman Hufford Dahlstrom & Gross LLP) last week he sued a company and its executives in U.S. District Court in the Southern District of New York for securities fraud. According to his class action complaint, the company “is one of the largest oil companies in the world” and has “American Depositary Shares (ADS) and H shares” listed on the New York Stock Exchange since 2000. According to the complaint, the executives or former executives are: the Chairman and President of the Company; the Chief Financial Officer of the Company; a former Chairman and acting Chief Executive Officer; and a former Chief Financial Officer.
According to the DOJ and the SEC’s FCPA unit, Broux and his lawyers last week sued the Chinese government and Chinese foreign officials for securities fraud in U.S. Court. Obviously, the DOJ and SEC’s FCPA unit did not publicly state this, but this is the logical conclusion given the enforcement agencies Foreign Corrupt Practices Act enforcement theory that employees of alleged state-owned companies are “foreign officials” under the FCPA and thus occupy a status on par with foreign presidents, prime ministers and other heads of state. (This interpretation is currently before the 11th Circuit – see here for the prior post).
Who did Broux sue? PetroChina and certain of its current or former executives.
As noted in this previous post, various media recently reported that various PetroChina senior executives “are under investigation by authorities for ‘severe disciplinary violations’ and have resigned.” The media reports noted that “while neither PetroChina nor its parent [company China National Petroleum Corp.] have released specifics of the probes, the phrase ‘severe disciplinary violations’ is typically used by Chinese officials when investigating cases of corruption.” As noted in the prior post, the interesting thing about this of course is that PetroChina executives are – in the eyes of the enforcement agencies – “foreign officials” under the FCPA while at the same time executives of an issuer subject to the FCPA given that PetroChina’s ADRs trade on the New York Stock Exchange.
Broux’s complaint alleges, in summary fashion, as follows.
“Defendants made false and/or misleading statement, as well as failed to disclose material adverse facts about the Company’s business, operations, and financial performance. Specifically, Defendants made false and/or misleading statements and/or failed to disclose that: (1) the Company’s senior officials were in non-compliance with the Company’s corporate governance directives and code of ethics; (2) as a result, the Company was subject to investigation and disciplinary action by various governmental and regulatory authorities; (3) the Company’s financial statements were materially false and misleading as they contained direct references to the Company’s code of ethics, and statements regarding its compliance with regulations and internal governance policies; (4) the Company lacked adequate internal and financial controls; and (5), as a result of the foregoing, the Company’s financial statements were materially false and misleading at all relevant times. As a result of Defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the Company’s securities, Plaintiff and other Class members have suffered significant losses and damages.”
Regardless of whether Broux sued an issuer company and its executives or the Chinese government and Chinese “foreign officials” for securities fraud, the PetroChina civil complaint once again demonstrates how FCPA-related civil suits often follow (in certain cases mere days after) instances of FCPA scrutiny. (See here and here for prior posts).
