Longtop Financial Technologies Ltd. (LFT), facing an inquiry by U.S. securities regulators over its financial reports, was sued by an investor alleging the company overstated profit margins and concealed adverse facts.
Joe Mikus, the investor, seeks to represent people who purchased shares of Longtop from June 2009 through April on claims that they lost money when the shares fell 33 percent around April 26 after reports questioned the company’s finances, according to documents filed in federal court in Los Angeles.
Longtop, a Hong Kong-based software provider whose 2007 U.S. initial public offering was underwritten by Goldman Sachs Group Inc. and Deutsche Bank AG, said May 23 that auditor Deloitte Touche Tohmatsu Ltd. resigned and the U.S. Securities and Exchange Commission was investigating Deloitte’s claims. The auditor said in a resignation letter that it found falsehoods in company financial reports, Longtop said in a May 23 statement.
The lawsuit was filed the same day by New York-based Rosen Law Firm. The firm has filed about 20 investor suits against Chinese companies listed in the U.S. by reverse mergers, Laurence Rosen, managing partner, said in a telephone interview today. In a reverse merger, a closely held company becomes public by purchasing a shell company that already trades.
Research Company Reports
The complaint cites research company reports raising questions about the company’s margins and the backgrounds of its managers.
Mikus asked for unspecified compensatory damages. An e-mail message to Longtop seeking comment after regular business hours in Hong Kong wasn’t immediately returned.
A least 370 reverse merger companies obtained U.S. listings since 2004, according to DealFlow Media Inc., a research firm based in Woodbury, New York.
The Securities and Exchange Commission set up a task force to look for fraud in overseas companies with listings on U.S. exchanges, with particular interest in Chinese reverse mergers, and began a probe last year asking auditors for information on the firms.
The agency has revoked the registrations of eight China- based companies since December, and more than 24 firms have disclosed auditor resignations or accounting problems to the agency since March, SEC Chairman Mary Schapiro wrote in an April 27 letter.
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