SMIC responds to US investor lawsuit and will actively defend itself

On December 15, SMIC issued an announcement stating that it has noticed a civil complaint filed in a U.S. court on December 10, 2020 (U.S. time) regarding some of the company's securities. The plaintiff in the complaint filed the lawsuit on behalf of himself and other persons who claimed to have purchased some of the company's securities in the U.S. over-the-counter securities market. The company stated that it is carefully evaluating the above matters and will actively defend itself.

The complaint alleges that certain statements or documents issued by SMIC violate Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by the Securities and Exchange Commission (which prohibits certain misrepresentations and omissions in connection with the purchase and sale of securities), and seeks undetermined monetary compensation. However, the lawsuit still needs to be approved by the U.S. court before it can be conducted in the form of a class action lawsuit.

Previously, due to high administrative costs and small ADR trading volume, SMIC announced on May 24, 2019 that it had applied to delist its American depositary shares from the New York Stock Exchange. In June, the ADR was delisted from the New York Stock Exchange and downgraded to Level 1, while entering the U.S. over-the-counter market for trading. In September of the same year, the SEC (U.S. Securities and Exchange Commission) deregistration was completed.

An industry insider told Jiwei.com that, on the one hand, SMIC's US ADR transactions accounted for less than 1% of the company's equity. At the same time, SMIC had made comprehensive risk disclosures when it was listed on the Science and Technology Innovation Board this year, and had also issued public statements in a timely and proactive manner many times to clarify false rumors and announcements on US export controls, all of which were in strict compliance with relevant disclosure regulations. On the other hand, similar lawsuits are very common in the United States, and are specifically aimed at Chinese concept stocks. So overall, the impact of the relevant lawsuits on SMIC is limited.

In recent years, as the trade friction between China and the United States intensifies, Chinese concept stocks have frequently become the target of class action lawsuits initiated by American law firms, including JD.com, Pinduoduo, NIO, Alibaba, New Oriental, etc. According to statistics, in the past three years, there have been more than 400 securities class action lawsuits in the United States each year, with an average of one case occurring less than a day. These cases mostly revolve around false or misleading statements in the financial documents of listed companies and violations of Rule 10b-5 anti-fraud regulations.

The number of class action lawsuits against Chinese concept stocks has increased dramatically, and many law firms in the United States have shown unprecedented enthusiasm for securities class action lawsuits because they can extract high fees from case settlement fees and compensation, usually reaching 20% ​​to 49% of the compensation.

It is understood that one of the representatives initiating the lawsuit against SMIC is Rosen Law Firm, whose main business is securities class action lawsuits and shareholder derivative lawsuits. The law firm stated on its official website that it has been ranked among the top three in the United States in terms of the acceptance of securities class action lawsuits since 2013.