US Federal Appellate Courts Uphold Dismissal of Securities Fraud Claims Against Auditors in Two China Reverse Merger Cases

Advanced Battery is significant in its own right because it is the first federal appellate case to expressly reject scienter arguments based on the alleged discrepancy between a company’s filings with the US Securities and Exchange Commission (SEC) and with China’s State Administration of Industry and Commerce (AIC), a regulatory agency to which Chinese companies must submit financial statements as part of an annual examination.7

Taken together, the decisions in Advanced Battery and Brophy reflect a growing trend: courts rejecting securities-fraud claims filed against independent audit firms in the context of Chinese reverse-merger companies.8 For example, in In re Puda Coal Securities Inc. Litigation,9 the US District Court for the Southern District of New York granted summary judgment in favor of an independent audit firm on a Section 10(b) claim under the “no audit at all” standard.

Curated from US Federal Appellate Courts Uphold Dismissal of Securities Fraud Claims Against Auditors in Two China Reverse Merger Cases