An Ontario court has approved a series of settlements in a shareholder class action suit over the collapse of Zungui Haixi Corp.
The Ontario Superior Court of Justice released a decision indicating that it certified a class action against the firm’s underwriting syndicate (including CIBC World Markets Inc., Canaccord Genuity Corp., Mackie Research Capital Corp. and GMP Securities LP) for settlement purposes; approving three settlements that have been reached in the case; and approving a plan for allocating the settlement to shareholders.
The suit stemmed from the eventual collapse of Zungui, which carried out an initial public offering in 2009 that raised approximately $40 million in Ontario. But by August 2011, its auditor, Ernst & Young LLP, had suspended its audit of the firm’s financial statements; the company was cease traded, and its shares eventually became worthless.
As a result, the firm, its auditors, and underwriters, were sued in a class action alleging that its financial disclosure was deficient, including charges that its IPO prospectus was misleading as it contained material misrepresentations, and that its financials were not accurate.
The defendants denied the allegations. Nevertheless, the case was certified as a class action for settlement purposes against the company, and the auditors, among others earlier this year. Now, it has ruled that the action should be certified for settlement purposes against the underwriting syndicate too.
According to the decision, the auditor settlement is for $2 million, the Zungui settlement is for $8 million, and the underwriter settlement is for $750,000, plus another $100,000 from the Zungui defendants, for a total settlement of $10,850,000 plus interest, before expenses. These settlements would complete the class action, it notes.
The court did not approve the original plan for allocating the settlement funds, amid an objection from one investor, who complained that the plan would deny compensation to secondary market investors who bought the company’s shares in August 2011. The court agreed, and approved a plan that would provide these shareholders with some share of the compensation too.