Commercial Fishing BoatA recently filed class action illustrates how allegations of illegal activity abroad can result in securities class action exposure in the United States – even for a Chinese fishing company incorporated in the Cayman Islands.

According to the plaintiff in Zhong Zheng v. Pingtan Marine Enterprise Ltd., et al., Pingtan (trading on NASDAQ as “PME”) made a small, but materially false statement in its 10-Q and 10-K forms regarding its fishing operations.  Namely, the statement that Pingtan’s vessels are “fully licensed to fish in Indonesian, Indian, or Western and Central Pacific Ocean of the international waters.”

The plaintiff alleges that this statement is not only false and misleading, but also part of a “hoax” to cover up significant illegal activity.  In support of his allegations, plaintiff cites a report published earlier this year by Aurelius Value:

Pingtan is specifically banned from Indonesia and a senior government minister has said she would report Pingtan to the NASDAQ upon suspicion of an “international fraud case.”  Indonesian Armed Forces raided Pingtan’s key fishing base and the Government implicated Pingtan and its affiliates in serious crimes that include human trafficking, forced labor, illegal fishing, forgery, and bribing corrupt officials. . . .

The nature of Pingtan’s fraud strikes as being especially egregious because investor capital has financed widespread illegal activity.  Indonesian Supreme Court documents describe violent “torture ships” that implicate Pingtan in the modern-day slavery that has infected pockets of South East Asia’s fishing industry.

Pingtan’s stock price allegedly fell by 28% as a result of the information in the Aurelius report.  The plaintiff asserts claims against Pingtan, its CEO, and its CFO under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5.

Zhong Zheng v. Pingtan Marine Enterprise Ltd., et al., Case No. 17-cv-03807, is currently pending in the Eastern District of New York before Chief Judge Dora L. Irizarry.  Given the unlikely, but nevertheless interesting confluence of: (1) U.S. securities law, (2) a Chinese corporate defendant, (3) the Indonesian government, and (4) a Brooklyn venue, we will continue to monitor and report on this case as (and if) it goes forward.