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Sinovac Biotech Alleged CEO Bribery Causes Stock Losses Securities Class Action

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Bribery and corruption are secretive activities, but securities laws still require the honest reporting of corruption. According to the complaint for this class action, Sinovac Biotech Ltd. violated the Securities Exchange Act of 1934 by not reporting an instance of bribery by the company’s CEO, Weidong Yin.

The class for this action is all persons and entities who acquired the publicly-traded securities of Sinovac between April 30, 2013 and May 16, 2017.

Sinovac is a company based in the People’s Republic of China that develops vaccines against diseases like hepatitis A and B, seasonal flu, H5N1 and H1N1 pandemic flu, and mumps. The company’s shares trade on NASDAQ in the US.

During the class period, the company filed a number of Form 20-Fs, each of which contained a section on corruption. For example, the section in the 2012 Form 20-F, filed on April 30, 2013 said, in part, “Failure to comply with the US Foreign Corrupt Practices Act [FCPA] and other applicable anti-corruption laws could subject us to penalties and other adverse consequences and corrupt practices by our competitors may place us at a competitive disadvantage.”

The section went into more detail and admitted that “corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in the PRC and the countries in which we seek to do business.” The company claimed to have “implemented measures to ensure compliance with the FCPA and other applicable anti-corruption laws” by members of the company, but admitted that they might fail.

Annual filings for fiscal years 2013, 2014, and 2015 contained similar statements. The complaint claims that these statements were misleading, because they did not mention the CEO’s instance of bribery, or that the conduct was likely to lead to scrutiny by regulators.

On December 21, 2916, the analyst company GeoInvesting published a report on Sinovac saying, “Recently disclosed court documents show that Sinovac Biotech’s CEO bribed a member of the Chinese Food and Drug Administration to assist its vaccine clinical trial and approval.” It further pointed out that the lack of disclosure of bribery violated SEC and NASDAQ rules and warned of “potential implications for all of SVA’s past and future vaccines.”

Two days later, the company issued a press release announcing an internal investigation, but insisted that “to the knowledge of Sinovac, no legal proceedings or government inquiries have been made against the Company or its chief executive officer Mr. Yin…”

On May 16, 2017, the company issued a press release saying that its annual report would be delayed and that the SEC had begun an enforcement inquiry, issuing “a subpoena requesting documents related to the internal investigation” of its CEO.

At each revelation, the company’s share price fell. 

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