Corruption Allegations in China Lead to a Shareholder Class Action in the U.S.

The filing of a shareholder class action has become routine following a drop in stock price after the revelation of adverse news about a company. Allegations of corruption at a public company are proving to be no different, as the recently filed putative shareholder class action against oil and gas company PetroChina Company Ltd. (“PetroChina”) demonstrates.

THE CHINESE GOVERNMENT INITIATES A CORRUPTION INVESTIGATION -

Evidencing the Chinese government’s continued campaign against graft, on August 27, 2013, the Communist Party’s Central Commission for Discipline Inspection reportedly disclosed its investigation into the alleged “severe disciplinary violations” of a deputy general manager of China National Petroleum Corporation (“CNPC”), PetroChina’s controlling shareholder. In China, a “severe disciplinary violation” is considered to be a euphemistic term for corruption. That same day, PetroChina filed a Form 6-K with the U.S. Securities and Exchange Commission (“SEC”), announcing that three PetroChina senior executives were under investigation by “relevant PRC authorities.” PetroChina stated that all three had resigned, effective immediately, from their respective positions “due to personal reasons.” The three executives include a vice president of both PetroChina and CNPC; an executive director, vice president and head of PetroChina’s Changqing oil field; and a chief geologist.

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