UPDATE: Zungui Class Action Settlements Against Remaining Defendants Approved By Court

by Dentons
Contact

**This blog post was co-authored by Dentons’ Michael Schafler and Michael Beeforth.

On August 27, 2013, Justice Perell released his decision (2013 ONSC 5490) approving three settlements valued at $10.85 million, bringing the class action against Zungui Haixi Corp. (“Zungui”) and others to a close. Under the approved settlements, Zungui will pay $8.1 million, auditors Ernst & Young (“E&Y”) will pay $2 million and the company’s underwriting syndicate (CIBC World Markets Inc., Canaccord Genuity Corp., GMP Securities LP and Mackie Research Capital Corporation) will pay $750,000. In an earlier May 2013 decision, Perell J. had certified the class action for settlement purposes in respect of the Zungui and E&Y settlements.

As summarized here, the proposed class action brought by Zungui’s investors stemmed from an August 22, 2011 announcement that E&Y had suspended its audit of Zungui’s 2011 financial statements. The company’s shares immediately dropped by 77% and were subsequently cease-traded. The proposed class was comprised of various groups of investors (each represented by separate counsel), including purchasers in the initial December 2009 IPO, investors who received shares in exchange for securities of a Zungui subsidiary prior to the IPO, and secondary market purchasers.

The proposed plan of distribution under the settlements allocated various levels of compensation to the investor groups depending on, amongst other factors, when investors acquired or sold their shares. The plan did not, however, contemplate any compensation to class members who acquired shares on or following the August 22, 2011 E&Y disclosure (though the settlements included a release of these class members’ claims). One investor who had purchased his shares on August 22, 2011 objected to the fairness of the plan of distribution on the basis that the August 22, 2011 disclosure “[did] not clearly foreshadow the events that followed” and that “there was no way of knowing that the worst possible outcome would come to pass, with investors unable to trade their shares ever again”.

In considering whether the plan of distribution was fair and reasonable, Perell J. noted that if class members such as the objecting investor had appreciated that the parties had only included them in the class as a bargaining chip and would eventually exclude them from the plan of distribution while releasing their claims, those investors would likely have opted out of the class action. As it stood, Perell J. found it “inappropriate and unfair to include August 22, 2011 purchasers as Class Members and then exclude them from the Plan of Distribution”. He thus revised the plan to include August 22, 2011 purchasers but discounted their claims to reflect the increased risk of their investments.

While the precedential value of this decision is likely limited by the fact that the court’s authority to vary the plan of distribution was expressly provided for by the settlement agreements, Perell J. made it clear that he would not have approved the settlements without this authority. Perell J. also noted that s. 26 of the Class Proceedings Act, 1992 provides the court with ample discretion and scope for creativity in determining or approving a plan of distribution where a judgment has been issued. Based on these comments, class counsel would be wise to expressly advise settling class members of the court’s ability to vary distributions, especially in cases involving objecting class members or other potential fairness concerns.

Written by:

Dentons
Contact
more
less

Dentons on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!