Boies, Schiller & Flexner and client Starr Investments cleared a hurdle in their pursuit of securities fraud claims stemming from Starr’s soured investment in China MediaExpress Holding, Inc., one of many Chinese companies to be listed on a U.S. stock exchange through a so-called reverse merger. On Thursday U.S. District Judge Richard Andrews in Wilmington, Del., held that Starr’s claims weren’t barred by the U.S. Supreme Court’s 2010 ruling in Morrison v. National Australia Bank.
Starr, a firm run by former AIG chief and regular Boies Schiller client Maurice “Hank” Greenberg, filed suit in March 2011, claiming it had been fraudulently induced to buy stock in China MediaExpress. Starr accused the company, its executives, its auditors at Deloitte Touche Tohmatsu and others of overstating the company’s financial results.
China MediaExpress, which ran advertising screens on buses in China, earned its U.S. listing by merging with a U.S. company. It was one of a string of Chinese firms accused of overstating revenue in 2011 by Muddy Waters, an online research firm and short-seller.
Last year, a Hong Kong arbitration panel ruled that China MediaExpress was a fraudulent enterprise, and awarded Starr as much as $77 million in damages, according to Bloomberg News.
On motions to dismiss, the defendants argued that U.S. fraud laws don’t apply to the transactions at issue under Morrison. Starr purchased its shares directly from sellers in the British Virgin Islands rather than through a U.S. exchange.
Judge Andrews disagreed, noting that China MediaExpress is a Delaware corporation and its stock was only listed on an American exchange.
Boies Schiller’s Lee Wolosky said Friday that although the judge threw out some claims against certain defendants, Starr still has surviving claims against every defendant, including its lead auditor. “We intend to aggressively pursue our claims against Deloitte and hold it accountable for its role in this fraud,” he said.
Sidley Austin’s Michael Warden handled oral arguments for Deloitte; Jones Day’s Lee Ann Russo argued for the British Virgin Island companies that sold Starr the stock. Neither immediately returned our calls.