In re Montage Technology Group Limited Securities Litigation, No. 14-cv-00722 (N.D. Cal. Jan. 29, 2015) [click for opinion]
Defendant Montage Technology Group Limited ("Montage") is a Cayman Islands corporation, headquartered and primarily conducting business in the People's Republic of China ("PRC"). However, it also conducts business in the U.S. through its subsidiaries and its shares are traded in the U.S. on NASDAQ. In August 2013, the Securities and Exchange Commission ("SEC") declared effective a Registration Statement that Montage filed in connection with Montage's initial public offering. The Registration Statement represented that 82 percent of Montage's net revenue came through independent distributors. The largest of the distributors, LQW, accounted for a majority of Montage's revenue for fiscal years 2012, 2013, and 2014. On February 6, 2014, an analyst firm issued a report alleging that LQW is owned and controlled by an undisclosed affiliate of Montage. In the two days following publication of the report, Montage's stock price fell over 25 percent.
Plaintiffs, a class of persons and entities who purchased securities of Montage between September 25, 2013 and February 6, 2014, filed a lawsuit against Montage and its CEO, President, and CFO, alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act based on Defendants' failure to disclose that its dealings with LQW were related party transactions. Plaintiffs alleged numerous ways in which LQW is a related entity to Montage.
Defendants moved to dismiss the case on grounds of forum non conveniens, arguing that the case should be brought in the PRC. The court found that Defendants failed to meet their burden of showing that the PRC is an adequate alternative forum. There was no adequate alternative forum because PRC securities laws would not apply to the dispute, since Plaintiffs purchased the securities at issue on a U.S. exchange. Moreover, in order to bring a private securities fraud suit in a PRC court, there must first be a penalty ruling or criminal judgment made against Montage by the China Securities Regulatory Commission ("CSR") or a People's Court. There was no such finding by the CSR or a People's Court in this case, and Defendants' expert acknowledged that the CSR lacks jurisdiction to issue a penalty ruling against Montage. Holding that Defendants failed to establish that the PRC would provide Plaintiffs with a remedy for the alleged harm, the Court denied Defendants’ motion to dismiss on grounds of forum non conveniens.