USA: law firms mount action against Xinhua Finance Media Ltd.

One such action was commenced on 22 May in the Southern District of New York but as yet the lawyers have not chosen a "lead plaintiff." The complaint alleges breaches of federal securities laws, Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5, including allegations of issuing a series of material misrepresentations to the market which had the effect of artificially inflating the market price. The class period is alleged to be traceable to Xinhua's initial public offering on March 8, 2007 (the "IPO") until 21 May, 2007.

The company is headquartered in Shanghai with operations in Hong Kong. Its parent, Xinhua Finance Limited, is listed in Tokyo and it has become a global news organisation with 21 offices and 19 bureaux across the world. It purchased EconWorld in 2006, resulting in a substantial market penetration for financial news in China and beyond. A media statement from the company said "China's media market now accounts for around 12% of global advertising revenue, compared to 7.5% for Japan, and China advertising spend grew 16% last year to more than 60 billion RMB (US$7.2 billion), according to research by the International Monetary Fund."

However, in May this year the website "Lawyers and Settlements . Com" carried the following statement:

"Xinhua Finance Media Ltd. NASD: XFML has been accused of securities fraud. If you are a current or former employee or are a member of any of Xinhua Finance Media Ltd. investment plans or profit sharing retirement plans you may be included in this possible Xinhua Finance Media Ltd. 401K or Employee Retirement Income Security Act (ERISA) class action. If you purchased or held Xinhua Finance Media Ltd. stock in one of those plans during the periods March 8, 2007 to May 21, 2007, you may have a claim.

"Under ERISA, Xinhua Finance Media Ltd. employees can file a lawsuit against the company for putting stock options at risk. Xinhua Finance Media Ltd. employees have a claim if they can prove their employer violated its fiduciary duty to its employees. Fiduciary duty refers to a company’s responsibility to the people who invest in it. If an employer puts the company’s interest ahead of the investors’, it has broken its fiduciary duty. A fiduciary is a person that exercises discretion over the management of plan assets or exercises discretionary control over the administration of the plan.

"ERISA is a federal law that sets minimum standards for pension and health plans set up by private businesses. ERISA was designed to protect people who participate in employee benefit plans, including employees with stock options in a company. Stock options are a form of compensation in which employees are given the opportunity to purchase shares of the company stock at a certain price."

Another law firm commencing an action issued the following statement: "The Complaint alleges that the Company's former CFO at the time of its IPO, Shelly Singhal, was simultaneously an investment banker and stockbroker in charge of Bedrock Securities ("Bedrock"). Since April 2006, prior to the IPO, Bedrock has been under a cease-and-desist order for violating SEC regulations. Moreover, reports have also surfaced that Singhal has been fighting a private civil racketeering lawsuit in California and has previously been a major investor in AremisSoft and ACLN, companies previously sued for fraud by the SEC.

"In the wake of this news, on Friday, May 18, 2007, Xinhua Proxy adviser Glass Lewis & Co.'s head of research, Lynn E. Turner, resigned. Previously, Turner was a respected accounting regulator with the SEC. Prior to this news, on May 16, 2007, Glass Lewis' managing director and research editor, Jonathan Weil, resigned. Weil was previously with the Wall Street Journal, better known as the first reporter to blow the whistle on Enron. Xinhua shares have fallen from a high of $12.75 per share on May 7, 2007 to an intraday low of $8.31 on May 21, 2007."

Even so, stock related bulletin boards such as "seekingalpha.com" were carrying comments such as "Xinhua Finance Media is still a buy"

The company's shares have had a roller coaster ride recently: three months ago, they traded at about USD11.50. Then they slid up to about 12:75 only to fall off a cliff and they are now trading at about USD7. The collapse arose from media reports over the weekend resulting from a resignation letter which, after it was revised to include a series of damaging allegations, was passed to the media by the executive resigning not from the company itself but from Glass Lewis and Co, a wholly owned subsidiary of . The allegations suggested that the company had failed to properly disclose all relevant material prior to the IPO, a charge that the company strenuously denies, answering the allegations point by point.

It also issued a statement saying " In response to the media coverage over the weekend, Xinhua Finance Chief Executive Fredy Bush issued the following statement: Xinhua Finance Media listed on NASDAQ after complying fully with all disclosure and due diligence processes required in the United States. Furthermore, the Company engaged the most qualified independent advisers available to oversee this process. We have an internal committee co-chaired by John McLean, General Counsel of Xinhua Finance and Kevin Cameron, President and co-founder of Glass Lewis, who continually review the Group's corporate governance to make recommendations to the independent Corporate Governance Board Committee of Xinhua Finance Media and the Board of Xinhua Finance Limited. I look forward to keeping investors and followers informed of our progress and these ongoing initiatives." Even so, yesterday, the company announced a substantial re-organisation of the Board.

A company statement refers to Glass Lewis as follows:"Founded in 2003, Glass Lewis helps investors make more informed investment and proxy voting decisions by identifying business, legal, governance and financial statement risk at public companies. Glass Lewis also facilitates proxy voting by institutional investors with the most advanced and reliable proxy voting platform in the industry. Headquartered in San Francisco, with offices in New York, London, Tokyo and Denver, Glass Lewis serves many of the world’s largest and most respected institutional money managers, pension funds, mutual funds and hedge funds. Glass Lewis’ clients collectively manage more than $11 [billion]. Glass Lewis is a wholly owned subsidiary of Xinhua Finance Limited."

The company says that the action is entirely without merit and points out that in one of the actions the person issuing the action purchased only 100 shares in its IPO. It makes not further comment but one has to wonder if the implication is that some in the USA purchase a small number of shares in IPOs in the hope that they will be able to use them to mount shareholder actions, spurious or not, against the companies concerned in order to leverage their investment into substantial damages.

The position has been made worse by the resignation of another senior member - Mr Shelley Singhal. His resignation letter was announced by the company as follows (ironically by Xinhua, the Chinese national news agency):"Mr. Shelly Singhal has resigned from the Boards of both companies, as well as from all executive and managerial positions. His departure is immediate.

Xinhua Finance Media Limited and Xinhua Finance Limited are not connected with the official Chinese news agency Xinhua. The IPO prospectus is at Edgar Online.

Fredy Bush was named as Hong Kong's American Chamber of Commerce's Entrepreneur of the Year in its Women of Influence Awards in October 2006.