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Defending Chinese Companies Listed on U.S. Exchanges
Neal Marder, Micol Sordina and Andrew Jick, Winston & Strawn
In recent years, there has been a number of regulatory investigations and securities fraud class actions instituted against Chinese companies listed on U.S. stock exchanges. Many have become involved in litigation in U.S. courts. Such companies find themselves in a legal quandary. Compliance with document subpoenas and discovery requests seeking information located in mainland China may violate the People’s Republic of China (PRC) laws on state secrecy protection, archive management and national security (collectively referred to as “the Secrecy Laws”).
Under PRC law, state secrets are broadly defined to include matters relating to national security and interests, including national economic and social development. PRC laws governing protection of commercial secrets also may be violated when such information is provided to a foreign recipient. The PRC government can grant exceptions, but it has proven to be conservative and generally reluctant to do so. Sanctions can include hefty fines, lengthy prison sentences and deportation.
The authors provide some tips on advising Chinese companies faced with an SEC investigation or U.S. class action. They suggest ascertaining the company’s connection to the government and whether it operates in a “sensitive” or highly-regulated industry; and whether any of the documents sought have been identified as secret or involve sensitive categories, including national defense, foreign affairs, economic and social development, or science and technology.
Taking the deposition in Hong Kong mitigates the risks for U.S. citizens, but not for citizens of the PRC.