In mid- March, the web was swamped with announcements from well-renowned law firms in the US calling people to join as plaintiffs in different class actions against Qihoo. All of these claims were related to the highly controversial privatization of the Chinese company and its then-recent merge, prior to its re-enlistment in the Shanghai Stock Exchange. Among the law firms that filed similar complaints and provide notice about the litigation in a widely circulated business publication were: Rosen, Schall, Pomerantz, Labaton Sucharow LLP and Pawar Law Group. While the claims were different, all of them revolved around the same issue; Qihoo misrepresented and/or omitted material information that was necessary for its shareholders when making a decision on the vote for merger that led to the company’s privatization and later reenlistment in the Shanghai Stock Exchange.
The main reason why multiple lawsuits were launched is that different shareholders retain different law firms. While many people might wonder how Qihoo would be able to cope with so many claims, generally, the separate actions will be consolidated and heard by the court as one action, with each law firm participating on behalf of their clients in a capacity to be determined by the court.
These actions are often lengthy in nature, and in fact, the courts have not as of the time of writing decided to neither accept nor unify the claims. In this sense, such processes, while seemingly intimidating, do not pose a real threat to Qihoo and subsequently are unlikely to have an effect on the share price. Moreover, securities’ class actions are often revised by federal courts, which have a clear tendency to rule in favor of the defendant. In addition, the charges leveled against Qihoo of ‘misleading’ investors by allegedly undervaluing the company, often fall under a known loophole in US securities legislation; although listed in the U.S., companies like Qihoo are classified as Foreign Private Insurers (FPIs), subject to regulation by their home country’s exchange. In this context, FPIs are also exempt from corporate governance practices by which most publicly listed domestic firms must comply, including a requirement to host annual shareholder meetings.
Under these circumstances, Qihoo is unlikely to invest significant resources in fighting these claims and should be focusing its efforts on reaching a solution via mediation in its pending case against Maso Capital taking place in the Cayman Islands, which, if prolonged, might actually impact Qihoo’s credibility and assets. To read more about it, see this post.