NEWARK, N.J. (CN) – With the Securities and Exchange Commission probing bribes that the former head of Sinovac Biotech paid drug regulators in China, investors hit the Beijing company with a federal class action.
The July 3 complaint against Sinovac in New Jersey describes a tough six months for the vaccine developer.
Lead plaintiff Shouqi Luo says it began on Dec. 21, 2016, when the analyst firm GeoInvesting LLC reported, among other things, that Sinovac CEO Weidong Yin bribed a member of the Chinese Food and Drug Administration to assist its vaccine clinical trial and approval.
Though Sinovac’s shares picked back up after a 10 cent drop Luo tied to that news, he says shares dipped again on Dec. 23 when Sinovac announced that its audit committee tapped Latham & Watkins to head an investigation into the claims.
Citing this ongoing investigation, Sinovac had to delay the filing of its 2016 annual report with the SEC in May, and it missed the extension as well.
Luo notes that the company announced on May 16 that “the SEC staff commenced an enforcement inquiry related to the GeoInvesting Report.
Though the complaint tied this disclosure to a 20 cent share drop, the company is showing a 15.76 growth year-to-date.
Luo alleges violations of the Exchange Act, saying the misrepresentations by the company and its directors artificially inflated shares.
The 20-page complaint quotes disclosures that Sinovac has made every year since 2012 about the difficulty it faces in trying to comply with the U.S. Foreign Corrupt Practices Act, or FCPA, in the PRC, short for the People’s Republic of China.
“We have adopted a policy regarding compliance with the FCPA and other applicable anti-corruption laws to prevent, detect and correct such corrupt practice,” Sinovac told the SEC in its 20-F for years 2012-16, according to the complaint. “However, corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in the PRC and the countries in which we seek to do business. While we have implemented measures to ensure compliance with the FCPA and other applicable anti-corruption laws by all individuals involved with our company, it is possible that our compliance policies and procedures may be insufficient or may fail to prevent our employees or other agents from engaging in inappropriate conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations. In addition, our brand and reputation, our sales activities or the price of our common shares could be adversely affected if we become the target of any negative publicity as a result of actions taken by our employees or other agents.”
Sinovac warned that corrupt practices spread throughout the health care industry in China.
“For example, in order to secure agreements with CDCs or hospitals in China, our competitors may engage in corrupt practices in order to influence decision-makers in violation of the anti- corruption laws of China and the FCPA,” its reports to the SEC say. “As competition persists and intensifies in our industry, we may lose potential clients, client referrals and other opportunities to the extent that our competitors engage in such practices or other illegal activities.”
Incorporated in Antigua, West Indies, Sinovac works in researching, developing, manufacturing and commercializing vaccines against hepatitis A, hepatitis B, seasonal influenza, H5N1 and H1N1 pandemic influenza, and mumps.
The company is announced on June 26 that parent Sinovac (Cayman) Limited and Sinovac Amalgamation Sub Limited are acquiring Sinovac Biotech for approximately $401.8 million.
A representative for the company has not responded to a request for comment.
The class is represented by Lawrence Rosen in South Orange, New Jersey.