We've noted that U.S. financial regulators--including the SEC and the PCAOB--are looking into more cases of dubious reverse mergers. At issue is whether a mix of investment bankers, shady brokers and auditors have allowed unqualified companies to make it to a major stock exchange via these mergers. But the flip side of the regulatory interest is the private litigation, which has exploded as of late.

According to the Stanford Law School Securities Class Action Clearinghouse in cooperation with Cornerstone Research, 94 federal securities fraud class actions were filed in the first half of 2011, representing a 9.6 percent decrease from the 104 filings in the second half of 2010. But filings related to Chinese mergers have soared. Twenty-four filings related to Chinese reverse mergers accounted for 25.5 percent of all filings in the first half of 2011.

Professor Joseph Grundfest, head of the clearinghouse, said this: "The traditional claims that U.S.-based companies have been cooking their books or hyping their stocks are in sharp decline. The new kid on the block is the claim alleging that Chinese-based issuers have made false financial statements. The question remains as to whether or not this litigation will lead to meaningful recovery for plaintiffs. If plaintiffs successfully obtain large judgments in American courts, they may not be able to enforce their judgments against Chinese assets held by Chinese defendants in China."

Whether not we'll see some joint regulatory actions remains to be seen.

For more:
- here's the release

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