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Faruqi & Faruqi, LLP Files Securities Class Action Suit Against China Medical Technologies, Inc. And Certain Of Its Executives

Stocks in this article: CMED

NEW YORK, Feb. 3, 2012 /PRNewswire/ -- Faruqi & Faruqi, LLP today announced that it has filed a securities class action lawsuit against China Medical Technologies, Inc. ("China Medical" or the "Company") (NASDAQ: CMED) and certain of its senior executives.  The action (No. 12-CIV-0882), filed in the United States District Court for the Southern District of New York, asserts claims under the Securities Exchange Act of 1934 ("Exchange Act") on behalf of all persons who purchased or otherwise acquired CMED's American Depositary Shares ("ADS") during the expanded period between February 7, 2007 and December 12, 2011, inclusive (the "Class Period").   

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A copy of the complaint can be viewed on the firm's website at

China Medical and certain of its senior executives are charged with issuing a series of materially false and misleading statements in violation of Section 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder.  Specifically, defendants misstated and failed to disclose that the Company engaged in suspicious and improper related-party transactions and misstated its receivables in order to artificially inflate sales and net income.  As a result of defendants' false and misleading statements and material omissions, China Medical ADS traded at artificially inflated prices during the Class Period, reaching a high of $57.50 per share on February 28, 2008.

On December 6, 2011, the Glaucus Research Group published a report that revealed that China Medical's Chief Executive Officer engaged in a related party transaction with the Company pursuant to which the Company improperly funneled approximately $20 million to the Company's Chief Executive Officer.  The report also concluded that the Company's profits, revenue and net income were severely inflated.  On this news, China Medical's shares declined nearly 24% on unusually high trading volume.  Moreover, on December 13, 2011, China Medical further disclosed that the Company intended to restructure its debt to improve its balance sheets.  This news caused China Medical's shares to decline an additional 13% to close at $2.87 per share, on unusually high trading volume.

The true facts, which were known by the defendants but concealed from the investing public during the Class Period, were as follows:  (1) several China Medical acquisitions during the Class Period were the result of suspicious and/or improper related party transactions with third-party sellers connected to the Company; (2) the Company significantly overpaid for at least one acquisition to the detriment of Company shareholders and to the benefit of China Medical's Chairman of the Board and Chief Executive Officer, defendant Xiaodong Wu; (3) the Company overstated accounts receivable in order to inflate reported sales, profit margins and net income; and (4) as a result of the foregoing, the Company's financial performance, expected earnings and business prospects were false and misleading and lacked a reasonable basis when made.  As a result, the Complaint alleges that China Medical violated provisions of the Exchange Act during the Class Period by issuing false and misleading press releases, financial statements, filings with the Securities and Exchange Commission and statements during investor conference calls. 

Plaintiff now seeks to recover damages on behalf of himself and all other investors who purchased or acquired China Medical ADS during the Class Period, excluding defendants and their affiliates.  Plaintiff is represented by Faruqi & Faruqi, LLP, a national securities law firm with extensive experience in prosecuting class actions involving corporate fraud. 

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