A U.S. jury found that a former Longtop Financial Technologies chief financial officer was reckless in making untrue statements or omitting facts about the Chinese technology company, a rare verdict among securities class actions.
Derek Palaschuk, who served as Longtop's CFO until resigning in 2011 amid questions about its accounting, on Friday was found liable for violating federal securities laws after less than a day of deliberations by a jury in Manhattan.
The jury will return on Monday to hear testimony about what damages should be awarded investors, who contend Longtop's stock was artificially inflated by fraud.
Lawyers for Palaschuk and the investors declined to comment.
Only 13 other securities class actions have reached a verdict since 1995, when the laws governing them changed, said Adam Savett, director of class action services at Kurtzman Carson Consultants.
The lawsuit, filed in 2011, was one of several cases launched amid accounting scandals at Chinese companies trading on U.S. stock exchanges.
Based in Xiamen, China, Longtop had a $1.08 billion market value when the New York Stock Exchange halted trading in the company in May 2011.
Days later, Palaschuk resigned, followed shortly by Longtop's auditor, Deloitte Touche Tohmatsu CPA Ltd. The auditor cited "recently identified falsity" in Longtop's financial records.
Before resigning, Palaschuk spoke with Longtop CEO Weizhou Lian, a lawyer for the investors told jurors at the start of trial on Wednesday. In an email summing up the call, Palaschuk said Lian "informed me the company had been a fraud since 2004."
Danske Invest Management A/S and Pension Funds of Local No. One, IATSE, brought the lawsuit on behalf of holders of Longtop's American depositary shares traded from Feb. 21, 2008 through May 17, 2011.
Palaschuck denied wrongdoing. At a July court hearing, he said he saw no reason "to have my insurance company pay for something where I wasn't reckless."
The investors had also sued Longtop and Lian, but neither appeared in court. A judge entered a $882.3 million default judgment against them in 2013.
Palaschuk's trial was short, as the investors were unable to call witnesses in China. Palaschuk, who lived in Canada, became their only fact witness, despite being the defendant.
The case is In re Longtop Financial Technologies Limited Securities Litigation, U.S. District Court, Southern District of New York, No. 11-03658.
