Enforcing Legal Rights against Fraudulent Chinese Mgt & Whistleblowers Difficult
In the section (below) of the LLEN 10Q Dec 10, 2010 Pg 31 in the MD&A notes that it is difficult for investors in the United States to enforce their legal rights against the executives. For the US listed Chinese stocks, there is little to deter fraud. The worst that can happen is that their stock is delisted and they cannot raise additional capital. In the mean time, they can illegally take money from the company without recourse.
Likewise, the whistle blowers residing in China, can fabricate any story about fraud and short the stock with no legal recourse. They have a lot to gain with little to lose.
For both sides, there is a lot to gain from fraud with little consequences. Therefore, fraud is very prevalant in the CGS.
It will be difficult for any shareholder to commence a legal action against our executives. Most of our assets are located in China.
Because our directors and officer(s) reside both within and outside of the United States, it may be difficult for an investor to enforce his or her rights against them or to enforce United States court judgments against them if they live outside the United States. Most of the Company's assets are located in China, outside of the United States. Additionally, the Company plans to continue acquiring other energy-related entities in China in the future. It may therefore be difficult for investors in the United States to enforce their legal rights, to effect service of process upon the Company or the Company's directors or officers, or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties on the Company or the Company's directors and officers under federal securities laws. Moreover, China currently does not have treaties with the United States or many other countries providing for the reciprocal recognition and enforcement of judgments of courts.
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