On May 21, 2013, Perell J. certified a proposed class action
against certain defendants in Zaniewicz v. Zungui Haixi Corp. based
on misrepresentations in Zungui's IPO offering documents and
other disclosure documents, including its audited and unaudited
financial statements (2013 ONSC 2959). Perell J. had previously
heard and granted the plaintiffs' motion for leave to assert a
secondary market liability claim under s. 138.3 of the Ontario
Securities Act against certain defendants (click
here for a summary of that decision).
By the time of the certification hearing, the plaintiffs had
reached two settlements covering all of the defendants except for
those that comprised the underwriting syndicate for Zungui's
IPO (including CIBC World Markets Inc., Canaccord Genuity Corp.,
GMP Securities LP and Mackie Research Capital Corporation –
collectively, the "Underwriter Defendants"). As such, the
motions for certification were brought for settlement purposes and
did not address the claims against the Underwriter Defendants.
In certifying the class action against the settling defendants,
Perell J. noted that even in situations where certification is
sought for settlement purposes, all of the criteria for
certification under s. 5(1) of the Class Proceedings Act, 1992,
S.O. 1992, c. 6 must still be met (though compliance with the
criteria is not as strictly required because of the different
circumstances associated with settlements).
It remains to be seen whether the plaintiffs will continue to
pursue their claim against the Underwriter Defendants. Given Perell
J.'s determination that the proposed class action against the
settling defendants satisfied all of the certification criteria
(albeit on a less strict evaluation than would be applied in a
contested certification motion), it is more likely than not that
the plaintiffs would be successful if they moved to certify against
the Underwriter Defendants. On the other hand, the plaintiffs have
yet to obtain leave to assert a secondary market liability claim
against the Underwriter Defendants and, through the proposed
settlements, have already recovered half of their estimated damages
($10M as against the plaintiffs' estimate of $20M). The
plaintiffs' intentions will likely become clearer following the
settlement approval hearings on August 26, 2013.
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