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NIVS IntelliMedia Technology Group, Inc.

Case Details

Class Period: March 24, 2010 - March 25, 2011
Date Filed: April 12, 2011
Case Number: 1:11-cv-02484
Jurisdiction: Southern District of New York
icon-casetype Case Type: Securities Case

Case Summary

The Complaint brought forth claims for violations of the Securities Exchange Act of 1934 against NIVS IntelliMedia Technology Group, Inc. and certain of its senior executives and directors, and included claims against the Company’s auditor and the underwriters involved with a secondary public offering (“SPO”). The Complaint alleged that Defendants made false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects on behalf of all persons or entities that purchased or otherwise acquired NIVS common stock during the class period.

NIVS is engaged in the design, manufacture, marketing, and sale of consumer electronic products, consisting primarily of audio and video products. Leading up to its SPO, NIVS reported seemingly amazing growth and profits. In April 2009, shortly after the Company initially went public, it reported that its 2008 revenues increased 85% to $143.6 million, and that its 2008 net income grew 54%. Then, on March 23, 2010, NIVS again announced incredible results. This time, the Company reported that its 2009 net income grew by an astonishing 80.8%. Less than a month later, on April 20, 2010, NIVS and its Underwriters conducted the SPO which incorporated these financials into the SPO documents. The SPO was a financial success for the Company and the underwriters, raking in approximately $22 million for NIVS. After completion of the SPO, NIVS continued to report impressive results. Unfortunately for investors, NIVS was brilliant at deceiving the market, even market professionals, into thinking its profits were real.

Specifically, the Complaint alleges that, in truth. NIVS was one of a slew of China-based companies that utilized a reverse Chinese merger (“RCM”) with a U.S. shell company in order to gain access to the American securities exchanges without having to submit to the customary regulatory scrutiny of a traditional listing process. This process involved a foreign business that was typically acquired by a non-operational U.S. shell company that was worthless, except for one thing—the shell company being publicly traded. Following the merger of the foreign company and the U.S. shell company, the board of directors of the U.S. company promptly resigned, and the foreign board took over. The foreign board then changed the company’s name and issued new stock to investors, thus raising millions of dollars in fresh capital. Since many businesses that use the reverse merger process to lure American investments often keep the bulk, if not all, of their operations in China, there exist significant limitations in the ability of American authorities, such as the SEC, to actively regulate these companies. While RCMs have allowed these companies to obtain a comparatively easy influx of capital, the relatively unregulated nature of the process also allows for fraudulent schemes to play the system. This was exactly what happened in the case of NIVS. In fact, NIVS was exactly the type of “vessel of outright fraud” described by the SEC as part of its investigation into these RCMs. When the truth of the fraud was finally revealed on the morning of March 24, 2011, NIVS stock was trading between $2.16 and $2.23 per share and had a total market capitalization value of nearly $90 million. But shortly after trading began that morning, AMEX regulators delivered the devastating news that trading in NIVS stock would be immediately halted. The regulators explained that they were halting trading because it was evaluating both the need for certain public disclosures, as well as the overall suitability for continued listing of the Company’s common stock. The next day, on March 25, 2011, the public learned that the Company’s independent auditor had resigned. According to the Company’s public filings, the auditor’s letter of resignation stated it had discovered “massive accounting fraud,”  and as a result it was unable to rely on management’s representations and could no longer support its audit opinion for the year end 2009. The stock, which once traded at a class-period high of $4.38 per share, never again traded on the AMEX, eventually opening on the “grey market” two months later at a meager $0.31 per share. Since the time the stock was delisted, NIVS has never filed or issued a single report regarding its finances. In fact, no investigative report has ever been provided to the Company’s shareholders, leaving the investing public and the Company’s investors in the dark.

On November 19, 2011, the Court appointed Saxena White P.A. as Lead Counsel. Defendants failed to even make an appearance, perhaps counting on the fact that their domicile in China, their lack of financial resources, and the difficulty of enforcing any type of judgment against them in the Chinese courts would prevent them from being held accountable. Plaintiffs’ service through the Hague Convention was accomplished only through a costly and time-consuming process that could have potentially proved to be fruitless. The firm persevered and over the course of three years conducted an extensive investigation, filed two amended complaints, briefed oppositions to Defendants’ motions to dismiss, coordinated with the People’s Republic of China and consulted with economic and financial experts to pursue the case for shareholders.

On September 12, 2013, the parties agreed to mediation. As a result of these discussions, Saxena White successfully negotiated a settlement in the amount of $1,350,000 for the benefit of the class. On November 13, 2014, the Court preliminarily approved the settlement, and then on March 31, 2015, entered a final judgment finding the settlement to be fair, reasonable and adequate in all respects.