A legal case against the Dalian, China-based Zoneco Group brought by a group of disgruntled investors has been accepted by the Chinese court system and could costs the scallop producer CNY 19.3 million (USD 2.9 million, USD 2.5 million).
The investors claim they lost money on Zoneco shares because of inaccurate information filed by the firm to the Shenzen Stock Exchange, where it is listed under stock code #002069. The value of the company’s stock collapsed in November 2019, following revelations of a mass die-off of its scallop stocks.
The Dalian Intermediate Court accepted a case filed by Zheng Hai Xia and 14 other investors. Since December last year, some 50 investors have announced lawsuits for compensation, exposing Zoneco to a potential liability of CNY 37.2 million (USD 5.6 million, EUR 4.8 million) – a significant sum given the firm’s profitability of CNY 23.5 million (USD 3.5 million, EUR 3.1 million) through the first three quarters of 2020.
Zoneco’s stock has recently recovered, benefitting from a shift favoring domestic seafood suppliers, as imports are squeezed by China’s new cold chain restrictions on frozen food imports. Trading in shares of both Zoneco and Guolian Aquatic, as well as leading distant-water operator CNFC, had to be suspended earlier this week as the increases in their share prices exceeded the daily allowed limit. The gains come despite heavy downward pressure on profitability at many Chinese seafood firms as a result of the COVID-19 pandemic.
Zoneco recently said in a letter to investors that it is attaching the highest importance to the case and that it has engaged a “specialist lawyer team” to fight the cases.
This summer, the China Securities Regulatory Commission (CSRC) handed Zoneco a CNY 600,000 (USD 84,000, EUR 78,000) fine over disclosure of information about its "disappearing" scallop stocks. The regulator also fined several managers at Shenzhen-listed Zoneco, who CSRC accused of making inaccurate claims in its 2016 and 2017 annual reports through the reporting of inaccurate harvest data. As a result, Zoneco Chairman Wu Hougang and Head of International Trading Gou Rong both resigned.
Image courtesy of Zoneco
