Securities class action filed against American Oriental Bioengineering, Inc.
Law firm Pomerantz Haudek Grossman & Gross LLP announced in a statement on July 5, 2012, that it had filed a securities class action representing shareholders who purchased American Oriental Bioengineering, Inc. (AOBI) shares between November 9, 2009 and June 15, 2012. This time frame is also known as the class period.
The lawsuit was filed in United States District Court, Central District of California, and names the company and certain top officials as its defendants. The suit claims that these defendants violated federal securities laws, and aims to obtain remedies pursuant under 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
AOBI is involved in the development, manufacturing and distribution of various healthcare products. The complaint alleges that during the specified class period, the defendants made statements that were false and or misleading, and failed to disclose several important company weaknesses.
The undisclosed problems included the fact that several of the company's capsule problems had chrome levels far above the levels that could be safely tolerated by humans, that financial inconsistencies existed in the company financial statements and that the firm had inadequate control over financial reporting. The lawsuit alleges that as a result of the aforementioned deficiencies, the statements provided by the company were materially false and misleading at all relevant times.
Discrepancies revealed by outside audit
Ernst & Young Hua Ming, which was serving as AOBI's registered public accounting firm, informed the company's audit committee on March 16, 2012 of certain inconsistencies that existed in the company's financial statements during its fiscal 2011 audit.
On April 19, 2012, the company announced that four out of its five manufacturing subsidiaries were receiving "onsite short notice inspections" from the Chinese State Food and Drug Administration after finding thirteen different types of capsule products with chrome levels far higher than what could be tolerated by humans.
After the New York Stock Exchange decided to delist the shares of AOBI on May 25, 2012, the company common stock plummeted almost 62 percent to close at $0.58 when it began trading over the counter on May 29, 2012.
The company announced on June 15, 2012, that Ernst and Young was no longer serving as its independent registered public accounting firm. AOBI also declared that the accounting firm had pulled its audit reports for AOBI's financial statements for the years ending 2009 and 2010, after finding that it could not rely on various statements provided by management.