May 18, 2020
Latham & Watkins continues to represent the Board of Directors of Sinovac Biotech (Sinovac or the Company), a leading provider of biopharmaceutical products in China, in its defense against dissident shareholders. Recently, the United States Securities and Exchange Commission (SEC) charged activist investor Jiaqiang “Chiang” Li and his firm 1Globe Capital LLC (1Globe) based on their failure to disclose the full amount of Sinovac shares they beneficially owned and their participation in an activist plan to replace the majority of Sinovac’s Board. This milestone follows Latham’s successful representation of Sinovac’s Board in a high-stakes trial in December 2018 in the Antigua High Court, in which the court upheld Sinovac’s position that 1Globe had a secret plan to take control of the company.
In the recent SEC order, the agency found that Li and 1Globe violated United States federal securities laws and SEC rules requiring individuals or entities whose total ownership of a company’s stock exceeds certain thresholds to disclose their ownership, intention to acquire additional shares, and plans regarding changes in company management or control. Li and 1Globe agreed to the entry of the SEC’s order without admitting or denying the SEC’s findings of violations and agreed to pay civil penalties totaling US$290,000.
The SEC’s findings align with both the factual findings of Sinovac’s Board in triggering the Company’s Rights Agreement and with previous findings by the High Court of Justice of Antigua and Barbuda, where Sinovac and 1Globe are engaged in ongoing litigation. For example, the High Court of Justice of Antigua and Barbuda previously determined that there was a secret plan in advance of Sinovac’s annual general meeting to take control of the Company, thereby depriving the Company’s shareholders of the opportunity to make an informed decision when casting their votes. Likewise, the SEC found that, “Li and 1Globe participated in an activist plan to replace four of five incumbent directors through a shareholder vote at Sinovac’s 2018 annual shareholder meeting in Beijing but failed to disclose material information that is required in a Schedule 13D.” Part of the undisclosed activist plan to take control of Sinovac’s Board was putting one of Li’s relatives on the Board.
The SEC also found that the participants in the activist plan were advised to “keep the whole thing strictly confidential from Sinovac.” Apart from not disclosing their participation in the activist plan, the SEC found that Li and 1Globe “failed to disclose their full beneficial ownership of Sinovac stock, inclusive of substantial shares held by related parties.” The SEC found that the disclosure failures deprived “existing and potential shareholders of information necessary to make fully informed investment decisions.”
The SEC decision highlights how Mr. Li and 1Globe’s illegal and improper actions negatively impacted Sinovac’s shareholders and reaffirms factual determinations made by the current rightfully elected directors of Sinovac. With the cease and desist order in place, Sinovac’s directors and management team will continue to act in the best interests of its investors and facilitate the development of vaccines to solve global health issues including current fast-track work on a vaccine for COVID-19.
Chicago partner John Sikora and Beijing partner Hui Xu lead the representation of Sinovac on SEC and other regulatory matters. London partner Stuart Alford QC secured the trial victory for Sinovac in the Antigua proceedings, together with local counsel Dentons Delany, and continues to represent Sinovac in the Antigua appellate court. New York partner Eric Leon and Washington, D.C. partner Christian Word defend Sinovac in the Massachusetts and Delaware courts, and Hong Kong partner Ing Loong Yang represents Sinovac’s interests in certain Hong Kong proceedings. Chicago partners Bradley Faris and Christopher Drewry and Hong Kong counsel Zheng Wang lead the corporate team.