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Retail Investors Are Still Suffering Substantial Losses From Chinese Stocks

August 9, 2021 Blog

Many investors in the U.S. who have been riding the wave of the Chinese stock craze have now seen the wave come crashing down. As reported by The Wall Street Journal, government crackdowns in the country “have wiped some $400 billion off the value of U.S.-listed Chinese companies,” and at this point, it is unclear when – or if – this value is going to return.

Consider TAL Education Group, a private tutoring company based in China. In February, the company’s stock was trading above $90 in the U.S. At the end of July, following the Chinese government’s crackdown, it was trading at just above $6 per American deposit receipt (ADR).

Following the Chinese government’s crackdown and the ensuing selloff, the U.S. Securities and Exchange Commission (SEC) indicated that it would begin requiring additional disclosures from Chinese companies before authorizing them to sell ADRs. Our investment fraud attorney knows that while this move is ultimately intended to protect investors, in the short term, it is only adding to investors’ woes.

Some Investors May Be Able to Recover Their Losses from Chinese Stocks

As we recently discussed, retail investors who have purchased ADRs for Chinese stocks on their own are unlikely to have recourse against the companies or regulators involved. Individuals who invest independently are generally responsible for their own decisions—even if those decisions are based on incomplete information. While there are exceptions when companies withhold material information in violation of federal securities laws, this isn’t an issue with the current Chinese stock crash.

However, those who have invested in Chinese stocks through brokers or advisors may have options. Brokers and advisors must provide suitable investment advice, and they must avoid overconcentrating their clients’ investments in high-risk securities. This includes not only avoiding overconcentration in individual securities but also avoiding overconcentration in a particular market sector—such as ADRs for Chinese stocks.  

Investors who have suffered losses due to unsuitability, overconcentration and other forms of broker or advisor fraud can seek to recover their losses through FINRA arbitration. Most brokerage and advisory firm contracts require both parties to submit to arbitration for the resolution of disputes, including disputes that involve allegations of fraud.

Those who have lost a substantial portion of their pension assets due to the Chinese stock crash may also have claims. The Employee Retirement Income Security Act (ERISA) establishes standards for managing pension assets. It gives employees the right to sue when their pension managers fall short of meeting their obligations.  For example, when pension managers breach their fiduciary duties by failing to adequately protect employees from avoidable losses, employees can file suit to recover their losses.

Speak with an Investment Fraud Attorney at Zamansky LLC

If you have suffered losses due to the Chinese stock crash and you have a pension or you invested through a broker or advisor, we strongly encourage you to speak with an investment fraud attorney about your legal rights. To schedule a free, no-obligation consultation, call 212-742-1414 or request an appointment online now.