UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
JAMES THOMAS TURNER, Individually and on
Behalf of All Others Similarly Situated,
Plaintiff,
v.
SHENGDATECH, INC., XIANGZHI CHEN,
ANDREW WEIWEN CHEN, and ANHUI GUO,
Defendants.
CASE No. 1:11-CV-01918-TPG
CASE No. 1:11-CV-01996-RJH
CASE No. 1:11-CV-02064-UA
MARLON FUND SICAV PLC, Individually and
on Behalf of All Others Similarly Situated,
Plaintiff,
v.
SHENGDATECH, INC., XIANGZHI CHEN,
ANHUI GUO, and ANDREW WEIWEN CHEN,
Defendants.
ERIK S. MATHES, on behalf of himself and all
others similarly situated,
Plaintiff,
v.
SHENGDATECH, INC., XIANGZHI CHEN,
ANDREW WEIWEN CHEN, and ANHUI GUO,
Defendants.
Case 1:11-cv-01918-TPG Document 6 Filed 05/17/11 Page 1 of 11
DONALD D. YAW and EDWARD J. SCHAUL,
Individually and on Behalf of All Others Similarly
Situated,
Plaintiffs,
v.
SHENGDATECH, INC., XIANGZHI CHEN,
ANDREW WEIWEN CHEN, and ANHUI GUO,
Defendants.
CASE No. 1:11-CV-03325-UA
MEMORANDUM OF LAW IN SUPPORT OF THE MOTION OF THOMAS H. LOOMIS
FOR (1) CONSOLIDATION; (2) APPOINTMENT AS LEAD PLAINTIFF; AND
(3) APPROVAL OF LEAD PLAINTIFF’S CHOICE OF LEAD COUNSEL
Case 1:11-cv-01918-TPG Document 6 Filed 05/17/11 Page 2 of 11
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I. INTRODUCTION
Presently pending in this District are four related securities fraud class actions (the
“Securities Class Actions”) brought pursuant to Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§78j(b) and 78t(a),and Rule 10b-5
promulgated thereunder, 17 C.F.R. §240 10b-5.1 The pending Related Cases are:
Case Caption Court Case No. Date Filed Assigned Judge
Turner v. ShengdaTech, Inc.,
et al.
SDNY 11-cv-
01918
3/18/2011 Thomas P. Griesa
Marlon Fund SICA V PLC v.
ShengdaTech, Inc., et al.
SDNY 11-cv-
01996
3/22/2011 Richard J. Holwell
Mathes v. ShengdaTech, Inc.,
et al.
SDNY 11-cv-
02064
3/24/2011 Unassigned
Yaw v. ShengdaTech, Inc., et
al.
SDNY 11-cv-
03325
5/16/2011 Unassigned
Thomas H. Loomis (“Mr. Loomis”) suffered losses of approximately $3,9002 as a result
of his purchase of ShengdaTech, Inc. (“ShengdaTech” or the “Company”) common stock during
the period between May 7, 2008 and March 15, 2011 (the “Class Period”)3, and respectfully
submits this Memorandum of Law in support of his motion to: (1) consolidate; (2) be appointed
1 In addition to the four cases filed in this District, an action has also been filed in the Central District of
California: McDermott v. ShengdaTech, Inc., et al., No. 11-cv-02557 (C.D. Cal. Filed March 25, 2011).
Contemporaneous with this filing, Mr. Loomis will also move for appointment as lead plaintiff in the California
action.
2 Mr. Loomis’s loss of $3,900 is calculated based on the last trading price for the stock of $3.55 per share
on March 14, 2011. However, considering that ShengdaTech stock has been indefinitely halted since March 14,
2011, rendering it effectively worthless, Mr. Loomis’s losses are actually $39,400 based on the total amount he
expended.
3 The Class Period referred to herein is the longest possible class period based on the cases that have been
filed. For purposes of determining which lead plaintiff movant has the “largest financial interest,” courts often use
the most inclusive class period and select as lead plaintiff the movant with the largest financial interest under that
class period. See, e.g., In re Doral Fin. Corp. Sec. Litig., 414 F. Supp. 2d 398, 402-03 (S.D.N.Y. 2006) (“For the
purpose of determining lead plaintiff, I find that the use of the longer, most inclusive class period . . . is proper, as it
encompasses more potential class members . . . .”).
The longest class period begins on May 7, 2008 and ends on March 15, 2011. See Yaw v. ShengdaTech,
Inc., et al., No. 11-cv-03325 (S.D.N.Y. filed May 16, 2011). Three of the five cases filed have class periods that
start on March 15, 2010 and end on March 15, 2011. See Turner v. ShengdaTech,, Inc. et al., No. 11-cv-01918
(S.D.N.Y. filed March 18, 2011); Mathes v. ShengdaTech, Inc. et al., No. 11-cv-02064 (S.D.N.Y. filed March 24,
2011); McDermott v. ShengdaTech, Inc. et al., No. 11-cv-02557 (C.D. Cal. filed March 25, 2011). One case has a
class period that starts on May 10, 2010 and end on March 14, 2011. See Marlon Fund SICAV PLC v.
ShengdaTech, Inc. et al., No. 11-cv-01996 (S.D.N.Y. filed March 22, 2011).
Case 1:11-cv-01918-TPG Document 6 Filed 05/17/11 Page 3 of 11
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Lead Plaintiff; and (3) approve his choice of Lead Counsel. See Declaration of Irina
Kobylevsky, dated May 17, 2011 (hereinafter “Kobylevsky Decl.”), Exhibit A, (Certification of
Thomas H. Loomis); and Exhibit B (chart of estimated losses sustained by Mr. Loomis).
Mr. Loomis believes he has the largest financial interest of any movant. As set forth
below, Mr. Loomis requests appointment as Lead Plaintiff and requests appointment of the law
firm of Kaplan Fox & Kilsheimer LLP (“Kaplan Fox”) as Lead Counsel.
II. PROCEDURAL BACKGROUND
On March 18, 2011, the first securities class action, Turner v. ShengdaTech,, Inc. et al.
No. 11-cv-1918 (S.D.N.Y. filed March 18, 2011) was commenced on behalf of shareholders who
purchased shares of ShengdaTech between March 15, 2010 and March 15, 2011. The complaint
alleges that, in violation of the Securities Exchange Act of 1934 (“Exchange Act”), ShengdaTech
and certain of its officers and/or directors made materially false and misleading statements and
failed to disclose certain adverse facts during the Class Period, which were known to defendants
or recklessly disregarded by them. Subsequently, on May 16, 2011, Yaw v. ShengdaTech, Inc.,
et al., No. 11-cv-03325, was filed in this District, expanding the Class Period to May 7, 2008
through March 15, 2011.
On March 18, 2011, plaintiff’s counsel in Turner published a notice to class members
with Business Wire (the “Notice”), as required by the Private Securities Litigation Reform Act
(the “PSLRA”). Kobylevsky Decl., Ex. C. The Notice advised purchasers of ShengdaTech
common stock of the existence of a lawsuit and the nature of defendants’ statements, omissions
and conduct which allegedly artificially inflated the price of ShengdaTech common stock. The
Notice further advised potential class members of their right to move the Court to be appointed
Lead Plaintiff within 60 days.
Case 1:11-cv-01918-TPG Document 6 Filed 05/17/11 Page 4 of 11
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Mr. Loomis now moves this Court to be appointed as the Lead Plaintiff in these Related
Actions.
III. SUMMARY OF THE RELATED ACTIONS
ShengdaTech purports to be engaged in developing, manufacturing and marketing nano
precipitated calcium carbonate (“NPCC”) products in China. ShengdaTech also purports to use
advanced processing technology to convert limestone into high quality NPPC products, which
are sold to customers in the tire, polyvinyl, chloride (“PVC”) building materials, ink paint, latex,
adhesive, paper and polyethylene industries. It has been alleged that throughout the Class Period,
ShengdaTech issued false statements and made material omissions regarding its internal controls
over financial reporting, financial results and business. While touting its continued success
during the Class Period, including that it expected 2010 revenue and net income from NPCC to
be in the range of $123 million to $126 million and $25 million to $27 million, respectively,
Defendants failed to disclose the existence of serious discrepancies and unexplained issues
relating to the Company and its subsidiaries’ financial records.
On March 15, 2011, before the market opened, ShengdaTech disclosed in a Form 8-K
filing with the SEC that “it had appointed a special committee of the Board of Directors to
investigate potentially serious discrepancies and unexplained issues relating to the Company and
its subsidiaries’ financial records identified by the Company’s auditors in the course of their
audit of the consolidated financial statements for the fiscal year ended December 31, 2010.” The
Company further disclosed on March 15, 2011 that it was unable to file its form 10-K for the
year ended December 31, 2010 in a timely manner.
On March 15, 2011, the NASDAQ stock market halted trading of ShengdaTech common
stock prior to the opening of the market on March 15, 2011. As a result, ShengdaTech stock has
Case 1:11-cv-01918-TPG Document 6 Filed 05/17/11 Page 5 of 11
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not traded since March 14, 2011 when it closed at $3.55 per share after declining 6.8% that day
on heavy volume.
IV. ARGUMENT
A. This Court Should Consolidate the Related Actions for Purposes of
Efficiency
The Related Actions involve class action claims on behalf of class members who
purchased ShengdaTech securities during the Class Period. All of the Related Actions assert
essentially similar and overlapping class claims brought on behalf of purchasers of ShengdaTech
securities for alleged violations of the Exchange Act. All of the Related Actions name
essentially the same defendants and allege substantially overlapping and interrelated factual and
legal issues.
Rule 42(a) of the Federal Rules of Civil Procedure permits the consolidation of actions
that pose common questions of law or fact. See Fed. R. Civ. P. 42(a); Johnson v. Celotex Corp.,
899 F.2d 1281, 1284 (2d Cir. 1990); Albert Fadem Trust v. Citigroup, Inc., 239 F. Supp. 2d 344,
347 (S.D.N.Y. 2002).
Courts have recognized that class action shareholder suits are particularly suited to
consolidation pursuant to Fed. R. Civ. P. 42(a), because their unification expedites pretrial
proceedings, reduces case duplication, and minimizes the expenditure of time and money by all
persons concerned. See In re Olsten Corp. Sec. Litig., 3 F. Supp. 2d 286 (E.D.N.Y. 1998).
Consolidating multishareholder class action suits not only simplifies pretrial and discovery
motions, class action issues, and clerical and administrative management duties, but also reduces
the confusion that may result from prosecuting related class action cases separately. Mohanty v.
BigBand Networks, Inc., No. 07-5101, 2008 WL 426250, at *3 (N.D. Cal. Feb. 14, 2008). Here,
the test is met. Therefore, the Related Actions should be consolidated.
Case 1:11-cv-01918-TPG Document 6 Filed 05/17/11 Page 6 of 11
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B. Mr. Loomis Should Be Appointed Lead Plaintiff
1. Mr. Loomis Believes He Has the Largest Financial
Interest in the Relief Sought by the Class
The PSLRA sets forth the procedure for the selection of lead plaintiff in each private
action arising under the securities laws that is brought as a plaintiff class action pursuant to the
Federal Rules of Civil Procedure. See Section 21D(c)(1) of the Exchange Act. The PSLRA
provides that within twenty days after the date on which a class action is filed:
the plaintiff or plaintiffs shall cause to be published, in a widely circulated
national business-oriented publication or wire service, a notice advising members
of the purported plaintiff class –
(I) of the pendency of the action, the claims asserted therein, and the
purported class period; and
(II) that, not later than 60 days after the date on which the notice is published,
any member of the purported class may move the Court to serve as lead plaintiff
of the purported class.
See Section 21D(a)(3)(A)(i) of the Exchange Act.
Further, the PSLRA directs the Court to consider any motions by a member or members
of the proposed class to serve as Lead Plaintiff(s) in response to any such notice within ninety
days after the date of publication of the notice, or as soon as practicable after the Court decides
any pending motion to consolidate any actions asserting substantially the same claim or claims.
Furthermore, under the PSLRA, the court “shall” appoint the most adequate plaintiff, and is to
presume that plaintiff is “the person, or group of persons”, that:
(aa) has either filed the complaint or made a motion in response to a notice…;
(bb) in the determination of the court, has the largest financial interest in the
relief sought by the class; and
(cc) otherwise satisfies the requirements of Rule 23 of the Federal Rules of
Civil Procedure.
Case 1:11-cv-01918-TPG Document 6 Filed 05/17/11 Page 7 of 11
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See Section 21D(a)(3)(B) of the Exchange Act.
Thus, the statutory language explicitly provides that a member of the class, or a person or
group of persons with “the largest financial interest” is entitled to presumptive appointment as
lead plaintiff. Mr. Loomis, with estimated losses of $3,900 based on the last traded price of
ShengdaTech common stock of $3.55 per share on March 14, 2011, or losses of $39,400 valuing
ShengdaTech common stock at $0 per share because the stock has been rendered worthless by
the indefinite trading halt, believes he has the largest financial interest of any lead plaintiff
movant and is presumptively entitled to appointment as the Lead Plaintiff.
2. Mr. Loomis Is Qualified Under Rule 23
The PSLRA provides that, at the outset of the litigation, the Lead Plaintiff must also
“otherwise satisf[y] the requirements of Rule 23 of the Federal Rules of Civil Procedure.” See
Section 21D(a)(3)(B)(iii)(I)(cc) of the Exchange Act. With respect to the qualifications of the
class representative, Rule 23(a) requires generally that the claims of the representative be typical
of the claims of the class and that the representative will fairly and adequately protect the
interests of the class. Fed. R. Civ. P. 23(a). As detailed below, Mr. Loomis satisfies the
typicality and adequacy requirements of Rule 23(a) and is qualified to be appointed as Lead
Plaintiff.
a. Mr. Loomis’s Claims Are Typical
of the Claims of the Class
The typicality requirement of Rule 23(a) is satisfied when each class member’s claim
arises from the same course of conduct, even when minor distinctions exist. Mr. Loomis’s
claims are typical of the claims of the members of the proposed Class. Mr. Loomis and all other
members of the proposed class purchased the publicly traded securities of ShengdaTech at prices
inflated by defendants’ misrepresentations and omissions and were damaged thereby. Because
Case 1:11-cv-01918-TPG Document 6 Filed 05/17/11 Page 8 of 11
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Mr. Loomis’s claims arise from the same course of conduct that caused other members of the
class to acquire ShengdaTech securities at artificially inflated prices, typicality is satisfied.
b. Loomis Will Fairly and Adequately
Represent the Interests of the Class
a
Rule 23(a)(4) requires that “the representative parties will fairly and adequately protect
the interests of the Class.” Fed. R. Civ. P. 23(a)(4). Generally, “adequacy of representation
entails inquiry as to whether: 1) plaintiff's interests are antagonistic to the interest of other
members of the class and 2) plaintiff's attorneys are qualified, experienced and able to conduct
the litigation.” Baffa v. Donaldson, Lufkin & Jenrette Securities Corp. 222 F.3d 52, 60 (2d Cir.
2000) (citing In re Drexel Burnham Lambert Group, Inc., 960 F.2d 285, 291 (2d Cir. 1992)).
Here, Mr. Loomis’s interests are clearly aligned with the members of the Class, and there
is no evidence of any antagonism between Mr. Loomis and the interests of the Class. Mr.
Loomis shares numerous common questions of law and fact with the members of the Class, and
his claims are typical of the Class. Moreover, Mr. Loomis has demonstrated that he is willing to
serve as an advocate on behalf of the Class. Specifically, Mr. Loomis signed a certification
stating he is willing to serve as a representative of the class, including providing testimony at a
deposition or trial. Kobylevsky Decl., Ex. A. Thus, the close alignment of interests between Mr.
Loomis and the Class, combined with Mr. Loomis’s strong desire to prosecute these actions on
behalf of the Class, militates in favor of granting the instant motion.
C. This Court Should Approve the Loomis’s Choice of Lead Counsel
The PSLRA vests authority in the Lead Plaintiff to select and retain lead counsel, subject
to this Court’s approval. See Section 21D(a)(3)(B)(v) of the Exchange Act. Thus, this Court
should not disturb the Lead Plaintiff’s choice of counsel unless necessary to protect the interests
of the class. Mr. Loomis has selected counsel highly experienced in prosecuting securities class
Case 1:11-cv-01918-TPG Document 6 Filed 05/17/11 Page 9 of 11
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actions. See Kobylevsky Decl. Ex. D. Mr. Loomis has retained the law firm of Kaplan Fox to
serve as Lead Counsel. Kaplan Fox has extensive experience litigating securities class actions
and has successfully prosecuted numerous securities class actions on behalf of injured investors.
Id.
V. CONCLUSION
For the above reasons, Mr. Loomis respectfully requests that the Court: (1) consolidate
the Related Actions, (2) appoint Mr. Loomis as Lead Plaintiff; and (3) approve his choice of
Lead Counsel.
DATED: May 17, 2011
Respectfully submitted,
KAPLAN FOX & KILSHEIMER LLP
By: /s/ Irina Kobylevsky 1
Frederic S. Fox
Donald R. Hall
Hae Sung Nam
Irina Kobylevsky
850 Third Avenue, 14th Floor
New York, NY 10022
Telephone: (212) 687-1980
Facsimile: (212) 687-7714
Attorneys for Lead Plaintiff Movant Thomas
H. Loomis
Case 1:11-cv-01918-TPG Document 6 Filed 05/17/11 Page 10 of 11
CERTIFICATE OF SERVICE
I hereby certify that on May, 17, 2011, I electronically filed the foregoing with the
Clerk of the Court using the CM/ECF system, which will automatically send a notice of
electronic filing to counsel of record.
/s/ Irina Kobylevsky
Irina Kobylevsky
Case 1:11-cv-01918-TPG Document 6 Filed 05/17/11 Page 11 of 11
