united states district court southern district of new … · china medical technologies, inc., wu...

COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

VICTOR JOHNSON, Individually and On Behalf of All Others Similarly Situated, Plaintiff, v. CHINA MEDICAL TECHNOLOGIES, INC., WU XIAODONG, and TAKYUNG TSANG, Defendants.

Case No. _______________ CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS DEMAND FOR JURY TRIAL

COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS - 1 -

Plaintiff Victor Johnson (“Plaintiff”), by and through his attorneys, alleges the

following upon information and belief, except as to those allegations concerning Plaintiff,

which are alleged upon personal knowledge. Plaintiff's information and belief is based upon,

among other things, his counsel’s investigation, which includes without limitation: (a) review

and analysis of regulatory filings made by China Medical Technologies, Inc. (“CMED” or the

“Company”), with the United States Securities and Exchange Commission (“SEC”); (b) review

and analysis of press releases and media reports issued by and disseminated by CMED; and (c)

review of other publicly available information concerning CMED.

NATURE OF THE ACTION AND OVERVIEW

1. This is a class action on behalf of purchasers of CMED’s American Depository

Shares (“ADS”) between November 26, 2007, and December 12, 2011, inclusive (the “Class

Period”), seeking to pursue remedies under the Securities Exchange Act of 1934 (the

“Exchange Act”).

2. CMED is a Chinese medical device company that develops, manufactures, and

markets immunodiagnostic and molecular diagnostic products.

3. On or about December 6, 2011, a research report was published on the internet

alleging, amongst other things, that the Company was engaging in sham transactions so that its

Chief Executive Officer (“CEO”) could siphon money from the Company to himself and that

the Company’s financial results were substantially overstated.

4. On this news, the Company’s shares declined $0.81 per share, or nearly 24%, to

close on December 6, 2011, at $2.57 per share, on unusually heavy trading volume.

5. On December 13, 2011, the Company announced that it intends to implement a

debt restructuring plan to improve its financial situation.

6. On this news, the Company’s shares declined $0.43 per share, or nearly 13%, to

7. Throughout the Class Period, Defendants made false and/or misleading

statements, as well as failed to disclose material adverse facts about the Company's business,

operations, and prospects. Specifically, Defendants made false and/or misleading statements

and/or failed to disclose: (1) that the Company’s acquisition of Beijing Bio-Ekon

Biotechnology Co. Ltd. (“BBE”) was from a third party seller connected to CMED’s CEO; (2)

that the Company substantially overpaid to acquire BBE; (3) that CMED’s acquisition of BBE

involved the use of fraudulent shell companies; (4) that the Company was suffering substantial

operating losses prior to the acquisition; (5) that a majority of the Company’s accounts

receivable were in excess of 120 days; (6) that, as a result, CMED’s financial results were

overstated; (7) that the Company lacked adequate internal and financial controls; and (8) that,

as a result of the foregoing, the Company's statements were materially false and misleading at

all relevant times.

8. As a result of Defendants’ wrongful acts and omissions, and the precipitous

decline in the market value of the Company's securities, Plaintiff and other Class members

have suffered significant losses and damages.

JURISDICTION AND VENUE

9. The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange

Act (15 U.S.C. §§78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder by the SEC (17

C.F.R. § 240.10b-5).

10. This Court has jurisdiction over the subject matter of this action pursuant to 28

U.S.C. §1331 and Section 27 of the Exchange Act (15 U.S.C. §78aa).

11. Venue is proper in this Judicial District pursuant to §28 U.S.C. §1391(b) and

§27 of the Exchange Act (15 U.S.C. §78aa(c)). Substantial acts in furtherance of the alleged

fraud or the effects of the fraud have occurred in this Judicial District.

12. In connection with the acts, transactions, and conduct alleged herein,

Defendants directly and indirectly used the means and instrumentalities of interstate

commerce, including the United States mail, interstate telephone communications, and the

facilities of a national securities exchange.

PARTIES

13. Plaintiff Victor Johnson, as set forth in the accompanying certification,

incorporated by reference herein, purchased CMED securities during the Class Period and

suffered damages as a result of the federal securities law violations and false and/or misleading

statements and/or material omissions alleged herein.

14. Defendant CMED is a Cayman Islands corporation with its principle executive

offices located at No. 24 Yong Chang North Road, Beijing Economic-Technological

Development Area, Beijing 100176, People’s Republic of China.

15. Defendant Wu Xiaodong (“Wu”) was, at all relevant times, the Chairman of the

Board and CEO of CMED.

16. Defendant Takyung Tsang (“Takyung”) was, at all relevant times, Chief

Financial Officer (“CFO”) of CMED.

17. Defendants Wu and Takyung are collectively referred to hereinafter as the

"Individual Defendants.” The Individual Defendants, because of their positions with the

Company, possessed the power and authority to control the contents of CMED’s reports to the

SEC, press releases and presentations to securities analysts, money and portfolio managers and

institutional investors, i.e., the market. Each defendant was provided with copies of the

Company's reports and press releases alleged herein to be misleading prior to, or shortly after,

their issuance and had the ability and opportunity to prevent their issuance or cause them to be

corrected. Because of their positions and access to material non-public information available

to them, each of these defendants knew that the adverse facts specified herein had not been

disclosed to, and were being concealed from, the public, and that the positive representations

which were being made were then materially false and/or misleading. The Individual

Defendants are liable for the false statements pleaded herein, as those statements were each

“group-published” information, the result of the collective actions of the Individual

Defendants.

SUBSTANTIVE ALLEGATIONS

Background

18. CMED is a Chinese medical device company that develops, manufactures, and

markets immunodiagnostic and molecular diagnostic products.

Materially False and Misleading Statements Issued During the Class Period

19. The Class Period begins on November 26, 2007. On this day, the Company

issued a press release entitled, “China Medical Technologies Announces Acquisition of A Fast-

Growing ECLIA Player to Strengthen its Leading Position in Advanced IVD Market in China.”

Therein, the Company, in relevant part, stated:

Beijing, China, November 26, 2007 - China Medical Technologies, Inc. (the “Company”) (Nasdaq: CMED), a leading China-based medical device company that develops, manufactures and markets advanced in-vitro diagnostic (“IVD”) products and high intensity focused ultrasound tumor therapy system, today announces that it has entered into a definitive acquisition agreement to purchase the entire equity interest in Beijing Bio-Ekon Biotechnology Co., Ltd. (“BBE”) with a cash consideration of US$28.8 million. Subject to customary closing conditions, the acquisition is expected to close in January 2008. The Company

expects the acquisition to be accretive from the quarter ending March 31, 2008, resulting in increases in the Company’s revenues and adjusted non-GAAP net income. BBE’s contribution will be fully reflected in the fiscal year ending March 31, 2009. This transaction is not subject to regulatory approvals. Founded in 1999, BBE commenced business in selling Enzyme-Linked Immunosorbent Assay (“ELISA”) IVD products in China. In 2006, BBE launched its first semi-automatic ECLIA analyzer and related reagents upon receiving approval from the State Food and Drug Administration (“SFDA”). Since then, sales of its ECLIA products have been growing rapidly. BBE has sales offices in Beijing, Guangzhou, Wuhan, Qingdao and Chengdu to conduct direct sales and manage distributors in selling its products to over 800 hospitals in China. BBE has strong research and development capability and has been selected for the 863 Program, the high-tech research and development program funded by the Ministry of Science and Technology, for developing ECLIA reagents for HIV and hepatitis C tests. BBE has already developed its first fully automatic ECLIA analyzer with processing capacity of 120 tests per hour. BBE plans to apply for SFDA registration in early 2008. Currently, BBE offers 18 ECLIA reagents and has over 40 reagents in the pipeline, some of which are expected to help expand the Company’s reagent portfolio. BBE applies Magnetic Antibody Immunoassay (“MAIA”) separation technology to develop its fully automatic ECLIA analyzer. MAIA is a technology suitable for high volume and fully automatic ECLIA analyzers and can enhance test results. BBE holds the Chinese patents for the MAIA minute magnetic beads which are important for the production of its fully automatic ECLIA analyzer. The Company believes that the market potential of certain types of BBE’s new reagents is very promising. BBE has completed the development of an ECLIA reagent for testing blood fluke parasitic infection and has applied for SFDA registration. Blood flukes post a major threat to the vast population living in the waterfront areas in the Yangtze River region of China. The PRC government is closely monitoring the status of blood fluke infection. BBE has also developed food safety reagents for testing toxic aflatoxin in cereal products and clenbuterol in pork and these reagents cater to the growing demand of food safety test kits from a large number of food production entities in China. Food safety reagents are not subject to SFDA approval. “The acquisition is in line with our strategy to expand in the advanced IVD segment and increase our ECLIA products’ penetration in hospitals across China,” stated Mr. Xiaodong Wu, Chairman and Chief Executive Officer of the Company. “BBE has a solid customer base of over 800 hospitals and certain of its reagents and MAIA-based fully automatic ECLIA analyzer can expand our product portfolio and provide us with new business opportunities in the testing of parasitic infections and food safety. BBE’s direct sales experience will also be beneficial to us in formulating our sales strategies.”

20. On January 8, 2008, the Company issued a press release entitled, “China Medical

Technologies Completes Acquisition of BBE.” Therein, the Company, in relevant part, stated:

BEIJING, Jan. 8 /Xinhua-PRNewswire-FirstCall/ -- China Medical Technologies, Inc. (the ''Company'') (Nasdaq: CMED), a leading China-based medical device company that develops, manufactures and markets advanced in- vitro diagnostic (''IVD'') products and high intensity focused ultrasound tumor therapy system, today announced that it has completed its previously announced acquisition (the ''Acquisition'') of the entire interest in Beijing Bio-Ekon Biotechnology Co., Ltd (''BBE''), a fast-growing ECLIA player in China. The Acquisition is expected to strengthen the Company's leading position in advanced IVD market in China. The Company expects the Acquisition to be accretive immediately from the current quarter ending March 31, 2008, resulting in increases in both revenues and adjusted non-GAAP net income. 21. On February 28, 2008, the Company issued a press release entitled, “China

Medical Technologies Reports Third Quarter Financial Results.” Therein, the Company, in

relevant part, stated:

BEIJING, Feb. 28 /Xinhua-PRNewswire-FirstCall/ -- China Medical Technologies, Inc. (the "Company") (Nasdaq: CMED), a leading China-based medical device company that develops, manufactures and markets advanced in- vitro diagnostic products and high intensity focused ultrasound tumor therapy system, today announced its unaudited financial results for the third quarter ended December 31, 2007 ("3Q FY2007"). The Company's 2007 fiscal year ends on March 31, 2008. 3Q FY2007 Highlights -- Net revenues increased by 64.2% year-over-year to RMB265.1 million (US$36.3 million). -- Non-GAAP adjusted net income, as defined below, increased by 34.9% year-over-year to RMB124.8 million (US$17.1 million). -- Non-GAAP adjusted diluted earnings per ADS*, as defined below, increased by 29.9% year-over-year to RMB4.39 (US$0.60).

*One American Depositary Share ("ADS") = 10 ordinary shares

"We are pleased to report another strong quarter," commented Mr. Xiaodong Wu, Chairman and CEO of the Company. "Our FISH equipment sold to leading Chinese hospitals has generated recurring reagent revenue rapidly and we expect the FISH business to be another strong growth driver of the Company in addition to our ECLIA business. We completed the BBE acquisition in January 2008 and expect the new acquisition to be accretive starting from 4Q FY2007." 22. On June 12, 2008, the Company issued a press release entitled, “China Medical

Technologies Reports Fourth Quarter and Full Year Financial Results.” Therein, the Company,

in relevant part, stated:

BEIJING, June 12 /Xinhua-PRNewswire-FirstCall/ -- China Medical Technologies, Inc. (the "Company") (Nasdaq: CMED), a leading China-based medical device company that develops, manufactures and markets advanced in- vitro diagnostic products and high intensity focused ultrasound tumor therapy system, today announced its unaudited financial results for the fourth quarter ("4Q FY2007") and the full year of the fiscal year ended March 31, 2008 ("FY2007"). 4Q FY2007 Highlights -- Revenues increased by 74.3% year-over-year to RMB284.2 million (US$40.5 million). -- Non-GAAP adjusted net income, as defined below, increased by 45.5% year-over-year to RMB133.6 million (US$19.1 million). -- Non-GAAP adjusted diluted earnings per ADS*, as defined below, increased by 38.3% year-over-year to RMB4.66 (US$0.66). FY2007 Highlights -- Revenues increased by 67.4% year-over-year to RMB915.7 million (US$130.6 million) exceeding the high end of our targeted range of RMB885 million. -- Non-GAAP adjusted net income, as defined below, increased by 39.4% year-over-year to RMB432.1 million (US$61.6 million) exceeding the high end of our targeted range of RMB420 million. -- Non-GAAP adjusted diluted earnings per ADS*, as defined below, were RMB15.44 (US$2.20) exceeding the high end of our targeted range of RMB15.10. -- Cash dividend of US$0.5 per ADS* was declared which increased by

25.0% as compared to cash dividend of US$0.4 per ADS last year. * One American Depositary Share ("ADS") = 10 ordinary shares

* * * "FY2007 was a landmark year for China Medical Technologies to become an advanced IVD company," commented Mr. Xiaodong Wu, Chairman and CEO of the Company. "About 60% of our revenues were generated from both ECLIA and FISH diagnostic businesses. We expect a higher percentage of our revenues to be generated from these businesses in FY2008 as our recurring reagent sales continue to grow rapidly. We successfully launched our FISH business in FY2007 and have established a direct sales network of selling our FISH reagents to more than 200 large hospitals in China. We will expand the direct sales network to cover more than 500 large hospitals in China by the end of FY2008. We believe that this network will help the Company maintain a close relationship with a large group of high end hospital consumers in China and benefit the Company by selling all its products to these hospitals in the long term." "We faced challenges upon the launch of our new diagnostic FISH business and transportation interruption in southern China by the heavy snow storm during FY2007. We also faced several interest rate reductions which decreased our interest income as well as the delay in the assessment of hi-tech enterprise designation for Chinese companies by the PRC government which increased our income tax expense," commented Mr. Sam Tsang, CFO of the Company. "Despite these challenges, we managed to exceed our targeted revenues and adjusted net income which we revised upward in November 2007. These were the results of our successful execution of our strategies for FISH business and timely reaction to business interruption caused by natural disaster. Again, we challenge ourselves by setting new targeted revenues and adjusted net income for FY2008 which are detailed under "Outlook for FY2008" below. Besides, I have tried to compare our results and new targets to Thomson First Call mean which is commonly referred to by our shareholders and investors but found that there are only two sell-side analysts covering the Company. I believe it is not in the best interest of our shareholders and potential investors and have included the task of increasing sell-side analyst coverage to my task list for FY2008." 23. On June 27, 2008, CMED filed its Annual Report on Form 20-F with the SEC for

the 2007 fiscal year. The Company’s Form 20-F was signed by Defendant Wu and reaffirmed

the Company’s financial results announced on June 12, 2008. The Company’s Form 20-F also

contained Sarbanes-Oxley required certifications, signed by Defendants Wu and Takyung, who

certified:

1. I have reviewed this annual report on Form 20-F of China Medical Technologies, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designated under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. 24. On August 4, 2008, the Company issued a press release entitled, “China Medical

Technologies Reports First Quarter Financial Results.” Therein, the Company, in relevant part,

stated:

BEIJING, Aug. 4 /Xinhua-PRNewswire-FirstCall/ -- China Medical Technologies, Inc. (the "Company") (Nasdaq: CMED), a leading China-based medical device company that develops, manufactures and markets advanced in-vitro diagnostic products and high intensity focused ultrasound tumor therapy system, today announced its unaudited financial results for the first quarter ended June 30, 2008 ("1Q FY2008"). The Company's 2008 fiscal year ends on March 31, 2009 ("FY2008"). 1Q FY2008 Highlights -- Revenues increased by 49.7% year-over-year to RMB226.8 million (US$33.1 million). -- Non-GAAP adjusted net income, as defined below, increased by 61.2% year-over-year to RMB110.7 million (US$16.1 million). -- Non-GAAP adjusted diluted earnings per ADS*, as defined below, increased by 49.0% year-over-year to RMB3.89 (US$0.57). * One American Depositary Share ("ADS") = 10 ordinary shares

"We are pleased with the change in the Company's major source of revenues from selling medical equipment to selling diagnostic reagents which was achieved by the strong growth of our diagnostic reagent businesses," commented Mr.

Xiaodong Wu, Chairman and CEO of the Company. "More than 95% of our revenues from ECLIA and FISH operations this quarter came from sales of ECLIA and FISH reagents which generated higher gross margin and were recurring in nature. We expect our diagnostic reagent businesses to continue their growth momentum in upcoming quarters." 25. On December 18, 2008, the Company issued a press release entitled, “China

Medical Technologies Reports Third Quarter Financial Results.” Therein, the Company, in

BEIJING, Dec 18, 2008 /PRNewswire-Asia-FirstCall via COMTEX News Network/ -- China Medical Technologies, Inc. (the "Company") (Nasdaq: CMED), a leading China-based medical device company that develops, manufactures and markets advanced in-vitro diagnostic products, today announced its full unaudited financial results for the second fiscal quarter ended September 30, 2008 ("2Q FY2008"). The Company's 2008 fiscal year ends on March 31, 2009 ("FY2008"). 2Q FY2008 Highlights -- Revenues increased by 35.2% year-over-year to RMB290.5 million (US$42.8 million). -- Net income increased by 52.1% year-over-year to RMB117.7 million (US$17.3 million). -- Non-GAAP adjusted net income, as defined below, increased by 46.8% year-over-year to RMB154.3 million (US$22.7 million). -- Diluted earnings per ADS* increased by 43.4% year-over-year to RMB4.13 (US$0.61). -- Non-GAAP adjusted diluted earnings per ADS*, as defined below, increased by 38.1% year-over-year to RMB5.22 (US$0.77). * One American Depositary Share ("ADS") = 10 ordinary shares

* * * "We are pleased with the strong results in our second fiscal quarter," commented Mr. Xiaodong Wu, Chairman and Chief Executive Officer of the Company. "Our molecular diagnostic business, FISH, continues to drive the growth of the Company in generating recurring revenue and high gross margin. The recent acquisition of the HPV-DNA Biosensor Chip and SPR-based Analysis System

expands our molecular diagnostic technology platforms and will create a new source of recurring revenues for us, beginning in the next financial year. After the sale of our HIFU business, we will become a pure advanced IVD player in China. As such, our resources will be invested solely in developing our advanced IVD businesses, especially molecular diagnostic businesses." 26. On March 2, 2009, the Company issued a press release entitled, “China Medical

Technologies Reports Second Fiscal Quarter Financial Results.” Therein, the Company, in

BEIJING, March 2, 2009 /PRNewswire-Asia-FirstCall via COMTEX/ -- China Medical Technologies, Inc. (the "Company") (Nasdaq: CMED), a leading China-based medical device company that develops, manufactures and markets advanced in-vitro diagnostic products, today announced its unaudited financial results for the third fiscal quarter ended December 31, 2008 ("3Q FY2008"). The Company's 2008 fiscal year ends on March 31, 2009 ("FY2008"). 3Q FY2008 Highlights -- Revenues from continuing operation increased by 50.7% year-over-year to RMB225.3 million (US$33.0 million). -- Loss from continuing operation was RMB171.5 million (US$25.1 million) including a one-time charge of RMB244.9 million (US$35.9 million) for acquired in-process research and development ("IPR&D"). -- Net income increased by 10.5% year-over-year to RMB108.1 million (US$15.8 million). -- Non-GAAP adjusted income from continuing operation, as defined below, increased by 94.5% year-over-year to RMB119.4 million (US$17.5 million). -- Diluted loss from continuing operation per ADS* was RMB6.54 (US$0.96). -- Non-GAAP adjusted diluted earnings from continuing operation per ADS*, as defined below, increased by 95.3% year-over-year to RMB4.55 (US$0.67). *One American Depositary Share ("ADS") = 10 ordinary shares

27. On September 1, 2009, the Company issued a press release entitled, “China

Medical Technologies Reports FY2008 Fourth Fiscal Quarter and Full Year Unaudited Financial

Results.” Therein, the Company, in relevant part, stated:

BEIJING, Sept. 1 /PRNewswire-Asia-FirstCall/ -- China Medical Technologies, Inc. (the "Company") (Nasdaq: CMED), a leading China-based medical device company that develops, manufactures and markets advanced in-vitro diagnostic products, today announced its unaudited financial results for the fourth fiscal quarter ("4Q FY2008") and the full fiscal year ended March 31, 2009 ("FY2008"). 4Q FY2008 Highlights -- Revenues from continuing operations increased by 37.3% year-over-year to RMB248.6 million (US$36.4 million). -- Income from continuing operations increased by 8.6% year-over-year to RMB56.3 million (US$8.2 million). -- Net income decreased by 46.5% year-over-year to RMB56.3 million (US$8.2 million). -- Non-GAAP income from continuing operations, as defined below, increased by 48.5% year-over-year to RMB120.0 million (US$17.6 million). -- Diluted earnings from continuing operations per ADS* was RMB2.14 (US$0.31). -- Non-GAAP diluted earnings from continuing operations per ADS*, as defined below, increased by 49.0% year-over-year to RMB4.56 (US$0.67). FY2008 Highlights -- Revenues from continuing operations increased by 51.6% year-over-year to RMB830.0 million (US$121.5 million) which was within our targeted range of RMB825.0 million to RMB838.0 million. -- Loss from continuing operations was RMB2.1 million (US$0.3 million) including a charge of RMB244.9 million (US$35.8 million) for acquired in-process research and development ("IPR&D"). -- Net income decreased by 21.2% year-over-year to RMB256.2 million (US$37.5 million).

-- Non-GAAP income from continuing operations, as defined below, increased by 80.9% year-over-year to RMB419.6 million (US$61.4 million) which was within our targeted range of RMB410.0 million to RMB420.0 million. -- Diluted loss from continuing operations per ADS* was RMB0.08 (US$0.01). -- Non-GAAP diluted earnings from continuing operations per ADS*, as defined below, were RMB15.97 (US$2.34) which exceeded the high end of our targeted range of RMB15.13. -- Annual cash dividend of US$0.55 per ADS* for FY2008 was declared which increased by 10.0% as compared to annual cash dividend of US$0.5 per ADS last year. * One American Depositary Share ("ADS") = 10 ordinary shares 28. On September 1, 2009, the Company issued a press release entitled, “China

Medical Technologies Reports FY2009 First Fiscal Quarter Unaudited Financial Results.”

Therein, the Company, in relevant part, stated:

BEIJING, Sept. 1 /PRNewswire-Asia-FirstCall/ -- China Medical Technologies, Inc. (the "Company") (Nasdaq: CMED), a leading China-based medical device company that develops, manufactures and markets advanced in-vitro diagnostic products, today announced its unaudited financial results for the first fiscal quarter ended June 30, 2009 ("1Q FY2009"). The Company's 2009 fiscal year ends on March 31, 2010 ("FY2009"). 1Q FY2009 Highlights -- Revenues from continuing operations increased by 28.9% year-over-year to RMB209.0 million (US$30.6 million). -- Income from continuing operations decreased by 92.8% year-over-year to RMB2.9 million (US$0.4 million). -- Net income decreased by 96.0% year-over-year to RMB2.9 million (US$0.4 million). -- Non-GAAP income from continuing operations, as defined below, decreased by 7.7% year-over-year to RMB72.5 million (US$10.6 million). -- Diluted earnings from continuing operations per ADS* was RMB0.11 (US$0.02).

-- Non-GAAP diluted earnings from continuing operations per ADS*, as defined below, decreased by 7.7% year-over-year to RMB2.74 (US$0.40). *One American Depositary Share ("ADS") = 10 ordinary shares 29. On September 30, 2009, CMED filed its Annual Report on Form 20-F with the

SEC for the 2008 fiscal year. The Company’s Form 20-F was signed by Defendant Wu and

reaffirmed the Company’s financial results previously announced on September 1, 2009. The

Company’s Form 20-F also contained Sarbanes-Oxley required certifications, signed by

Defendants Wu and Takyung, substantially similar to the certifications contained in ¶23, supra.

30. On November 19, 2009, the Company issued a press release entitled, “China

Medical Technologies Reports Second Fiscal Quarter Financial Results.” Therein, the Company,

BEIJING, Nov. 19 /PRNewswire-Asia-FirstCall/ -- China Medical Technologies, Inc. (the "Company") (Nasdaq: CMED), a leading China-based medical device company that develops, manufactures and markets advanced in-vitro diagnostic products, today announced its unaudited financial results for the second fiscal quarter ended September 30, 2009 ("2Q FY2009"). The Company's 2009 fiscal year ends on March 31, 2010 ("FY2009"). 2Q FY2009 Highlights -- Revenues decreased by 14.4% year-over-year to RMB166.1 million. -- Loss from continuing operations was RMB47.1 million (US$6.9 million). -- Net loss was RMB47.1 million (US$6.9 million). -- Non-GAAP income from continuing operations, as defined below, decreased by 82.7% year-over-year to RMB17.7 million (US$2.6 million). -- Diluted loss from continuing operations per ADS* was RMB1.78 (US$0.26). -- Non-GAAP diluted earnings from continuing operations per ADS*, as defined below, decreased by 82.6% year-over-year to RMB0.67 (US$0.10). -- Net cash generated from operating activities was RMB45.5 million

(US$6.7 million). 31. On March 3, 2010, the Company issued a press release entitled, “China Medical

Technologies Reports Third Quarter Financial Results.” Therein, the Company, in relevant part,

stated:

BEIJING, March 3, 2010 /PRNewswire via COMTEX/ -- China Medical Technologies, Inc. (the "Company") (Nasdaq: CMED), a leading China-based advanced in-vitro diagnostic ("IVD") company, today announced its unaudited financial results for the third fiscal quarter ended December 31, 2009 ("3Q FY2009"). The Company's 2009 fiscal year ends on March 31, 2010 ("FY2009"). 3Q FY2009 Highlights -- Revenues decreased by 23.5% year-over-year to RMB172.3 million but increased by 3.8% on a quarter-over-quarter basis. -- Loss from continuing operations was RMB22.0 million (US$3.2 million). -- Non-GAAP income from continuing operations, as defined below, decreased by 61.9% year-over-year to RMB45.6 million (US$6.7 million) but increased by 158.2% on a quarter-over-quarter basis. -- Diluted loss from continuing operations per ADS* was RMB0.84 (US$0.12). -- Non-GAAP diluted earnings from continuing operations per ADS*, as defined below, decreased by 61.8% year-over-year to RMB1.74 (US$0.25) but increased by 159.7% on a quarter-over-quarter basis. -- Net cash flows generated from operations was RMB80.4 million (US$11.8 million). -- Approximately 390,000 ADSs* were repurchased under the Company's share repurchase program. 32. On June 4, 2010, the Company issued a press release entitled, “China Medical

Technologies Reports Financial Results for Fourth Fiscal Quarter and Full Year ended March 31,

2010.” Therein, the Company, in relevant part, stated:

BEIJING, June 4, 2010 /PRNewswire via COMTEX/ --China Medical Technologies, Inc. (the "Company") (Nasdaq: CMED), a leading China-based

advanced in-vitro diagnostic ("IVD") company, today announced its unaudited financial results for the fourth fiscal quarter ("4Q FY2009") and the full fiscal year ended March 31, 2010 ("FY2009"). 4Q FY2009 Highlights -- Revenues decreased by 29.3% year-over-year to RMB175.7 million but increased by 2.0% sequentially. -- Income from continuing operations and net income was RMB9.1 million (US$1.3 million). -- Non-GAAP income from continuing operations, as defined below, decreased by 57.2% year-over-year to RMB51.5 million (US$7.5 million) but increased by 12.8% sequentially. -- Diluted earnings from continuing operations per ADS* was RMB0.35 (US$0.05). -- Non-GAAP diluted earnings from continuing operations per ADS*, as defined below, decreased by 56.7% year-over-year to RMB1.98 (US$0.29) but increased by 13.8% sequentially. -- Net cash generated from operations was RMB59.8 million (US$8.8 million). -- Approximately 110,000 ADSs* were repurchased under the Company's share repurchase program. -- Approximately RMB76.8 million (US$11.2 million) 4% convertible notes were purchased and cancelled by the Company. Approximately 192,000 ADSs* were returned to the Company under the share lending agreement in connection with the issuance of 4% convertible notes in August 2008. 33. On August 16, 2010, the Company issued a press release entitled, “China Medical

Technologies Reports First Fiscal Quarter Financial Results.” Therein, the Company, in relevant

part, stated:

China Medical Technologies, Inc. (the "Company") (Nasdaq: CMED), a leading China-based advanced in-vitro diagnostic ("IVD") company, today announced its unaudited financial results for the first fiscal quarter ended June 30, 2010 ("1Q FY2010"). 1Q FY2010 Highlights

-- Revenues decreased by 10.9% year-over-year to RMB186.2 million

(US$27.5 million) but increased by 5.9% sequentially. -- Net income was RMB33.7 million (US$5.0 million). -- Non-GAAP net income, as defined below, decreased by 21.4% year-over- year to RMB57.0 million (US$8.4 million) but increased by 10.8% sequentially. -- EBITDA, as defined below, was RMB142.0 million (US$20.9 million). -- Adjusted EBITDA, as defined below, was RMB105.2 million (US$15.5 million). -- Diluted earnings per ADS* was RMB1.29 (US$0.19). -- Non-GAAP diluted earnings per ADS*, as defined below, decreased by 20.4% year-over-year to RMB2.18 (US$0.32) but increased by 10.1% sequentially. -- Net cash generated from operations was RMB69.8 million (US$10.3 million). -- Approximately RMB101.7 million (US$15.0 million) 3.5% convertible notes and RMB113.6 million (US$16.8 million) 4% convertible notes were purchased and cancelled by the Company. Approximately 285,000 ADSs* were returned to the Company under the share lending agreement in connection with the issuance of 4% convertible notes in August 2008. 34. On September 8, 2010, CMED filed its Annual Report on Form 20-F with the

SEC for the 2009 fiscal year. The Company’s Form 20-F was signed by Defendant Wu and

reaffirmed the Company’s financial results previously announced on August 16, 2010. The

Company’s Form 20-F also contained Sarbanes-Oxley required certifications, signed by

Defendants Wu and Takyung, substantially similar to the certifications contained in ¶23, supra.

China Medical Technologies, Inc. (the "Company") (Nasdaq: CMED), a leading China-based advanced in-vitro diagnostic ("IVD") company, today announced its unaudited financial results for the second fiscal quarter ended September 30, 2010 ("2Q FY2010"). 2Q FY2010 Highlights -- Revenues increased by 21.5% year-over-year to RMB201.8 million

(US$30.2 million). -- Non-GAAP net income, as defined below, increased 270.1% year-over-year

to RMB65.4 million (US$9.8 million). -- Non-GAAP diluted earnings per ADS*, as defined below, increased 273.1%

year-over-year to RMB2.50 (US$0.37). -- Adjusted EBITDA, as defined below, increased 62.6% year-over-year to

RMB116.3 million (US$17.4 million). -- Net cash generated from operations was RMB67.3 million (US$10.1

million). 36. On February 8, 2011, the Company issued a press release entitled, “China

Medical Technologies Reports Third Fiscal Quarter Financial Results.” Therein, the Company,

China Medical Technologies, Inc. (the "Company") (Nasdaq: CMED), a leading China-based advanced in-vitro diagnostic ("IVD") company, announced its unaudited financial results for the third fiscal quarter ended December 31, 2010 ("3Q FY2010") today.

3Q FY2010 Highlights

For the Three Months Ended

December 31,2009

December 31,2010

December 31, 2010

RMB RMB US$ % change

(in thousands except for per ADS information) Revenues, net 172,320 223,948 33,932 30.0 Adjusted EBITDA 92,133 131,544 19,931 42.8 Non-GAAP net income 45,618 75,642 11,461 65.8 Non-GAAP diluted earnings per ADS* 1.74 2.87 0.43 64.9

Nine Months FY2010 Highlights

For the Nine Months Ended

December 31,2009

December 31,2010

December 31, 2010

RMB RMB US$ % change

(in thousands except for per ADS information) Revenues, net 547,343 611,952 92,720 11.8 Adjusted EBITDA 287,989 353,010 53,486 22.6 Non-GAAP net income 135,819 198,054 30,008 45.8 Non-GAAP diluted earnings per ADS* 5.15 7.55 1.14 46.6

37. On June 1, 2011, the Company issued a press release entitled, “China Medical

Technologies Reports Fourth Fiscal Quarter and Full Fiscal Year Financial Results.” Therein,

the Company, in relevant part, stated:

China Medical Technologies, Inc. (the "Company") (Nasdaq: CMED), a leading China-based advanced in-vitro diagnostic ("IVD") company, announced its unaudited financial results for the fourth fiscal quarter ("4Q FY2010") and the full fiscal year ended March 31, 2011 ("FY2010") today.

4Q FY2010 Highlights FortheThreeMonthsEnded

March31,2010 March31,2011 March31,2011 RMB RMB US$ %change

(inthousandsexceptforperADSinformation) Netrevenues 175,728 230,414 35,187 31.1% Netincome 4,820 16,095 2,458 233.9% DilutedearningsperADS* 0.19 0.61 0.09 221.1% Non-GAAPnetincome 51,476 75,002 11,454 45.7% Non-GAAPdilutedearningsperADS* 1.98 2.84 0.43 43.4% AdjustedEBITDA 99,591 140,244 21,417 40.8%

FY2010Highlights

FortheYearEndedMarch31,2010 March31,2011 March31,2011

RMB RMB US$ %change(inthousandsexceptforperADSinformation)

Netrevenues 723,071 842,366 128,639 16.5% Netincome(loss) (69,582) 82,619 12,617 - Dilutedearnings(loss)perADS* (2.65) 3.14 0.48 - Non-GAAPnetincome 187,295 273,056 41,699 45.8% Non-GAAPdilutedearningsperADS* 7.13 10.39 1.59 45.7% AdjustedEBITDA 387,580 493,254 75,326 27.3%

38. On July 18, 2011, CMED filed its Annual Report on Form 20-F with the SEC for

the 2010 fiscal year. The Company’s Form 20-F was signed by Defendant Wu and reaffirmed

the Company’s financial results previously announced on June 1, 2011. The Company’s Form

20-F also contained Sarbanes-Oxley required certifications, signed by Defendants Wu and

Takyung, substantially similar to the certifications contained in ¶23, supra.

39. On August 16, 2011, the Company issued a press release entitled, “China Medical

Technologies Reports First Fiscal Quarter Financial Results.” Therein, the Company, in relevant

part, stated:

China Medical Technologies, Inc. (the "Company") (Nasdaq: CMED), a leading China-based advanced in-vitro diagnostic ("IVD") company, announced its unaudited financial results for the first fiscal quarter ended June 30, 2011 ("1Q FY2011") today. 1Q FY2011 Highlights

For the Three Months Ended June 30, 2010 June 30, 2011 June 30, 2011

RMB RMB US$ % change(in thousands except for per ADS information)

Net revenues 186,170 237,111 36,685 27.4% Net income 33,678 35,728 5,528 6.1% Diluted earnings per ADS* 1.29 1.35 0.21 4.7% Non-GAAP net income 57,011 90,452 13,995 58.7% Non-GAAP diluted earnings per ADS* 2.18 3.42 0.53 56.9% Adjusted EBITDA 105,152 154,289 23,871 46.7%

March 31, 2011 June 30, 2011 June 30, 2011 RMB RMB US$ % change

(in thousands)Net cash provided by operating activities 37,339 62,243 9,630 66.7%

March 31, 2011 June 30, 2011 June 30, 2011 RMB RMB US$ % change

(in thousands)Cash and cash equivalents 1,123,818 1,239,458 191,763 10.3% Trade accounts receivable, net 481,096 565,061 87,422 17.5% Convertible notes 2,752,304 2,669,914 413,076 (3.0)%

BEIJING, Nov. 18, 2011 /PRNewswire-Asia-FirstCall/ -- China Medical Technologies, Inc. (the "Company") (Nasdaq: CMED), a leading China-based advanced in-vitro diagnostic ("IVD") company, announced its unaudited financial results for the second fiscal quarter ended September 30, 2011 ("2Q FY2011") today.

2Q FY2011 and Six Months Ended September 30, 2011 Highlights

For the Three Months Ended September 30,

2010September 30,

2011September 30,

Net revenues 201,834 238,450 37,386 18.1% Net income (loss) (2,936) 33,343 5,228 n/aDiluted earnings (loss) per ADS* (0.11) 1.26 0.20 n/aNon-GAAP net income 65,401 89,557 14,042 36.9% Non-GAAP diluted earnings per ADS* 2.50 3.38 0.53 35.2% Adjusted EBITDA 116,314 151,351 23,730 30.1%

June 30,2011

September 30,2011

September 30, 2011

RMB RMB US$ % change(in thousands)

Net cash provided by operating activities 62,243 79,053 12,395 27.0%

For the Six Months Ended

September 30,2010

September 30,2011

September 30, 2011

Net revenues 388,004 475,561 74,563 22.6% Net income 30,742 69,071 10,830 124.7% Diluted earnings per ADS* 1.18 2.61 0.41 121.2% Non-GAAP net income 122,412 180,009 28,224 47.1% Non-GAAP diluted earnings per ADS* 4.68 6.79 1.07 45.1% Adjusted EBITDA 221,466 305,640 47,921 38.0%

41. The statements contained in ¶¶19-40 were materially false and/or misleading

when made because defendants failed to disclose or indicate the following: (1) that the

Company’s acquisition of BBE was from a third party seller connected to CMED’s CEO; (2)

that the Company substantially overpaid to acquire BBE; (3) that CMED’s acquisition of BBE

involved the use of fraudulent shell companies; (4) that the Company was suffering substantial

operating losses prior to the acquisition; (5) that a majority of the Company’s accounts

receivable were in excess of 120 days; (6) that, as a result, CMED’s financial results were

overstated; (7) that the Company lacked adequate internal and financial controls; and (8) that,

as a result of the foregoing, the Company's statements were materially false and misleading at

all relevant times.

Disclosures at the End of the Class Period

42. On or about December 6, 2011, Glaucus Research Group, a private equity

research firm, published an analyst report entitled, “Glaucus Research Group California LLC is

initiating coverage on China Medical Technologies, Inc. (NASDAQ:CMED) with a Strong Sell

rating.” Therein, the report, in relevant part, stated:

• We believe that CMED has defrauded investors and that it is the next Longtop Financial (LFT) or Universal Travel Group (UTA). • CMED paid $28 million for an acquisition from a seller who we believe was secretly related to CMED’s chairman. Evidence also shows that CMED radically overpaid for the acquisition: a few months before selling the company to CMED, a company controlled by parties related to CMED insiders bought out minority shareholders at prices suggesting that the business was worth $5-$8 million, not the $28 million paid by CMED for the acquisition. In our opinion, CMED’s chairman orchestrated an acquisition to embezzle roughly $20-$23 million from the public company. • CMED sold its primary business segment, responsible for the majority of the firm’s sales since inception, to the chairman at less than 2x trailing EBITDA. We believe that this suspicious looking transaction was designed to cover up that the Chinese FDA was about to (or already had) suspended CMED’s permit to sell

HIFU products, thus rendering CMED’s core business segment worthless almost overnight. • Despite a purportedly profitable business, CMED is a serial capital raiser and has not generated free cash flow for most of its history. The company has spent twice as much on “investing activities” as it has purportedly generated from operations, so much like a typical Chinese fraud, it relies on debt or equity financing as its primary source of cash generation. • CMED’s balance sheet presents numerous highly suspicious red flags. CMED’s receivables account for a much higher percentage of net revenues than its Chinese competitors and its Day Sales Outstanding are on average 141.9 days longer than a leading Chinese competitor, despite the fact that both companies sell similar products to similarly situated customers. • In 2009, an anonymous letter to the audit committee accused senior management of committing fraud with respect to the company’s financials and its acquisitions. After an investigation by the audit committee, CMED’s auditor, KPMG, resigned. • Valuation: As of September 30, 2011, CMED has $413 million of debt outstanding, the holders of which would take priority over shareholders. Given the difficulty of recovering money against alleged fraudsters under China’s corrupt and arbitrary judicial system, we believe that debt holders can at best hope to recover $0.10 - $0.20 on the dollar, putting the value of the equity at $0.00. 43. On this news, the Company’s shares declined $0.81 per share, or nearly 24%, to

44. On December 13, 2011, the Company issued a press release entitled, “China

Medical Technologies Intends to Implement Debt Restructuring.” Therein, the Company, in

BEIJING, Dec. 13, 2011 /PRNewswire-Asia-FirstCall/ -- China Medical Technologies, Inc. (the "Company") (Nasdaq: CMED), a leading China-based advanced in-vitro diagnostic ("IVD") company, today announced that the Company intends to implement a debt restructuring plan to improve its balance sheet. The plan may include, without limitation, a debt-for-debt exchange with existing holders of the Company's convertible notes maturing in August 2013 and December 2016, which may potentially involve holders receiving new debts with different interest rates, maturities and principal amounts compared to the existing debts or other alternatives to be agreed. Holders of the Company's convertible notes are requested to contact the Company's Cayman legal representative, Thorp Alberga at cmednoteholders@thorpalberga.com, which will collect contact

information from such holders to facilitate their communication with each other to form a noteholders' committee to liaise with the Company. 45. On this news, the Company’s shares declined $0.43 per share, or nearly 13%, to

CLASS ACTION ALLEGATIONS

46. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil

Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all persons or entities who

purchased CMED’s ADSs between November 26, 2007, and December 12, 2011, inclusive (the

“Class Period”), and who were damaged thereby (the “Class”). Excluded from the Class are

Defendants, the officers and directors of the Company, at all relevant times, members of their

immediate families and their legal representatives, heirs, successors or assigns and any entity in

which Defendants have or had a controlling interest.

47. The members of the Class are so numerous that joinder of all members is

impracticable. During the Class Period, CMED securities were actively traded on the NASDAQ

Stock Exchange ("NASDAQ"). While the exact number of Class members is unknown to

Plaintiff at this time and can only be ascertained through appropriate discovery, Plaintiff believes

that there are hundreds or thousands of members in the proposed Class. Millions of CMED

shares were traded publicly during the Class Period on the NASDAQ and as of March 31, 2011,

the Company had 322,680,001 shares of common stock outstanding. Record owners and other

members of the Class may be identified from records maintained by CMED or its transfer agent

and may be notified of the pendency of this action by mail, using the form of notice similar to

that customarily used in securities class actions.

48. Plaintiff's claims are typical of the claims of the members of the Class as all

members of the Class are similarly affected by Defendants’ wrongful conduct in violation of

federal law that is complained of herein.

49. Plaintiff will fairly and adequately protect the interests of the members of the

Class and has retained counsel competent and experienced in class and securities litigation.

50. Common questions of law and fact exist as to all members of the Class and

predominate over any questions solely affecting individual members of the Class. Among the

questions of law and fact common to the Class are:

(a) Whether the federal securities laws were violated by Defendants’ acts as

alleged herein;

(b) Whether statements made by Defendants to the investing public during

the Class Period omitted and/or misrepresented material facts about the operations, financial

performance and prospects of CMED; and

(c) To what extent the members of the Class have sustained damages and the

proper measure of damages.

51. A class action is superior to all other available methods for the fair and efficient

adjudication of this controversy since joinder of all members is impracticable. Furthermore, as

the damages suffered by individual Class members may be relatively small, the expense and

burden of individual litigation makes it impossible for members of the Class to individually

redress the wrongs done to them. There will be no difficulty in the management of this action as

a class action.

UNDISCLOSED ADVERSE FACTS

52. The market for CMED securities was open, well-developed and efficient at all

relevant times. As a result of these materially false and/or misleading statements, and/or failures

to disclose, CMED securities traded at artificially inflated prices during the Class Period.

Plaintiff and other members of the Class purchased or otherwise acquired CMED securities

relying upon the integrity of the market price of the Company’s securities and market

information relating to CMED, and have been damaged thereby.

53. During the Class Period, Defendants materially misled the investing public,

thereby inflating the price of CMED securities, by publicly issuing false and/or misleading

statements and/or omitting to disclose material facts necessary to make Defendants’ statements,

as set forth herein, not false and/or misleading. Said statements and omissions were materially

false and/or misleading in that they failed to disclose material adverse information and/or

misrepresented the truth about CMED’s business, operations, and prospects as alleged herein.

54. At all relevant times, the material misrepresentations and omissions particularized

in this Complaint directly or proximately caused or were a substantial contributing cause of the

damages sustained by Plaintiff and other members of the Class. As described herein, during the

Class Period, Defendants made or caused to be made a series of materially false and/or

misleading statements about CMED’s financial performance and prospects. These material

misstatements and/or omissions had the cause and effect of creating in the market an

unrealistically positive assessment of the Company and its financial well-being and prospects,

thus causing the Company's securities to be overvalued and artificially inflated at all relevant

times. Defendants’ materially false and/or misleading statements during the Class Period

resulted in Plaintiff and other members of the Class purchasing the Company's securities at

artificially inflated prices, thus causing the damages complained of herein.

LOSS CAUSATION

55. Defendants' wrongful conduct, as alleged herein, directly and proximately caused

the economic loss suffered by Plaintiff and the Class.

56. During the Class Period, Plaintiff and the Class purchased CMED securities at

artificially inflated prices and were damaged thereby. The price of the Company's securities

significantly declined when the misrepresentations made to the market, and/or the information

alleged herein to have been concealed from the market, and/or the effects thereof, were revealed,

causing investors’ losses

SCIENTER ALLEGATIONS

57. As alleged herein, Defendants acted with scienter in that Defendants knew that

the public documents and statements issued or disseminated in the name of the Company were

materially false and/or misleading; knew that such statements or documents would be issued or

disseminated to the investing public; and knowingly and substantially participated or acquiesced

in the issuance or dissemination of such statements or documents as primary violations of the

federal securities laws. As set forth elsewhere herein in detail, Defendants, by virtue of their

receipt of information reflecting the true facts regarding CMED, their control over, and/or receipt

and/or modification of CMED’s allegedly materially misleading misstatements and/or their

associations with the Company which made them privy to confidential proprietary information

concerning CMED, participated in the fraudulent scheme alleged herein.

APPLICABILITY OF PRESUMPTION OF RELIANCE

(FRAUD-ON-THE-MARKET DOCTRINE)

58. The market for CMED securities was open, well-developed and efficient at all

relevant times. As a result of the materially false and/or misleading statements and/or failures to

disclose, CMED securities traded at artificially inflated prices during the Class Period. On

February 25, 2008, the Company’s stock closed at a Class Period high of $56.64 per share.

Plaintiff and other members of the Class purchased or otherwise acquired the Company’s

securities relying upon the integrity of the market price of CMED securities and market

information relating to CMED, and have been damaged thereby.

59. During the Class Period, the artificial inflation of CMED stock was caused by the

material misrepresentations and/or omissions particularized in this Complaint causing the

damages sustained by Plaintiff and other members of the Class. As described herein, during the

Class Period, Defendants made or caused to be made a series of materially false and/or

misleading statements about CMED’s financial performance and prospects. These material

misstatements and/or omissions created an unrealistically positive assessment of CMED and its

business, operations, and financial performance, thus causing the price of the Company's

securities to be artificially inflated at all relevant times, and when disclosed, negatively affected

the value of the Company stock. Defendants’ materially false and/or misleading statements

during the Class Period resulted in Plaintiff and other members of the Class purchasing the

Company's securities at such artificially inflated prices, and each of them has been damaged as a

result.

60. At all relevant times, the market for CMED securities was an efficient market for

the following reasons, among others:

(a) CMED stock met the requirements for listing, and was listed and actively

traded on the NASDAQ, a highly efficient and automated market;

(b) As a regulated issuer, CMED filed periodic public reports with the SEC

and the NASDAQ;

(c) CMED regularly communicated with public investors via established

market communication mechanisms, including through regular dissemination of press releases

on the national circuits of major newswire services and through other wide-ranging public

disclosures, such as communications with the financial press and other similar reporting

services; and

(d) CMED was followed by securities analysts employed by major

brokerage firms who wrote reports about the Company, and these reports were distributed to

the sales force and certain customers of their respective brokerage firms. Each of these reports

was publicly available and entered the public marketplace.

61. As a result of the foregoing, the market for CMED securities promptly digested

current information regarding CMED from all publicly available sources and reflected such

information in CMED’s stock price. Under these circumstances, all purchasers of CMED

securities during the Class Period suffered similar injury through their purchase of CMED

securities at artificially inflated prices and a presumption of reliance applies.

NO SAFE HARBOR

62. The statutory safe harbor provided for forward-looking statements under certain

circumstances does not apply to any of the allegedly false statements pleaded in this Complaint.

The statements alleged to be false and misleading herein all relate to then-existing facts and

conditions. In addition, to the extent certain of the statements alleged to be false may be

characterized as forward looking, they were not identified as “forward-looking statements” when

made and there were no meaningful cautionary statements identifying important factors that

could cause actual results to differ materially from those in the purportedly forward-looking

statements. In the alternative, to the extent that the statutory safe harbor is determined to apply

to any forward-looking statements pleaded herein, Defendants are liable for those false forward-

looking statements because at the time each of those forward-looking statements was made, the

speaker had actual knowledge that the forward-looking statement was materially false or

misleading, and/or the forward-looking statement was authorized or approved by an executive

officer of CMED who knew that the statement was false when made.

FIRST CLAIM Violation of Section 10(b) of The Exchange Act

and Rule 10b-5 Promulgated Thereunder Against All Defendants

63. Plaintiff repeats and realleges each and every allegation contained above as if

fully set forth herein.

64. During the Class Period, Defendants carried out a plan, scheme and course of

conduct which was intended to and, throughout the Class Period, did: (i) deceive the investing

public, including Plaintiff and other Class members, as alleged herein; and (ii) cause Plaintiff and

other members of the Class to purchase CMED’s securities at artificially inflated prices. In

furtherance of this unlawful scheme, plan and course of conduct, defendants, and each of them,

took the actions set forth herein.

65. Defendants (i) employed devices, schemes, and artifices to defraud; (ii) made

untrue statements of material fact and/or omitted to state material facts necessary to make the

statements not misleading; and (iii) engaged in acts, practices, and a course of business which

operated as a fraud and deceit upon the purchasers of the Company's securities in an effort to

maintain artificially high market prices for CMED’s securities in violation of Section 10(b) of

the Exchange Act and Rule 10b-5. All Defendants are sued either as primary participants in the

wrongful and illegal conduct charged herein or as controlling persons as alleged below.

66. Defendants, individually and in concert, directly and indirectly, by the use, means

or instrumentalities of interstate commerce and/or of the mails, engaged and participated in a

continuous course of conduct to conceal adverse material information about CMED’s financial

well-being and prospects, as specified herein.

67. These defendants employed devices, schemes and artifices to defraud, while in

possession of material adverse non-public information and engaged in acts, practices, and a

course of conduct as alleged herein in an effort to assure investors of CMED’s value and

performance and continued substantial growth, which included the making of, or the

participation in the making of, untrue statements of material facts and/or omitting to state

material facts necessary in order to make the statements made about CMED and its business

operations and future prospects in light of the circumstances under which they were made, not

misleading, as set forth more particularly herein, and engaged in transactions, practices and a

course of business which operated as a fraud and deceit upon the purchasers of the Company’s

securities during the Class Period.

68. Each of the Individual Defendants' primary liability, and controlling person

liability, arises from the following facts: (i) the Individual Defendants were high-level executives

and/or directors at the Company during the Class Period and members of the Company's

management team or had control thereof; (ii) each of these defendants, by virtue of their

responsibilities and activities as a senior officer and/or director of the Company, was privy to and

participated in the creation, development and reporting of the Company's internal budgets, plans,

projections and/or reports; (iii) each of these defendants enjoyed significant personal contact and

familiarity with the other defendants and was advised of, and had access to, other members of the

Company's management team, internal reports and other data and information about the

Company's finances, operations, and sales at all relevant times; and (iv) each of these defendants

was aware of the Company's dissemination of information to the investing public which they

knew and/or recklessly disregarded was materially false and misleading.

69. The Defendants had actual knowledge of the misrepresentations and/or omissions

of material facts set forth herein, or acted with reckless disregard for the truth in that they failed

to ascertain and to disclose such facts, even though such facts were available to them. Such

Defendants' material misrepresentations and/or omissions were done knowingly or recklessly

and for the purpose and effect of concealing CMED’s financial well-being and prospects from

the investing public and supporting the artificially inflated price of its securities. As

demonstrated by Defendants’ overstatements and/or misstatements of the Company's business,

operations, financial well-being, and prospects throughout the Class Period, Defendants, if they

did not have actual knowledge of the misrepresentations and/or omissions alleged, were reckless

in failing to obtain such knowledge by deliberately refraining from taking those steps necessary

to discover whether those statements were false or misleading.

70. As a result of the dissemination of the materially false and/or misleading

information and/or failure to disclose material facts, as set forth above, the market price of

CMED securities was artificially inflated during the Class Period. In ignorance of the fact that

market prices of the Company’s securities were artificially inflated, and relying directly or

indirectly on the false and misleading statements made by Defendants, or upon the integrity of

the market in which the securities trades, and/or in the absence of material adverse information

that was known to or recklessly disregarded by Defendants, but not disclosed in public

statements by Defendants during the Class Period, Plaintiff and the other members of the Class

acquired CMED securities during the Class Period at artificially high prices and were damaged

thereby.

71. At the time of said misrepresentations and/or omissions, Plaintiff and other

members of the Class were ignorant of their falsity, and believed them to be true. Had Plaintiff

and the other members of the Class and the marketplace known the truth regarding the

Company’s improper accounting practices, which were not disclosed by Defendants, Plaintiff

and other members of the Class would not have purchased or otherwise acquired their CMED

securities, or, if they had acquired such securities during the Class Period, they would not have

done so at the artificially inflated prices which they paid.

72. By virtue of the foregoing, Defendants have violated Section 10(b) of the

Exchange Act and Rule 10b-5 promulgated thereunder.

73. As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff and

the other members of the Class suffered damages in connection with their respective purchases

and sales of the Company's securities during the Class Period.

SECOND CLAIM Violation of Section 20(a) of The Exchange Act

Against the Individual Defendants

74. Plaintiff repeats and realleges each and every allegation contained above as if

fully set forth herein.

75. The Individual Defendants acted as controlling persons of CMED within the

meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level

positions, and their ownership and contractual rights, participation in and/or awareness of the

Company's operations and/or intimate knowledge of the false financial statements filed by the

Company with the SEC and disseminated to the investing public, the Individual Defendants had

the power to influence and control and did influence and control, directly or indirectly, the

decision-making of the Company, including the content and dissemination of the various

statements which Plaintiff contends are false and misleading. The Individual Defendants were

provided with or had unlimited access to copies of the Company's reports, press releases, public

filings and other statements alleged by Plaintiff to be misleading prior to and/or shortly after

these statements were issued and had the ability to prevent the issuance of the statements or

cause the statements to be corrected.

76. In particular, each of these Defendants had direct and supervisory involvement in

the day-to-day operations of the Company and, therefore, is presumed to have had the power to

control or influence the particular transactions giving rise to the securities violations as alleged

herein, and exercised the same.

77. As set forth above, CMED and the Individual Defendants each violated either

Section 10(b) or Rule 10b-5, by their acts and/or omissions as alleged in this Complaint. By

virtue of their positions as controlling persons, the Individual Defendants are liable pursuant to

Section 20(a) of the Exchange Act. As a direct and proximate result of Defendants’ wrongful

conduct, Plaintiff and other members of the Class suffered damages in connection with their

purchases of the Company's securities during the Class Period.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff prays for relief and judgment, as follows:

(a) Determining that this action is a proper class action under Rule 23 of the Federal

Rules of Civil Procedure;

(b) Awarding compensatory damages in favor of Plaintiff and the other Class

members against all defendants, jointly and severally, for all damages sustained as a result of

Defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon;

(c) Awarding Plaintiff and the Class their reasonable costs and expenses incurred in

this action, including counsel fees and expert fees; and

(d) Such other and further relief as the Court may deem just and proper.

JURY TRIAL DEMANDED

Plaintiff hereby demands a trial by jury.

DATED: February 7, 2012 GLANCY BINKOW & GOLDBERG LLP

By: _______________________________

Elizabeth M. Gonsiorowski (EG1212) 30 Broad Street, Suite 1401 New York, New York 10004 Telephone: (212) 382-2221 Facsimile: (212) 382-3944

Email: egonsiorowski@glancylaw.com -and- GLANCY BINKOW & GOLDBERG LLP Lionel Z. Glancy Michael Goldberg Robert V. Prongay

1925 Century Park East, Suite 2100 Los Angeles, California 90067

Telephone: (310) 201-9150 Facsimile: (310) 201-9160

LAW OFFICES OF HOWARD G. SMITH Howard G. Smith 3070 Bristol Pike, Suite 112 Bensalem, PA 19020 Telephone: (215) 638-4847 Facsimile: (215) 638-4867

Attorneys for Plaintiff Victor Johnson

united states district court southern district of new … · china medical technologies, inc., wu...

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