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China Mobile Games Agrees to $1.5M Deal in Investor Suit

A proposed class of investors asked a New York federal court on Tuesday for preliminary approval of a $1.5 million settlement agreement with China's largest mobile game publisher in the investors' suit accusing the company of insider transactions and corporate bribery.

The plaintiffs told U.S. District Judge Kimba M. Wood that the deal with China Mobile Games & Entertainment Group Ltd. was struck with the help of a mediator, who proposed the settlement figure, which the parties accepted, according to a memorandum of law in support of their unopposed motion for preliminary approval. The settlement amount was 3.5 percent of the total maximum damages potentially available had they won all the claims and had the judge accepted their damages theory, the memo says. And, they wrote, there is no guarantee they would recover more had they prevailed at trial.

“Plaintiffs respectfully submit that the settlement warrants preliminary approval given the cash benefit achieved by the proposed settlement, the significant costs and risks of continuing litigation through trial and appeals, and the fact that the settlement is the result of arm’s-length negotiations by experienced counsel overseen by an experienced mediator,” the memorandum says.

The settlement would be divided on a pro rata basis based on the size of recognized claims, according to the memorandum.

The plaintiffs also asked Judge Wood to certify the class for settlement purposes and to approve the notice to the class.

The suit was initially filed in June 2014 and consolidated with another in November 2014. In the consolidated suit filed in February 2015, Miran Segregated Portfolio Co., Edward McCaffery and Charlie Chun pointed to a report in June 2014 that claimed the company had told analysts it was axing nine senior managers for handing out bribes. The report allegedly caused a 24 percent stock drop.

They also alleged that one of the three executives named in the suit also controlled a company that he ran before joining CMGE and that still did substantial business with the game maker. When that was revealed in January 2015, the stock price fell more than 7 percent, they said.

Judge Wood dismissed the consolidated suit last year but gave the plaintiffs a chance to amend their complaint, which was filed in June. There was a motion pending to dismiss the second amended complaint when the deal was made.

Counsel for the parties on Wednesday did not return calls seeking comment.

The plaintiffs are represented by Lesley Frank Portnoy, Kara M. Wolke, Robert Prongay and Elaine Chang of Glancy Prongay & Murray LLP , Laurence M. Rosen and Jonathan Stern of The Rosen Law Firm PA and Howard G. Smith of the Law Offices of Howard G. Smith.

CMGE and the three executives are represented by Andrew B. Clubok and Adam T. Humann of Kirkland & Ellis LLP.

The underwriters are represented by Adam S. Hakki, Daniel C. Lewis and Jeffrey D. Hoschander of Shearman & Sterling LLP.

The case is In re China Mobile Games & Entertainment Group Ltd. Securities Litigation, case number 1:14-cv-04471, in U.S. District Court for the Southern District of New York.