(CN) - A class of American Oriental Bioengineering investors has filed suit over the company's alleged failure to disclose that 13 of its capsule products used dangerous amounts of chrome.
Lead plaintiff Michael Kane filed suit in the U.S. Central District Court in California, claiming that American Oriental's misstatements and omissions caused investors to buy inflated stock.
American Oriental makes several pharmaceutical products using traditional medicines and natural ingredients. It is headquartered in China with an office in Nevada. Named defendants include the firm's founder Tony Liu and co-founder Yangchun Li.
According to the lawsuit, auditors uncovered "financial inconsistencies" in March while crunching the company's numbers from fiscal 2011.
"On April 19, 2012, the company disclosed that four of its five manufacturing subsidiaries were undergoing 'onsite short notice inspections' by the Chinese State Food and Drug Administration after discovering thirteen types of capsule products with chrome levels far exceeding humanly tolerable limits."
In May the company announced the resignation of its audit committee chairman, defendant Lawrence Wizel, and the New York Stock Exchange delisted the company's common stock, according to the lawsuit.
Later that month the company's stock declined by 62 percent or $0.94 cents a share, to close at $0.58 per share after over the counter trading, the class says.
The pharmaceutical company then allegedly parted ways with Ernst & Young after the accounting firm concluded it could "no longer rely on management's representations" to conduct a reliable audit of the company's books.
"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," the lawsuit states.
The class is represented by Lionel Glancy of Glancy Binkow & Goldberg.