WASHINGTON (Reuters)—When Michael Marks and John Wang stepped off the board of directors of Jiangbo Pharmaceuticals in June, they said goodbye to the Chinese company with a 23-page resignation letter complaining of months of unanswered questions, unpaid bills and management deception.

The letter, one of a recent spate of similarly explicit resignations by directors and auditors, reflects concern that outside directors and auditors at troubled companies may increasingly face legal problems themselves.

These "noisy" resignations have, for the most part, come at Chinese companies with U.S.-traded stocks, companies whose advisers are in particular legal peril, experts say. The problems are emerging as an early sign of different U.S. and Chinese standards of good corporate governance.

While Chinese companies themselves may prove hard for U.S. courts and regulators to reach, directors and auditors with ties to the West are "likely to be the only people the SEC and the courts are really likely to have jurisdiction over and whose liability can be enforced," said Henry Klehm, a partner with law firm Jones Day. For auditors and board members, these departure notes have become "the first step in establishing a defense," Mr. Klehm said.

Traditionally board and auditor resignation letters have been short and dry, offering few important details. The Jiangbo letter is completely different, outlining with great specificity a frustrating and failed two-month attempt by the board's audit committee to investigate questions raised by regulators at the Securities and Exchange Commission.

Frustrated investigation

Jiangbo, based in the city of Laiyang in Shandong province, had once been a favorite of U.S. investors. The company, which produces both Western pharmaceuticals and Chinese herbal medicine, incorporated in the United States in 2008, and its stock traded at $14 a share as recently as early 2010.

But this year after the SEC raised questions about the company and the directors resigned, its value fell sharply.

According to the directors, Jiangbo staff avoided answering their questions, once going so far as to hide in the employee washroom; failed to produce requested employee lists, bank statements and shipping records, and though Jiangbo chairman Wubo Cao pledged cooperation, he often blocked progress.

It proved a road map for unhappy Jiangbo investors, whose lawyers quickly sued the company, quoting liberally from the directors' letter, as well as for regulators. In July, about a month and a half after the directors' letter arrived, Nasdaq cited the obstructed board investigation as one of the reasons it was delisting the company's shares.p>

Jiangbo CEO Linxian Jin said by email that he could not respond to issues raised in the letter due to ongoing litigation, but that "we are trying our best to cooperate with the SEC and shareholders to resolve the issues." Messrs. Marks and Wang did not respond to requests for comment.

Particular targets

According to Cornerstone Research, 25 securities class action lawsuits were filed by shareholders of Chinese companies in the first half of 2011, more than double the number filed against Chinese firms in all of 2010.

In a recent survey by BDO USA, 61% of directors said they believed their liability risk as a director had increased during the past few years, and shareholder suits were not the only worry. The SEC has in recent years taken action against directors for failure to follow up on red flags and against auditors for improper professional conduct.

The SEC is reading these resignations. On Sept. 8, the regulator took auditor Deloitte Touche Tohmatsu to court, demanding it produce the records of its audit of Longtop Financial Technologies, a maker of software for Chinese financial services companies. One impetus for the action, according to court records, was Deloitte's May resignation letter in which it referred to "numerous indicia of financial fraud" and "deliberate interference" by company managers.

Detailed auditor resignations have also been submitted at China-Biotics, China MediaExpress and ShengdaTech. None of the three companies replied to requests for comment.

Whether this newfound openness in resignation letters will persist is unclear. In the past there has been some discussion of regulators requiring more transparency and candor in letters in general, said University of Georgia Terry College of Business accounting professor Dennis Beresford, but so far regulators have not made such disclosures mandatory.