Eight underwriters were involved in Qudian’s initial public offering (IPO), but the complaint for this class action claims that the Registration Statement they caused to be filed was misleading, omitting critical information.
The class for this action is all persons or entities who bought Qudian’s American Depository Shares (ADSs), representing Class A ordinary shares, pursuant or traceable to the Registration Statement issued in connection with Qudian’s IPO of October 18, 2017.
Qudian provides micro-lending credit products in the People’s Republic of China, offering cash and merchandise credit products. The company targets young, active consumers in China who need small amounts for discretionary spending but who do not have the credit history required for traditional loans.
The first version of the Registration Statement was filed on September 18, 2017, although it was later amended several times, and was declared effective on October 17; on October 18, the company filed its final prospectus (considered here as part of the Registration Statement). That same day, the company began trading on the NYSE, with its ADSs initially priced at $24.00.
The complaint alleges that the information in the Registration Statement was deficient primarily in two respects, (1) in discussing its collection practices and (2) in discussing its data systems and procedures.
First, the complaint quotes at length the Registration Statement’s description of its collection practices for delinquent accounts, such as automated reminders, telephone calls, and personal visits. However, the complaint alleges that the statements were false or misleading because they did not disclose that Qudian’s collection practices were “materially deficient and/or nonexistent as the Company treated bad loans as welfare.”
Second, the complaint quotes the Registration Statement’s discussion of borrower data security and its vulnerability to software errors and bugs and employee error or misconduct, and also the company’s vulnerability to employee or partner misconduct in the use of funds, documents, and data. The complaint claims that this part of the Registration Statement was also false or misleading because it did not disclose that its data systems and procedures were “materially inadequate to safeguard sensitive borrower data against breach, and breaches had occurred.”
While the IPO was successful in that it raised $900 million for the company through the sale of 37.5 million ADSs, the complaint points out that, at the time of the filing of the complaint, Qudian’s ADSs were trading at $13.19, or 45% below the IPO price.
The complaint alleges that the omissions or misrepresentations in the Registration Statement violated Sections 11 and 15 of the Securities Exchange Act of 1934.