A shareholder filed a class-action complaint last week in the Southern District of New York against Ebang International Holdings Inc. and the company’s CEO and CFO for the defendants’ alleged violations of the Securities Exchange Act of 1934, which purportedly caused share prices to decline.
According to the complaint, the class action is “on behalf of persons and entities that purchased or otherwise acquired Ebang securities between June 26, 2020 and April 5, 2021, inclusive (the ‘Class Period’).” Reportedly, Ebang is “a leading application-specific integrated circuit (‘ASIC’) chip design company and a leading manufacturer of Bitcoin mining machines.”
The plaintiff alleged that before the market opened April 6, Hindenburg Research issued a report averring that, for instance, Ebang is directing proceeds from its $21 million November 2020 IPO into a “‘series of opaque deals with insiders and questionable counterparties.’” Reportedly, Ebang asserted that its IPO proceeds mainly would go to development; instead, however, funds allegedly were “directed to repay related-party loans to a relative of … Ebang’s Chief Executive Officer.”
Hindenburg’s report also stated that the company’s previous efforts to go public on the Hong Kong Stock Exchange failed because of “widespread media coverage of a sales inflation scheme with Yindou, a Chinese peer-to-peer online lending platform that defrauded 20,000 retail investors in 2018, with $655 million ‘vanish(ing) into thin air.’” Following this news, Ebang’s share price fell by 13%, closing at $5.53 per share April 6, 2021, “on unusually heavy trading volume.” After which, Ebang stated that while it believed the report “‘contain(ed) many errors, unsupported speculations and inaccurate interpretations of events,” it will review and examine the allegations with its audit committee and take the appropriate steps if necessary. After this statement, the share price continued to fall by 2.17% and 7%, respectively.
The plaintiff proffered that during the class period, the defendant made materially false and/or misleading statements and failed to disclose material information. In particular, the defendants allegedly failed to disclose “(1) that the proceeds from Ebang’s public offerings had been directed to a() low yield, long term bonds to an underwriter and to related parties rather than used to develop the Company’s operations; (2) that Ebang’s sales were declining and the Company had inflated reported sales …; (3) that Ebang’s attempts to go public in Hong Kong had failed due to allegations of embezzling investor funds and inflated sales figures; (4) that Ebang’s purported cry(p)tocurrency exchange was merely the purchase of an out-of-the-box crypto exchange; and (5) that … Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.”
Consequently, the plaintiff alleged that the defendants’ conduct had caused the share price to decline, thus causing harm to the plaintiff and putative class.
The defendants are accused of violating Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder.
The plaintiff seeks for the court to determine this a proper class action; an award for damages, costs, and fees; and other relief.