Securities Suit Claims Qudian Withheld Information from Investors in IPO

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Chinese lending company Qudian Inc. and nine of its executives have been named as defendants in a proposed class action lawsuit claiming the parties filed a misleading registration statement in connection with the company’s initial public offering (IPO) in October 2017. Also named in the lawsuit are underwriters Morgan Stanley & Co. International PLC, Credit Suisse Securities (USA) LLC, Citigroup Global Markets Inc., China International Capital Corporation Hong Kong Securities Limited, and UBS Securities LLC.

The complaint alleges that the defendants omitted material information from the registration statement and failed to disclose to potential investors the truth behind the company’s recent success in its small lending business. In particular, the suit claims the statement was missing the following information:

• that the company engaged in “predatory lending practices” that focused on young borrowers with poor credit who would be unable to pay the high interest rates they were being charged;
• that the defendant’s growing customer base included many borrowers who were using Qudian loans to pay back existing loans, increasing the risk of default;
• that Qudian was offering loans to college students despite the Chinese government’s ban prohibiting that practice;
• that the company had understated its number of “non-performing loans;”
• that government regulators were likely to condemn the company’s business practices and significantly affect its performance;
• that Qudian had failed to protect highly sensitive customer data; and
• that nearly one million customers’ data had been leaked.

The plaintiff in the suit claims investors were unaware of these material facts and suffered harm when the company’s stock declined 45 percent in less than two months following its IPO.