Qudian, Inc. (NYSE:QD)
Qudian’s IPO & American Depositary Shares – Class Action Lawsuit Filed
A class action lawsuit was filed in the United States District Court, Southern District of New York, against Qudian and certain Qudian officers, directors, and underwriters, alleging that Qudian and Qudian-related Defendants violated Sections 11 and 15 of the Securities Act of 1933.
The class action against Qudian was brought on behalf of all persons who purchased Qudian American Depositary Shares (“ADS”) in Qudian’s October 2017 Initial Public Offering (“IPO”) traceable to an Amended Registration Statement filed with the SEC on Form F-1/A on October 13, 2017 and a Prospectus, dated October 17, 2017, filed with the SEC.
The class action lawsuit against Qudian concerns whether the named Defendants violated federal securities laws by making false and/or misleading statements in the Registration Statement connected to the IPO by failing to disclose that Qudian’s loan collection practices were materially deficient and/or nonexistent, since Qudian treated bad loans as welfare; as well as whether Qudian’s data systems and procedures were inadequate to properly safeguard sensitive borrower data against breach, as well as that breaches had occurred.
Qudian’s IPO – $900 Million Gross Proceeds & Qudian American Depositary Shares Price Fall
In Qudian’s IPO, 37.5 million Qudian American Depositary Shares were sold at $24.00 per share for gross proceeds of $900 million, which, according to a Reuters article, “represents the biggest-ever U.S. listing by a Chinese financial technology firm.”
On December 13, 2017, Qudian American Depositary Shares closed at $13.98 per share, or more than 41% below the IPO price of $24 per share.
Bloomberg Reports: “China Regulators, Police Probe Qudian Client Data Leak”
On November 23, 2017, Bloomberg reported:
Chinese regulators and police are investigating a potential leak of data from online lender Qudian Inc., according to people with knowledge of the matter.
Officials are probing allegations that data from more than a million students who are clients of Beijing-based Qudian was leaked and possibly sold online, said the people, who asked not to be named discussing private information. The investigation is ongoing and may not lead to any action against Qudian, the people said.
The probe’s initial findings show that at least part of the leaked data match information clients had provided to Qudian, the people said. Investigators are checking whether the data came from Qudian, if the company was aware of the breach, and whether it took necessary measures to ensure the safety of personal information it collects.
Bloomberg also reported that “Qudian’s shares have slumped 33 percent since its initial public offering in New York in October, as China’s government moved to crack down on the mushrooming industry of online cash microlending” and that Qudian’s “. . . IPO prospectus didn’t mention any leaks of data containing customer information. Violations of protecting personal information carries possible penalties including shutdown of websites or cancellation of business licenses under China’s Cybersecurity Law.” [Emphasis added]
The Qudian Investor Class
The federal securities class action complaint was, subject to certain exclusions, filed on behalf of a class consisting of all persons and entities who purchased Qudian’s American Depositary Shares each representing one “Class A” ordinary share pursuant and/or traceable to Qudian’s allegedly false and misleading Registration Statement, issued in connection with Qudian’s IPO on or about October 18, 2017, seeking to recover damages caused by Defendants’ violations of the Securities Act of 1933.
Qudian Underwriter Defendants, Due Diligence & The Registration Statement
In addition to Qudian and certain Qudian officer and director defendants, the class action complaint named the following IPO-related underwriter defendants:
Morgan Stanley & Co. International plc; Credit Suisse Securities (USA) LLC; Citigroup Global Markets Inc.; China International Capital Corporation Hong Kong Securities Limited; UBS Securities LLC; Stifel, Nicolaus and Company, Incorporated; Needham & Company, LLC; and Nomura Securities International, Inc.
According to the class action complaint:
Pursuant to Section 11 of the Securities Act, the Underwriter Defendants are liable for the false and misleading statements in the Registration Statement. The Underwriter Defendants assisted Qudian and the Individual Defendants in planning the IPO and purportedly conducted an adequate and reasonable due diligence investigation into the business and operations of Qudian. As part of their due diligence investigation, the Underwriter Defendants had continuous access to confidential corporate information concerning Qudian’s business and financing practices, and met with Qudian’s lawyers, management, and top executives. As a result, a reasonable due diligence investigation would have revealed the misleading statements and omissions contained in the Registration Statement . . ..
Qudian’s Registration Statement – Alleged Negligent Preparation & Security of Borrower Data
According to the class action complaint, [t]he Registration Statement was negligently prepared and, as a result, contained untrue statements of material facts or omitted to state other facts necessary to make the statements made not misleading, and was not prepared in accordance with the rules and regulations governing its preparation.
Further, the complaint alleges that the following statements concerning the security of borrower data “. . . were false and/or misleading when made because they failed to disclose the fact that Qudian’s data systems and procedures were materially inadequate to safeguard sensitive borrower data against breach, and breaches had occurred”:
Our business and internal systems rely on software that is highly technical and complex. In addition, our business and internal systems depend on the ability of such software to store, retrieve, process and manage large amounts of data. The software on which we rely has contained, and may now or in the future contain, undetected errors or bugs. Some errors may only be discovered after the code has been released for external or internal use. Errors or other design defects within the software on which we rely may result in a negative experience for users, delay introductions of new features or enhancements, result in errors or compromise our ability to protect user data or our intellectual property, or affect the accuracy of our operating data. Any errors, bugs or defects discovered in the software on which we rely could result in harm to our reputation, loss of users, liability for damages, any of which could adversely affect our business, financial condition and results of operations.
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Misconduct and errors by our employees and parties we collaborate with could harm our business and reputation. We are exposed to many types of operational risks, including the risk of misconduct and errors by our employees and parties that we collaborate with. Our business depends on our employees and/or business partners to interact with users, process large numbers of transactions, deliver merchandise purchased by borrowers, providing user and after-sale product services and support the collection process, all of which involve the use and disclosure of personal information. We could be materially and adversely affected if transactions were redirected, misappropriated or otherwise improperly executed, if personal information was disclosed to unintended recipients or if an operational breakdown or failure in the processing of transactions occurred, whether as a result of human error, purposeful sabotage or fraudulent manipulation of our operations or systems.
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If any of our employees or business partners take, convert or misuse funds, documents or data or fail to follow our rules and procedures when interacting with users, we could be liable for damages and subject to regulatory actions and penalties. We could also be perceived to have facilitated or participated in the illegal misappropriation of funds, documents or data, or the failure to follow our rules and procedures, and therefore be subject to civil or criminal liability. Any of these occurrences could result in our diminished ability to operate our business, potential liability to users, inability to attract users, reputational damage, regulatory intervention and financial harm, which could negatively impact our business, financial condition and results of operations.
Investors of Qudian American Depositary Shares
If you purchased or otherwise acquired Qudian American Depositary Shares (NYSE:QD) pursuant to Qudian’s IPO and would like to speak privately with a securities attorney, please complete the form to the right or contact John Kehoe, Esq., (215) 792-6676, Ext. 801, [email protected] or send an e-mail to [email protected].