Alibaba Group Holding Limited (NYSE:BABA) is facing an increasing number of lawsuits over how it disclosed information about Ant Group, the operator of digital payments platform Alipay.
Elissa Hess, as Trustee for The EH Living Trust, has filed a securities fraud action against Alibaba at the New York Southern District Court. The action is related to another lawsuit FX News Group reported about in November 2020.
Elissa Hess brings this action on behalf of all purchasers of Alibaba American Depositary Shares (ADSs) between July 9, 2020 and December 23, 2020, inclusive, seeking to pursue remedies under the Securities Exchange Act of 1934. These claims are asserted against Alibaba and certain of its officers who allegedly made materially false and misleading statements during the Class Period in press releases and filings with the SEC.
Alibaba aowns a 33% equity interest in Ant Group, a financial technology company best known for operating Alipay, a mobile and online payment platform.
On July 20, 2020, Ant Group announced it was preparing for its initial public offering (IPO), which aimed to raise $34 billion. Alibaba represented that the IPO would be a significant boon to the Company, as the market was purportedly “assigning very little value to its stake in Ant Group.”
Unbeknownst to investors, Alibaba and its founder Jack Ma had structured Ant Group to evade critical Chinese banking regulations. For example, Alibaba dropped “Financial” from the Ant Group name and claimed in IPO offering materials that “Ant Group is not a financial institution.” This representation was material to investors, because, if true, it allowed Ant Group to avoid onerous capital requirements and other regulations, such as the requirement that Ant Group fund at least 30% of loans issued rather than the mere 2% it was currently funding.
On November 2, 2020, media reports stated that Chinese regulators had conducted “regulatory interviews” with Ant Group’s controller Jack Ma, executive chairman Eric Jing, and Chief Executive Officer Simon Hu.
On November 3, 2020, Ant Group suspended its IPO because Ant Group “may not meet listing qualifications or disclosure requirements due to material matters.” On this news, the price of Alibaba’s ADSs fell more than 8%.
On November 10, 2020, China’s anti-monopoly regulator, the State Administration for Market Regulation (SAMR), published draft rules aimed at curtailing Alibaba’s coercive cooperation pacts, causing Alibaba ADSs to suffer another 8% decline.
Then, on December 23, 2020, Chinese authorities revealed an antitrust investigation into Alibaba itself, acting on reports that Alibaba had improperly pressured merchants to exclusively sell goods on Tmall. Regulators stressed the need to “guide Ant Group to implement financial supervision, fair competition and protect the legitimate rights and interests of consumers.” On this news, the price of Alibaba’s ADSs fell 13%.
The complaint alleges that, throughout the Class Period, defendants violated the federal securities laws by disseminating false and misleading statements to the investing public and/or failing to disclose adverse facts pertaining to the Company’s business, operations and prospects. Specifically, defendants knew, or recklessly disregarded, but failed to disclose the following adverse facts:
- That Alibaba had illicitly sought to circumvent Chinese laws and regulations, including laws regulating financial institutions and prohibiting anticompetitive behavior;
- That Ant Group was predominantly a financial company subject to onerous Chinese banking regulations, including greater capital requirements than were disclosed to investors, rather than predominantly a technology company as represented;
- That, as a result of the foregoing, Ant Group’s growth, prospects and the value proposition of the Ant Group IPO were far smaller than represented;
- That Alibaba had forced merchants using its Tmall platform to sign coercive exclusivity agreements and had engaged in other anticompetitive behavior; and
- As a result, Alibaba’s public statements were materially false and/or misleading at all relevant times.
As a result of defendants’ wrongful acts and omissions, plaintiff and the Class purchased Alibaba ADSs at artificially inflated prices and were damaged thereby, the complaint says.
In this case, Elissa Hess seeks, inter alia, awarding plaintiff and the members of the Class damages and interest, as well as awarding plaintiff’s reasonable costs, including attorneys’ fees.