China Express Express encounters litigation in the United States: data fraud when alleged IPO
ã€Global Network Technology Report】 Zhongtong Express and its IPO (initial public offering) underwriter recently encountered litigation, saying that the company has attracted investors by passing profits exceeding industry peers and exaggerating profit margins.
Morgan Stanley and Goldman Sachs led the Zhongtong IPO on October 26, 2016, and Zhongtong raised US$1.4 billion in IPO. The Birmingham Pension Fund filed a class action lawsuit against Zhongtong, Morgan Stanley and Goldman Sachs in the Alabama State Court. The fund alleged that the investment bank failed to find Zhongtong’s fraud data.
It is reported that a large part of Zhongtong's business comes from Alibaba. The fund believes that Zhongtong uses a "network partner" system to handle low-margin pickup and delivery services to remove low-profit parts of its book business.
The lawsuit alleges that such actions ignore the "critical reality" of the industry. "By excluding the network partner business from the book, Zhongtong can exaggerate the profitability of investors."
At present, Zhongtong’s US depository shares have fallen by about 20% compared with the IPO issue price of US$19.50.
Sophie Li, spokesman for Zhongtong Investor Relations, denied the accusation. In an e-mail, she said: "We believe this accusation is not true and we will actively defend ourselves."
The small underwriters of Zhongtong IPO, including Huaxing Capital Securities (Hong Kong), Credit Suisse, Citigroup and JP Morgan, were also involved in the lawsuit.
However, Morgan Stanley and Citigroup declined to comment on the lawsuit. Other investment banks have not yet responded.
The fund said: "The underwriter defendant is not aware of the company's undisclosed existing issues and plans, as well as the major false statements and omissions in the registration statement, which is a kind of negligence."
The indictment quoted a false statement considered by the fund. In the registration document submitted to the Securities and Exchange Commission (SEC) at that time, Zhongtong stated: "With the rapid growth, we have achieved remarkable profitability. In 2015, our operating profit margin was 25.1%, which is a major global listing. One of the highest logistics companies."
The indictment stated that the fund had made investment decisions based on these statements provided by China Communications, but Zhongtong's stock price has declined.
The individual defendants in this lawsuit included Zhongmei CEO Lai Meisong, Chief Financial Officer Guo Jianmin, and some board members.
The lawsuit was filed in May this year but has not been reported previously. The fund’s attorney has not yet responded to this.
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