The law firm of Kirby McInerney LLP announces that a class action lawsuit has been filed in the U.S. District Court for the Eastern District of New York on behalf of those who acquired X Financial (“X Financial” or the “Company”) (NYSE: XYF) securities pursuant and/or traceable to the registration statement and related prospectus (collectively, the “Registration Statement”) issued in connection with the Company’s September 2018 initial public offering (“IPO”). Investors have until January 7, 2020 to apply to the Court to be appointed as lead plaintiff in the lawsuit.
The lawsuit alleges that X Financial failed to disclose that: (i) the Company’s total loan facilitation amount was not growing, but rather was contracting; (ii) the number of investors actively using X Financial’s platform was shrinking; (iii) demand from SMEs for the Company’s preferred loans was plummeting; (iv) the Company’s preferred loans had performed so poorly that it had begun drastically scaling back its preferred loans in the first quarter of 2018, several months before the IPO, and was in the process of phasing out such loans completely; (v) demand for the Company’s card loans was also plummeting; (vi) the revenue and loan facilitation growth provided in the Registration Statement leading up to the IPO was achieved by relaxed credit and due diligence standards, under which the Company had underwritten tens of millions of dollars’ worth of poor quality loans that suffered from a disproportionately high risk of default as compared to the Company’s earlier loan vintages; (vii) the Company was suffering from accelerated delinquency rates from poor quality loans that it had underwritten in the first, second, and third quarters of 2018, which had caused the Company’s delinquency rate to sharply rise; (viii) the Company’s product mix had significantly deteriorated; and (ix) the Company’s net revenue was on track to decline by 22% during the third quarter of 2018.
On or around September 19, 2018, X Financial held its IPO in which it sold more than 11.7 million American Depository Shares (“ADSs”) at $9.50 per ADS, generating more than $111 million in gross offering proceeds.
On November 20, 2018, X Financial conceded that low demand and “very high” delinquency rates for X Financial’s preferred loans had produced a cascading effect that torpedoed the Company’s overall financial results. In subsequent financial reports, X Financial has confirmed that the problems described above started before the IPO. For example, on a March 19, 2019 earnings call to discuss the Company’s fourth quarter and fiscal year 2018 results, defendant Cheng affirmed that X Financial’s loan volume had been declining “since [the] middle of last year,” which had caused declines in the Company’s ticket size. On November 22, 2019, X Financial’s ADSs closed at $1.74 per ADS. As of the date the complaint was filed, X Financial’s ADSs continute to trade below the $9.50 IPO price.
If you are a shareholder of X Financial, have information, or would like to learn more about these claims, please contact Thomas W. Elrod of Kirby McInerney LLP at 212-371-6600, by email at firstname.lastname@example.org, or by filling out this contact form, to discuss your rights or interests with respect to these matters without any cost to you.