Banking & Finance

US law firm launches investigation into star Chinese payday loan lender Qudian

Firm’s share price has fallen 40pc since its New York trading debut on October 18

PUBLISHED : Tuesday, 21 November, 2017, 6:48pm
UPDATED : Thursday, 05 July, 2018, 9:38pm

Qudian, the Chinese online payday loan platform, could be facing a rash of class-action lawsuits in the US after its share price tumbled drastically this week on the New York Stock Exchange, triggering concerns over the integrity of the firm.

New York-based law firm Faruqi & Faruqi, is now encouraging investors in Qudian to get in contact with it, as it is now “investigating potential claims against Qudian”, it said in a statement. Qudian was unavailable for comment.

Shares in the leading provider of online small consumer credit in China tumbled 5.28 per cent on Monday to close at US$20 in New York, 16.7 per cent down from its IPO price of US$24, and more than 40 per cent down from a historic intraday high of $35 reached on its trading debut on October 18.

Qudian, which is backed by Alibaba Group affiliate Ant Financial, raised US$900 million – the largest IPO in the US by a Chinese company this year.

Its share price have already been experiencing wild swings since mainland social media reports accused the business of “exploiting” students and blue collar workers, particularly, with high interest rates, allegedly selling of customers’ personal details, and that it is now facing regulatory tightening in China.

Qudian on Tuesday denied the allegations that it had been selling any customer data.

The investigation could prove another serious blow to the reputation of China’s payday loan industry. Another P2P lender He Xin Dai, which launched a US$88 million IPO in New York in early November, also saw shares drop by 6.6 per cent on the Nasdaq on Monday, after it had added more than 60 per cent on its debut.

But when there is a lot of media coverage, or other public scrutiny of the company’s activities underlying the allegations, it can be easier to file a lawsuit, and proceed quickly. Bringing a case and proving the case are two different things

Meg Utterback, international partner at the law firm King & Wood Mallesons in Shanghai, said traditionally “it has been challenging to prove any wrongdoing from the relationship between a drop in stock value and any alleged problems” with each case having to be judged on their own merits.

“But when there is a lot of media coverage, or other public scrutiny of the company’s activities underlying the allegations, it can be easier to file a lawsuit, and proceed quickly, she added. “Bringing a case and proving the case are two different things.

Chinese companies have listed on US stock exchanges in increasing numbers over the last decade, taking advantage of more readily available capital, less stringent listing criteria, and the greater recognition and prestige that comes with listing on the world’s largest bourses, she added.

“Stricter scrutiny, disclosure requirements, and weakness of some companies’ governance are now making it easier to become class-action lawsuit targets.

“However, the profiles of Chinese companies going public in the States have changed a lot too in the past few years with many improving their levels of corporate governance, and becoming more sophisticated about what are their listing requirements,” she said.

Earlier this month Qudian said revenue and profit rose more than 300 per cent in its third quarter from a year ago, in its first quarterly report following the IPO.

The three-year-old company, which focuses on providing short-term loans to businesses and young adults who have a hard time getting bank loans, reported a profit of $97.8 million, up from $23.2 million, in the prior-year quarter.

Chinese lawyer Wang Zhibin, from Shanghai-based Bright & Young Law Firm, which mainly represents China’s retail investors, added: “The compensation scale of the class-action against Qudian could be much larger than in China, ranging from several millions of US dollars to even billions.”

He explained this is because of the difference between the two countries’ law systems.

While China adopts a “no prosecution, no compensation” principle which means only the investors who bring up the lawsuits against the companies they invest in can get compensation once the court finds the companies guilty, in the US, all investors who put money into a company, as long as they fulfil the requirements set by the court, are including.

“The class actions could last two years in China, and might be longer in the US.” he said.

Alibaba owns the South China Morning Post.