Canaan Inc. Class Action Lawsuit
- Company Name
- Canaan Inc.
- Stock Symbol
- Class Period
- November 20, 2019 initial public offering
- District of Oregon
On March 4, 2020, the Canaan Inc. securities class action lawsuit was filed charging Canaan, certain of its officers and directors and the underwriters of its November 20, 2019 initial public offering (“IPO”) with violations of the Securities Act of 1933. The Canaan securities class action lawsuit was commenced in the District of Oregon on behalf of purchasers of Canaan securities, including its American Depositary Shares (“ADSs”) pursuant to Canaan’s IPO and is captioned Lemieux v. Canaan Inc., et al., No. 20-cv-356.
Canaan designs, manufactures, and sells Bitcoin mining machines globally. On October 27, 2019, Canaan entered into a “strategic cooperation” agreement with Hangzhou Grandshores Weicheng Technology Co., Ltd. (“Grandshores”). According to this agreement, Grandshores agreed to purchase from or distribute on behalf of Canaan up to $150 million USD worth of equipment.
The Canaan securities class action lawsuit alleges that the Registration Statement for the IPO was materially false and misleading and failed to disclose to investors that: (1) the purported “strategic cooperation” between Canaan and Grandshores was actually a related-party transaction; (2) Canaan’s financial health was worse than it had reported; (3) Canaan had removed numerous distributors from its website just prior to the IPO, many of which were small or suspicious businesses; and (4) several of Canaan’s largest Chinese clients in prior years were clients who were not in the Bitcoin mining industry and, thus, would likely not be repeat customers.
On February 20, 2020, Marcus Aurelius Value published a report explaining Canaan’s numerous allegedly false and/or misleading statements. Specifically, the report noted that Canaan’s strategic partnership with Grandshores was actually a related-party transaction and “farcical on its face[,] because Grandshore’s market cap is a mere $50 Million USD and it reports having only $16 Million USD in cash on hand, nowhere near the financial wherewithal to buy this much equipment.” The report also noted that Canaan was sued in 2019 by a vendor for allegedly failing to pay an invoice of approximately $1.7 million, with the vendor further alleging that Canaan “said it couldn’t pay because of ‘sales problems and market circumstances.’” The report further stated that Canaan had “abruptly deleted 8 of the 11 unique distributors that were featured on its website shortly before” the IPO and that “most appear to be small, defunct, or otherwise incapable of buying material amounts of product from [Canaan].” The report also raised questions about the sustainability of Canaan’s customer base. On this news, the price of Canaan’s ADSs fell by nearly 7%. By the commencement of the Canaan securities class action lawsuit, the price of Canaan’s ADSs had declined to $4.66 per share – nearly 50% below the IPO price.
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