- Company Name
- Fanhua, Inc.
- Stock Symbol
- Class Period
- April 20, 2018 to August 27, 2018
- Motion Deadline
- November 6, 2018
- Southern District of New York
The complaint charges Fanhua and certain of its officers with violations of the Securities Exchange Act of 1934. Founded in 1998, Fanhua (formerly known as CNinsure Inc.) is an independent online-to-offline financial services provider. Through its online platforms and offline sales and service network, Fanhua offers a wide variety of life and property and casualty insurance products, and provides insurance claims adjusting services.
The complaint alleges that throughout the Class Period, defendants made materially false and misleading statements and/or failed to disclose adverse information regarding the Company’s business and operations, including that Fanhua had engaged in improper business practices, including irregular accounting, which overstated Fanhua’s financial assets and performance metrics in order to benefit Company insiders. As a result of these false statements and/or omissions, Fanhua securities traded at artificially inflated prices during the Class Period, with the price of the Company’s American Depositary Shares (“ADSs”) reaching a high of more than $36 per ADS.
On August 27, 2018, Seeking Alpha published a report by Seligman Investments regarding Fanhua. The report stated that “[b]ased on due diligence of [Chinese State Administration for Industry & Commerce] filings and other public information, we are deeply concerned about the company’s business practices.” The report asserted that the Company was “grossly exaggerating its number of insurance sales agents, and hence its potential for growth. . . . Our analysis suggests that the actual size of [the Company’s] sales channel is a mere 1/20th of the reported number.” The report also detailed a history of alleged fraud at the Company, including accounting irregularities in the Company’s second quarter 2018 financial results, and described “company insiders” engaging in “self-dealing tactics,” asserting that Fanhua’s “numerous acquisitions, mostly of other insurance intermediaries . . . are rife with related-party abuses.” On this news, the price of Fanhua ADSs fell $2.75 per ADS, or more than 10%, to close at $23.40 per ADS on August 27, 2018.