- Company Name
- Xunlei Limited
- Stock Symbol
- Class Period
- October 10, 2017 to January 11, 2018
- Motion Deadline
- March 20, 2018
- Southern District of New York
The complaint charges Xunlei and certain of its current and former officers with violations of the Securities Exchange Act of 1934. Xunlei operates an internet platform in China based on cloud technology that enables users to access, manage and consume digital media content. Xunlei’s main product is OneCloud, a network-linked storage device that allows multiple users to share online storage remotely and provides a “mining machine” for users to share their idle bandwidth with Xunlei’s content delivery networks.
On October 10, 2017, Xunlei announced the introduction of “OneCoin,” a blockchain-based product with no central bank endorsed value, which would allow OneCloud users to receive OneCoin for contributing their OneCloud bandwidth and purchase Xunlei’s products, goods and services using OneCoin.
The complaint alleges that throughout the Class Period, defendants made false and misleading statements and/or failed to disclose adverse information regarding Xunlei’s business and prospects, including that the Company had engaged in unlawful financial activity, that OneCoin was a form of disguised Initial Coin Offering (“ICO”), and that Xunlei was engaged in the promotion of an Initial Miner Offering (“IMO”). As a result of these false statements and/or omissions, the price of Xunlei American Depositary Shares (“ADSs”) was artificially inflated to nearly $25 per ADS during the Class Period.
On November 24, 2017, media outlets in China reported that Xunlei’s business partner, Shenzhen Xunlei Big Data Information Services (“Big Data”), was accusing Xunlei of conducting an unlawful ICO through the OneCoin project. On this news, the price of Xunlei ADSs declined more than 25% over the next two trading days to close at $18.58 per share. On November 28, 2017, Xunlei’s ADS price fell another 31% when it issued a clarification of its relationship with Big Data and stated that it had terminated the right of Big Data to use the “Xunlei” brand name.
Then on January 12, 2018, the National Internet Finance Association of China issued a “Risk Alert” notice on “Disguised ICO Activities” (the “Risk Alert”). The Risk Alert stated that a September 2017 Announcement on Guarding against ICO Risks issued by seven ministries “clearly pointed out that ICO activities are suspected of involving illegal criminal activities . . . and that all institutions and individual should immediately stop engaging in ICO activities.” With respect to Xunlei, the Risk Alert stated that “[w]ith the gradual phasing out of ICO projects nationwide, Initial Miner Offerings (IMO), represented by the token [OneCoin] issued by Xunlei, has emerged as a potentially risky model that warrants vigilance.” The Risk Alert went on to say that “[s]ince last October, a series of ‘virtual digital assets’ have been issued, including [OneCoin] . . . . In the case of [OneCoin] issued by Xunlei, . . . the issuing company in effect substitutes [OneCoin] for the duty to pay back project contributors with legal tender, making it essentially a financing activity and a form of disguised ICO. In addition, with frequent promotional activities and publishing of trading tutorials, Xunlei has lured many citizens without sound discernment into IMO activities.” On this news, the price of Xunlei ADSs fell $6.27 per share, or more than 27%, to close at $16.63 per share on January 12, 2018.