Four Suits Filed on Behalf of Investors After NYSE IPO of China’s Didi
July 08, 2021
At least four lawsuits have been filed on behalf of U.S. investors after
questions emerged about whether the Chinese ride-hailing firm Didi Global Inc.
had been warned by Beijing regulators to postpone its multi-billion-dollar
initial public offering (IPO) on the New York Stock Exchange (NYSE).
The suits reflect rising concern over the political risk of investing in
U.S.-listed Chinese companies.
Labaton Sucharow LLP, a shareholder-rights law firm in New York, announced on
July 6 that it was investigating claims on behalf of investors in Didi Global
Inc. New York- based investor-rights law firm Rosen also has filed a class
action lawsuit against Didi, “seeking to recover damages for Didi investors
under the federal securities laws.”
Two other law firms, Schall Law Firm in Los Angeles and Glancy Prongay & Murray
LLP, of Berkeley, California, have filed similar lawsuits in the past few days.
“The key lies in whether Didi has received any oral or written warning from the
Chinese government before the IPO,” Guo Yafu, founder and CEO of the New York
investment advisory firm TJ Capital Management told VOA Mandarin.
“If it had, Didi has a legal responsibility to disclose that information to the
investors,” he told VOA Mandarin by phone Tuesday.
Wei Cheng, a former employee of Chinese e-commerce giant Alibaba founded Didi,
China’s version of Uber, in 2012. Since then, the ride-hailing company has
expanded its business to about 4,000 cities in 15 countries, including China,
Australia, New Zealand, Japan, Brazil, Mexico, Chile, Colombia, Peru, Costa
Rica, Panama, Russia, the Dominican Republic, and Argentina. It has roughly 493
million active annual users and 15 million drivers.
On June 30, Didi made its debut at $14 a share, which valued the company at $68
billion, making DiDi the largest IPO of a Chinese company listed on an American
exchange since Alibaba raised $25 billion in 2014.
Two days later, on July 1, Beijing announced it was launching a cybersecurity
review of the company and said new users would not be allowed to register with
the company during the review. Over the weekend, the Cyberspace Administration
of China (CAC), ordered Didi’s app removed from mobile app stores in China.
The Wall Street Journal citing people familiar with the matter, reported Monday
that Chinese regulators had advised Didi to postpone its U.S. listing and “urged
it to conduct a thorough self-examination of its network security.”
According to Reuters, Didi responded on Monday that it had no prior knowledge
before its IPO that Beijing would launch an investigation of the company.
When the NYSE opened Tuesday after the long July 4 holiday weekend, Didi shares
were down on the CAC news, and by the close, $15 billion of book value had been
erased. Shares of other major Chinese companies traded in the U.S. also fell on
News of China’s investigation has raised concerns of the political risks that
may adhere to U.S.-listed Chinese companies.
Jesse Fried, a Harvard Law School professor of corporate law, told VOA Mandarin
that under the current legal framework, there’s little U.S. regulatory agencies
can do to protect U.S. investors from regulatory actions by China that might
harm U.S.-listed Chinese firms.
“In theory, the U.S. could bar China-based firms from listing in the U.S., but
the SEC [U.S. Security and Exchange Commission] does not have the authority to
do that as long as these firms provide adequate disclosure at the IPO,” he told
VOA Mandarin via phone.
“I doubt China cares about inflicting losses on U.S. investors, which is why it
can behave very aggressively toward U.S.-listed firms,” Fried said. “If Didi
were listed in China, Chinese regulators would be more careful about curbing
Didi because they would be concerned about backlash from Chinese investors.”
Apart from its crackdown on DIdi, Beijing also is investigating the online
recruitment platform Kanzhun Ltd., which connects job seekers and hiring
enterprises via a mobile app, and the Uber-like trucking startup, Full Truck
Alliance Co. Both companies were listed in the U.S. recently. According to
Bloomberg, there are as many as 34 Chinese firms seeking U.S. listings this
New York Times reported that by targeting companies like Didi, Beijing is
“sending a stark message to Chinese businesses about the government’s authority
over them, even if they operate globally and their stock trades overseas.”
"Chinese stocks are just too risky now,” said Guo. “Today [Beijing officials]
target Didi, yesterday they targeted Alibaba. The Chinese government is sending
a message that they are not happy about the flood of U.S. IPOs by Chinese tech
He said Didi’s IPO will have a negative effect on Chinese companies that want to
be listed in the U.S. in the future, adding, “Investors will likely think twice
about whether they want to take the political risk posed by China’s efforts to
control big data.”