A significant development has emerged in the ongoing legal battle involving Chinese electric vehicle manufacturer NIO Inc. Investors have been granted the green light to proceed collectively as a class in a lawsuit that accuses the company of deceptive practices related to its 2018 initial public offering (IPO).
The lawsuit, currently in federal court in New York, is centered around allegations that NIO, its executives, and underwriters made false statements regarding the construction of a factory in Shanghai during its IPO in 2018. Investors are seeking compensation for damages stemming from a subsequent decline in share price after NIO announced in March 2019 that plans to build the factory had been abandoned, contrary to earlier claims made during the IPO.
The pivotal moment came on Tuesday, as U.S. District Judge Nicholas Garaufis issued an order certifying two distinct classes of investors. The first class encompasses investors who purchased NIO American Depositary Shares (ADS) during the September 2018 IPO. The second class includes investors who acquired ADS between October 8, 2018, and March 5, 2019.
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The accused parties, including NIO and its executives, have strongly denied the allegations. Requests for comments from their legal representatives went unanswered at the time of reporting.
This class certification marks a significant milestone for the investors, bringing them closer to a potential trial. In the realm of securities class actions, trials are a rarity; most cases are either dismissed or result in negotiated settlements. It remains plausible that NIO may petition the judge to render a verdict in its favor without necessitating a trial.
The central premise of the investors’ claims revolves around NIO’s assertion that the factory was under construction, a statement allegedly contradicted by the lawsuit’s contentions. The lawsuit further cites former employees and the absence of essential construction permits to support its assertion that construction had never even commenced.
The investors’ grievances extend to prominent underwriters of NIO’s IPO, including Morgan Stanley and Goldman Sachs, as well as others. The investors contend that these underwriters neglected to adequately scrutinize the accuracy of the company’s statements.
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The aftermath of NIO’s announcement in March 2019 had a tangible impact on its ADS prices, precipitating a 30% drop from approximately $10 to $7 per share, according to the investors.
As of Wednesday, NIO’s ADS were trading at approximately $13.50 per share, indicating a 3.9% decline from the previous day’s closing price. The case, titled “In re: NIO, Inc., Securities Litigation,” is ongoing in the U.S. District Court for the Eastern District of New York under case number 19-cv-01424.
