Chinese Investors Filed a Class Action against Fanhua Inc. and Its Management Officers for Securities Fraud (Sep. 7, 2018, U.S. District Court in New York)

Founded in 1998, incorporated in Cayman Islands, Fanhua is a leading financial services provider, offering life, property and casualty insurance products. In October 2017, Fanhua listed its American depositary shares (ADS) on NASDAQ. After the listing, Fanhua’s audited annual reports, SEC filings, press releases and other financial statements all showed very positive numbers about its revenue and operation. Through these positive signs, Fanhua successfully attracted many Chinese investors to purchase its ADS between April and August, 2018.
In late August, 2018, Seeking Alpha published an investigation report disclosing that several numbers on Fanhua’s aforementioned financial documents were false and misleading, and that Fanhua failed to disclose improper business practices that were intended to benefit its insiders and overstate its financial assets. After this, Fanhua’s stock price severely fell and its investors suffered damages. A group of investors (all or several of them are Chinese) filed a class action against Fanhua and its CEO, Chunlin Wang, and CFO, Peng Ge, for securities fraud, arguing that Fanhua’s misrepresentation of and omission to disclose material information, and its CEO’s and CFO’s intentional failure to correct the mistaken information violated the Securities Exchange Act and Rule 10b-5. The case has been submitted to a New York District Court.
Written by Derek Tai