(Asian Tech Press) E-cigarette giant RLX Technology Inc (RLX: New York), which has reaped huge profits in China, could face serious litigation risks in the United States.
A dozen law firms in the U.S. have filed securities class action lawsuits on behalf of investors against Chinese e-cigarette company RLX Technology, alleging that the company exaggerated its financials in its initial public offering filing with the U.S. Securities and Exchange Commission (SEC) in January and failed to adequately explain the risks investors may face, according to Business Wire.
Beijing-based RLX, which was founded in 2018, goes public on the New York Stock Exchange in January 2021. The offering raised $1.39 billion, making it one of the world's largest IPOs in the first quarter, according to data provider Dealogic Ltd.
Since June, however, RLX Technology has faced a series of lawsuits. The first lawsuit was filed on June 9 by an individual investor, Alex Garnett. On the same day, New York-based law firm Scott+Scott, Attorneys at Law, LLP, Llp filed a class action lawsuit against the e-cigarette giant.
It was followed by several law firms, including Robbins Geller Rudman & Dowd LLP, Kessler Topaz Meltzer & Check, LLP, Law Offices of Howard G. Smith, and other shareholder rights litigation firms.
The Schall Law Firm was the first to focus on whether RLX Technology has violated shareholder rights. The firm announced on April 13 of this year that it was investigating alleged violations of federal securities laws against RLX Technology and encouraged investors with losses to contact it.
On June 10, The Schall Law Firm announced the filing of a class action lawsuit against RLX for violations of the federal securities laws.
As seen in the dozen law firm announcements, these lawsuits center on the risks to investors posed by RLX's failure to adequately articulate in its IPO filing the ongoing efforts of Chinese regulators to tighten the sale of e-cigarettes.
China's Ministry of Industry and Information Technology (MIIT), and State Tobacco Monopoly Administration, issued on March 22 online the draft regulations, requiring e-cigarettes and other new tobacco products to be governed regarding the relevant regulations for cigarettes.
After the release of the draft, the stock price of RLX plunged, closing down nearly 48%, reducing the market value to about $15.8 billion that evening. In the following months, RLX stock continued to slump, with the highest share price of only $12.53.
RLX's share price was $8.99 at the close of trading on Friday. Compared with the opening price of $22.34 in the US market debut, its stock has shrunk by about 60% per share.
For investors who purchased a large number of American depositary shares (ADSs) in the company's initial public offering, the severely diminished stock represents a significant loss.
As a result, more than ten U.S. law firms filed lawsuits against RLX on behalf of investors, claiming that the company's offering documents failed to warn investors of the risks posed by Chinese regulators, thereby causing serious losses to investors.
In response, RLX Technology said, "Some plaintiffs have filed securities-related lawsuits against the Company in U.S. courts alleging misrepresentation of facts regarding regulatory policies, etc. in its IPO process, which the Company believes to be unfounded."
"The Company has engaged U.S. law firms to respond to the lawsuits and plans to make every effort to maintain its reputation and actively defend against such lawsuits, " it added.
