A.O. Smith Corporation (AOS) Accused of Misleading Investors
According to the complaint for breaches of fiduciary duties, waste of corporate assets, unjust enrichment, and violations of the Securities Exchange Act of 1934, A.O. Smith has operated in China for over 20 years. In 2018, A.O. Smith boasted “record” sales of $3.2 billion of which China sales exceeded $1 billion. However, in April 2019, A.O. Smith reported disappointing financial results with sales that declined 5% and net earnings that declined 7%, primarily due to plummeting Chinese sales. On this news, A.O. Smith’s stock fell nearly 6%. A.O. Smith’s directors played it off as a temporary weakness related to macro events. Then in May 2019, J Capital Research USA LLC issued a scathing report on A.O. Smith’s China operations and its relationship with Jiangsu UTP Supply Chain (“UTP”), an undisclosed partner in China. The report charged A.O. Smith with inflating its sales and earnings figures, and revealed that UTP may be responsible for as much as 75% of A.O. Smith’s China sales. In response, A.O. Smith published a press release, which essentially admitted that the company had substantial interests in China with UTP. Following these disclosures, A.O. Smith’s stock closed at $41.19 per share on May 29, 2019, 39% below the class period high of $68 per share, and has yet to recover
