Shareholder Investigation of A.O. Smith
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A.O. Smith Corporation (AOS) Accused of Misleading Investors
According to the complaint against the company for alleged violations of the Securities and Exchange Act of 1934 between July 26, 2016 and May 16, 2019, A.O. Smith Corporation (AOS) 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 reporting disappointing financial results, primarily due to plummeting Chinese sales. Quarterly earnings for the related segment fell over 65% year-over-year. On this news, A.O. Smith’s stock fell over 5%. However, A.O. Smith 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 chain operations and its undisclosed 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. A.O. Smith’s attempted denials revealed that it did in fact have substantial business interests in China with UTP. Following the unsatisfactory response, A.O. Smith’s stock continued to fall, closing at $43.26 per share on May 20, 2019, 36% below the class period high of $68 per share.