Ebang International Holdings Inc. (EBON) Misled Investors Regarding its Business Plan
During the class period, Ebang failed to disclose to investors that: (i) the proceeds from Ebang’s initial public offering (“IPO”) in November 2020 had been direct to related parties instead of the Company’s operations; (ii) Ebang had inflated reported sales, including through defective units; and (iii) its attempts to go public in Hong Kong had failed due to allegations of embezzling investor funds and inflated sales figures.
On April 6, 2021, before the market opened, Hindenburg Research reported that Ebang is directing proceeds from its IPO into a “series of opaque deals with insiders and questionable counterparties.” According to the report, Ebang raised $21 million, claiming the proceeds would go “primarily for development,” but instead used the funds to repay related-party loans to a relative of Ebang’s CEO, Dong Hu. The report also noted that Ebang failed to go public on the Hong Kong Stock Exchange due to a sales inflation scheme with Yindou, a Chinese peer-to-peer online lending platform that defrauded 20,000 retail investors in 2018 with $655 million “vanish[ing] into thin air.” The report also challenged Ebang’s claim to be the leading bitcoin producer globally and noted that the Company’s sales appeared to be “defective units or just fabricated altogether.”
On this news, Ebang’s stock price fell approximately 13%, to close at $5.53 per share on April 6, 2021. In response, Ebang issued a statement that it believed the report “contain[ed] many errors, unsupported speculations and inaccurate interpretations of events,” and indicated that the Board and Audit Committed would review the allegations. The Company’s stock price declined further on this news.
