China Express Express encounters litigation in the United States: data fraud when alleged IPO

In late October 2016, Zhongtong Express went public with the help of lead underwriters Morgan Stanley and Goldman Sachs, raising $1.4 billion through its initial public offering. However, the Birmingham Pension Fund has since filed a class-action lawsuit against Zhongtong, along with these underwriters, in Alabama State Court. The complaint alleges that the investment banks failed to uncover fraudulent data presented by Zhongtong during the IPO process. It’s worth noting that a significant portion of Zhongtong's operations rely heavily on partnerships with Alibaba. According to the lawsuit, the company employs a "network partner" system to outsource low-margin pick-up and delivery services, effectively removing less profitable segments from their financial statements. This practice, the lawsuit claims, overlooks critical realities within the logistics industry and allows Zhongtong to inflate its profitability figures, misleading investors. Since its debut, Zhongtong's U.S.-listed American Depository Shares (ADS) have plummeted roughly 20% from the IPO price of $19.50. In response to these allegations, Sophie Li, a spokesperson for Zhongtong’s investor relations, denied any wrongdoing in an email, stating that the company firmly believes the accusations are baseless and intends to vigorously defend itself. Smaller underwriters involved in Zhongtong’s IPO, such as Huaxing Capital Securities (Hong Kong), Credit Suisse, Citigroup, and J.P. Morgan, were also named in the lawsuit. While Morgan Stanley and Citigroup have chosen to remain silent on the matter, other institutions have yet to respond publicly. The lawsuit further accuses the defendant underwriters of negligence, claiming they were unaware of undisclosed issues or plans at Zhongtong, as well as material misstatements and omissions in the company's registration documents submitted to the SEC. Among the cited inaccuracies is a claim in the registration statement stating that Zhongtong achieved an impressive 25.1% operating profit margin in 2015, positioning it as one of the most profitable logistics firms globally. Investors who acted on this information have seen their investments suffer significant losses. Named as individual defendants in the case are Zhongtong’s CEO Lai Meisong, CFO Guo Jianmin, and several board members. Interestingly, while the lawsuit was filed earlier this year, it remained unreported until now. Attempts to reach the fund’s legal representatives for comment have so far gone unanswered. As this situation unfolds, investors are left questioning the transparency of Zhongtong's financial reporting and the due diligence exercised by its underwriters. With the stock price under pressure, the future of Zhongtong Express remains uncertain, especially given the ongoing legal challenges.

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