Tuya Inc., a Chinese concept stock, is facing a class-action lawsuit brought by U.S. investors.
A shareholder named Xiaomeng Lian took the lead in the lawsuit. Lian filed a case in federal court in the Southern District of New York through shareholder rights law firm Johnson Fistel on August 9.
Lian accused Tuya of violating federal securities laws in its initial public offering (IPO) in March 2021.
Since then, four law firms have followed suit. They include Shareholders Foundation, Levi & Korsinsky, Hagens Berman, and Robbins Geller Rudman & Dowd.
They have announced the initiation of an investigation process and are seeking the lead plaintiff by October 11.
On October 3, Vincent Wong Law Firm on East Broadway Street in New York City announced that it had also filed a class-action lawsuit against Tuya. It was filed on behalf of all individuals and entities who purchased Tuya shares on the company’s initial public offering in 2021.
The law firm sues Tuya, the company’s leaders, and the underwriter of the stock, which failed to do full due diligence.
Tuya, based in Zhejiang province, operates an Internet of Things (IoT) cloud platform worldwide.
It raised a total of $915 million in the IPO in the U.S. on March 18, 2021. It sold 43.6 million shares at $21 per share.
At that time, the mainland media called it the honorary landing on the New York Stock Exchange.
The indictment filed in federal court in New York said that Tuya’s IPO documents touted the company’s historic growth.
The documents also did not disclose that, before the IPO, consumer surveys and data exposed an illegal fake review scheme implemented by many of Tuya’s customers.
The plaintiffs cited reports in 2019 from a British consumer website, pointing out that some of the reviewers listed Tuya products with tens of thousands of positive reviews, but there was no evidence that the reviewers had purchased the products.
In August 2020, UCLA and the University of Southern California published a research paper analyzing the market for fake review products on Amazon’s website. They found that most sellers who benefit from fake reviews are located in China.
In March 2021, Safety Detectives, a data security organization, gained access to a data server in China. The server contained 7GB of data and more than 13 million records, including direct communication between sellers and buyers who provided false reviews.
Seeking Alpha reported that Amazon suspended more than 200,000 accounts after discovering over 13.1 million records of fake reviews.
Thus, the plaintiffs allege that a significant portion of Tuya’s Chinese customers was involved in illegal activities to promote and sell their products in the e-commerce market misleadingly.
The court has asked the parties to submit status updates by October 30.
As of August 2022, Tuya’s share price has fallen below $2 per share—90% below the price it sold at in the IPO.