Preview
“ '
0R.3INAL
Laurence M. Rosen, Esq. (SBN 219683) SAN
FILED
MATEQ 9 ‘ NTY
‘
THE ROSEN LAW FIRM, P.A. .
‘
355 South Grand Avenue, Suite 2450 M v
y;
Los Angeles, CA 90071 .
U.) ‘
‘-‘«j
.
Telephone: (213) 785-2610 Cler
Facsimile: (213) 226—4684 By -.
Email: lrosen@rosenlegal.com
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Counsel for Plaintiff
\IO\
SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF SAN MATEO
INGEUN SONG, Individually and on Behalf of ) Case No.: V 0 1 4 2 5
All Others Similarly Situated,
I
18 C I
)
10 CLASS ACTION COMPLAINT FOR
)
11
Plaintiff, ‘
) VIOLATIONS OF THE SECURITIES ACT
) OF 1933
12 V. )
) JURY TRIAL DEMANDED
13 QUDIAN INC., MIN LUO, CARL YEUNG,
LIANZHU LV, YI CAO, SHILEI LI, LI DU,
14
CHAO ZHU, TIANYU ZHU, DIANA ARIAS,
15
MORGAN STANLEY & CO.
INTERNATIONAL PLC, CREDIT SUIS SE 18—cIV-D1425
(MP
16 SECURITIES (USA) LLC, CITIGROUP \
1
Complaint
GLOBAL MARKETS INC., CHINA
17 INTERNATIONAL CAPITAL
g‘_
’
CORPORATION HONG KONG K{iii1111111111111
vvvvvvvvvvvvvvvv
18
SECURITIES LIMITED, UBS __ 7—7 ,
19
SECURITIES LLC, STIFEL, NICOLAUS &
COIVIPANY, INC., NEEDHAM & COMPANY,
20 LLC, and NOMURA SECURITIES
INTERNATIONAL, IN C.,
21
Defendants.
22
23
24
25
26
27
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CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE SECURITIES ACT OF 1933
Plaintiff Ingeun Song (“Plaintiff”) individually and on behalf of all other persons similarly
situated, by Plaintiff’s undersigned‘attorneys, for Plaintiffs complaint against Defendants (defined
below), alleges the following based upon personal knowledge as to Plaintiff and Plaintiff’s own
acts, and information and belief as to all other matters, based upon, inter alia, the investigation
(/1n
conducted by and through Plaintiffs attorneys, which included, among other things, a review of the
Defendants’ public documents, conference calls and announcements made by defendants, United
States Securities and Exchange Commission (“SEC”) filings, wire and press releases published by
\OOO\IO\
and regarding Qudian Inc. (“Qudian” or the “Company”), and information readily obtainable on the
Internet. Plaintiff believes that substantial evidentiary support will exist for the allegations set forth
10 herein after a reasonable opportunity for discovery.
11 NATURE OF THE ACTION
12 1. This is a securities class action on behalf of all persons other than Defendants who
13 purchased Qudian American Depositary Shares (“ADSs”) in or traceable to the Company’s October
14 18, 2017 initial public offering (the “IPO”) seeking to pursue remedies under the Securities Act of
15 1933 (the “Securities Act”).
16 JURISDICTION AND VENUE
17 2. The claims asserted herein arise under and pursuant to Sections 11 and 15 of the
18 Securities Act (15 U.S.C. 77k and 77(0)). This Court has jurisdiction over the subject matter of
§§
19 this action pursuant to Section 22 of the Securities Act, 15 U.S.C. 77v, which explicitly states that
§
20 “[e]xcept as provided in section 16(0), no case arising under this title and brought in any State court
21 of competent jurisdiction shall be removed to any court in the United States.” Section 16(c) of the
22 Securities Act refers to “covered class actions,” which are defined as lawsuits brought as class
23 actions or brought on behalf of more than 50 persons asserting claims under state or common law.
24 This is an action asserting federal law claims. Thus, it does not fall within the definition of a
25 “covered class action” under §16(c) and therefore is not removable to federal court under the
26 Securities Litigation Uniform Standards Act of 1998.
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CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE SECURITIES ACT OF 1933
3. Each Defendant has sufficient contacts with California, or otherwise purposefully
avails itself of benefits from California or has property in California so as to render the exercise of
jurisdiction over each by California courts consistent with traditional notions of fair play and
4; substantial justice.
4. The amount in controversy exceeds the jurisdictional minimum of this Court, and the
total amount of damages sought exceeds $25,000.
\IONLJI
5. Venue is pr0per in this Court because Defendants’ wrongful acts arose in and
emanated from, in part, this County. The Violations of law complained of herein occurred in this
County, including the dissemination of materially misleading statements into this County, the
10 purchase of the Company’s ADSs by members of the class who reside in this County, and the sale
11 of the Company’s ADSs by the Underwriter Defendants (defined below) in this County.
12 PARTIES
13 6. Plaintiff purchased Qudian ADSs pursuant and/or traceable to the IPO, and was
14 damaged thereby. Plaintiff is a citizen of California.
15 7. Defendant Qudian isa financial lending company based in Beijing, China. Its ADSs
16 sold in the IPO trade on the New York Stock Exchange (“NYSE”) under the ticker symbol “QD.”
17 8. Defendant Min Luo (“Luo”) is Qudian’s founder, was Qudian’s Chief Executive
18 (“CEO”) of the Board of Directors “Board”) the time of the
Officer and Chairman (the at IPO.
19
Defendant Luo was also the controlling shareholder of the Company before and after the IPO by way
20
of his ownership of Qudian Class B shares.
21
9. Defendant Carl Yeung (“Yeung”) was Qudian’s Chief Financial Officer (“CFO”)
22
23 at the time of the IPO.
24 10. Defendant Lianzhu Lv (“Lv”) was a director and member of the Board of Qudian at
25 the time of the IPO.
26
11. Defendant Yi Cao (“Cao”) was a director and member of the Board of Qudian at
27
the time of the IPO. Defendant Cao also sold Qudian shares in the IPO.
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CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE SECURITIES ACT OF 1933
12. Defendant Shilei Li (“Li”) was a director and member of the Board at Qudian at the
time of the IPO.
13. Defendant Li Du (“Du”) was a director and member of the Board of Qudian at the
Ul-PnUJN
time of the IPO. Defendant Du also sold Qudian shares in the IPO.
14. Defendant Chao Zhu (“Q Zhu”) was a director and member of the Board at the time
of the IPO.
(“T. Zhu”) of the of
KOOONO'N
15. Defendant Tianyu Zhu was a director and member Board
Qudian until September 2017.
10 16. Defendant Diana Arias (“Arias”) was the Company’s Senior Manager at the time of
11 the IPO.
12 17. The defendants identified in are referred to herein as the “Individual
THIS—16
13
Defendants.” The Individual Defendants signed the Registration Statement (defined below) and, as
14
directors and/or executive officers of the Company, participated in the solicitation and sale of
15
Qudian ADSs to investors in the IPO for their own benefit and the benefit of Qudian.
16
17
18. Defendants Morgan Stanley & Co. International plc (“Morgan Stanley”) served as
18 an underwriter for the IPO and sold 14,252,850 ADSS for which it received certain fees and
19 commissions. Upon information and belief Morgan Stanley conducts business in California.
20
19. Defendant Credit Suisse Securities (USA) LLC (“Credit Suisse”) served as an
21
underwriter for the IPO and sold 5,616,890 ADSS for which it received certain fees and
22
commissions. Credit Suisse isregistered to do business in California and is a FlNRA registered
23
broker in California. Credit Suisse conducts business in California. Credit Suisse maintains an
24
25 office at 650 California Street, San Francisco, CA 94108.
26 20. Defendant Citigroup Global Markets Inc. (“Citigroup”) served as an underwriter
27 for the IPO and sold 4,914,778 ADSS for which it received certain fees and commissions.
28
Citigroup is registered to do business in California and is a F INRA registered broker in California.
_ 3 _
CLASS ACTION COIVIPLAINT FOR VIOLATIONS OF THE SECURITIES ACT OF 1933
Citigroup conducts business in California. Citigroup maintains an office at 2450 Glendale Blvd.,
Los Angeles, CA 90039.
21. Defendant China International Capital Corporation Hong Kong Securities Limited
(“China International”) served as an underwriter for the IPO and sold 6,108,365 ADSs for which it
received certain fees and commissions. Upon information and belief China International conducts
business in California.
\DOO\]O\
22. Defendant UBS Securities LLC (“UBS”) served as an underwriter for the IPO and
sold 4,212,670 ADSs for which it received certain fees and commissions. UBS is registered to do
10 in California a FINRA registered broker in California.
business and is UBS conducts business in
11
California. UBS maintains an office at 555 California Street, 34th/46th Floor, San Francisco, CA
12
94104.
13
23. Defendant Stifel, Nicolaus and Company, Incorporated (“Stifel”) served as an
14
15
underwriter for the IPO and sold 819,148 ADSs for which it received certain fees and
16 commissions. Stifel is registered to do business in California and is a FINRA registered broker in
17 California. Stifel conducts business in California. Stifel maintains an office at 1240 Rocky Ridge
18
Drive, Roseville, CA 95661.
19
24. Defendant Needham & Company, LLC (“Needham”) served as an underwriter for
20
the IPO and sold 945,187 ADSs for which it received certain fees and commissions. Needham is
21
registered to do business in California and is a FINRA registered broker in California. Needham
22
23 conducts business in California. Needham maintains an office at 535 Mission Street, Suite 2200,
24 San Francisco, CA 94105.
25 25. Defendant Nomura Securities International, Inc. (“Nomura”) served as an
26
underwriter for the IPO and sold 630,112 ADSs for which it received certain fees and
27
commissions. Nomura is registered to do business in California and isa FINRA registered broker
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CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE SECURITIES ACT OF 1933
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in California. Nomura conducts business in California. Nomura maintains an office at 425
California Street, Suite 2600, San Francisco, CA 94104.
26. The defendants identified in 111118-25 are referred to herein as the “Underwriter
Defendants.”
\lONUI-P-UJN
27. The Underwriter Defendants drafted and disseminated the Registration Statement.
The Underwriter Defendants’ failure to conduct an adequate due diligence investigation was a
00 substantial factor leading to the harm complained of herein.
28. Qudian, the Individual Defendants, and the Underwriter Defendants are collectively
10 referred to hereinafter as “Defendants.”
11 29. Pursuant to the Securities Act, the Underwriter Defendants are liable for the false
12 and misleading statements in the Registration Statement. The Underwriter Defendants failure to
13 conduct adequate due diligence investigations was a substantial factor leading to the harm
14 complained of herein.
15 30. In addition, the Underwriter Defendants met with potential investors and presented
16 highly favorable but materially incorrect and/or materially misleading information about the
17 Company, its business, products, plans, and financial prospects, and/or omitted to disclose material
18 information required to be disclosed under the federal securities laws and applicable regulations
19 promulgated thereunder.
20 31. Representatives of the Underwriter Defendants also assisted the Company and the
21 Individual Defendants in planning the IPO. They also purported to conduct an adequate and
22 reasonable investigation into the business, operations, products, and plans of file Company, an
23 undertaking known as a “due diligence” investigation. During the course of their “due diligence,”
24 the Underwriter Defendants had continual access 'to confidential corporate information concerning
25 the Company’s business, financial condition, products, plans, and prospects.
26 32. In addition to having access to internal corporate documents, the Underwriter
27 Defendants and/or its agents, including its counsel, had access to the Company’s lawyers,
28 management, directors, and top executives to determine: (1‘)the strategy to best accomplish the
_ 5 _
CLASS ACTION COL/{PLAINT FOR VIOLATIONS OF THE SECURITIES ACT OF 1933
Offering; (2) the terms of the Offering, including the price at which the Company’s ADSs would be
sold; (3) the language to be used in the Registration Statement; (4) what disclosures about the
Company would be made
.pUJN
in the Registration Statement; and (5) what responses would be made to
the SEC in connection with its review of the Registration Statement. As a result of those constant
contacts and communications between the Underwriter Defendants’ representatives and the
Company’s management and top executives, at a minimum, the Underwriter Defendants should
have
\OOO\]O\UI
known of the Company’s undisclosed existing problems and plans, and the material
misstatements and omissions contained in the Registration Statement as detailed herein.
33. The Underwriter Defendants caused the Registration Statement to be filed with the
10 SEC and to be declared effective in connection with offers and sales of the Company’s ADSs
11 pursuant and/or traceable to the IPO and the Registration Statement, including to Plaintiff and the
12 Class.
13 SUBSTANTIVE ALLEGATIONS
14 Background
15 34. Defendant Qudian is a lending company which provides online credit products
16 including funds in digital form and merchandise credit products. The Company serves customers
17 in China.
18 35. In 2015, Qudian established a strategic partnership with Ant Financial, one of its
19 principal shareholders. Alipay, operated by Ant Financial, is a leading online and mobile third—party
20 payment service provider in China. The Company engages the majority of its active borrowers
21 through the Alipay consumer interface, which has significantly contributed to the Company’s rapid
22 growth. The Company also collaborates with Zhima Credit, a credit assessment service provider
23 operated by Ant Financial. Following Qudian’s partnership with Ant Financial, its number of active
24 borrowers grew from only 250,000 in September 2015 to more than 5.5 million by June 2017.
25 36. The Company took a number of steps leading up to the IPO to reassure investors that
26 it had minimized regulatory risk and that itsrapid growth rate was the product of legitimate and
27 sustainable business practices. For example, while historically the Company also provided peer—to—
28 peer and campus credit lending services, these services were phased out in the months preceding the
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CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE SECURITIES ACT OF 1933
IPO, partly in a response to increased governmental regulations and a ban on online lending to
college students initiated by the Chinese government. In addition, the Company capped its APR at
36%, obtained licenses for online small-credit business and claimed that it employed user—friendly
A collection methods, such as non-threatening text and telephone reminders.
37. On September 18, 2017, Qudian filed a registration statement on Form F-l withthe
SEC for the IPO. After several amendments the registration statement was declared effective on
October
\OOONONUI
17, 2017 (the Form F —1, together with all amendments, is referred to herein as the
“Registration Statement”).
Materiallv False and Misleading Statements
1o 38. On or about October 18, 2017, Qudian filed a prospectus for the IPO on Form
11
424B4 which incorporated and formed part of the Registration Statement (the “Prospectus”).
12
Together, the Registration Statement and Prospectus were used to sell to the investing public
13
approximately 37.5 million Qudian ADSs, representing 37.5 million Qudian Class A ordinary
14
shares, at $24 per share thereby raising net proceeds of approximately $900 million.
15
16
39. The Registration Statement was negligently prepared and, as a result, contained
17 untrue statements of material fact, omitted material facts necessary to make the statements contained
18 therein not misleading, and failed to make adequate disclosures required under the rules and
19
regulations governing the preparation of such documents.
20
40. For example, the Registration Statement stated that Qudian had experienced rapid
21
22
grt in revenues, net income and active users in the years leading up to the IPO, but failed to
disclose that this growth had been fueled by improper lending, underwriting and collection practices.
23
24 The Registration Statement stated the following in pertinent part:
25 We are the largest online provider of small cash credit products in China in
terms of the number of active borrowers and the amount of transactions in the six
26 months ended June 30, 2017, according to the Oliver Wyman Report. In the six
months ended June 30, 2017, we facilitated approximately RMB3 8.2 billion (US$56
27
billion) in transactions to 7.0 million active borrowers.
28
* * *
-7-
CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE SECURITIES ACT OF 1933
Since inception in 2014, our business has witnessed significant growth and
increased borrower activities, as illustrated by the charts below:
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19
We have achieved significant scale and experienced strong growth in our
20 results of operations. Our total revenues increased from RMB24.1 million in the
period from April 9 to December 31, 2014 to RMB235.0 million in 2015. Our total
21
revenues further reached RMB1,442.8 million (US$212.8 million) in 2016, which
22 was 5 14.0% higher than our total revenues in 2015. Our total revenues increased by
393. 3% from RMB3 71. 6 million in the six months ended June 30, 2016 to
23 RMB1,833.1 million (US$2 70. 4 million) in the same period in 201 7. Our net losses
were RMB40.8 million 1n the period from April 9 to December 31, 2014 and
24 RMB233.2 million in 2015. In 2016, we recorded net income of R1V,[B576.7 million
(U S$85.1 million). Our net income increased by 695.2% from RMBIZ2.4 million
25
in the six months ended June 30, 2016 to RMB9 73. 7million (US$143. 6 million) in
26 the same period in 201 7.
27
Six Months Ended June 30, 2017 Compared to Six Months Ended June 30,
28
2016
-8—
CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE SECURITIES ACT OF 1933
Total revenues. Our total revenues increased from RMB371.6 million in
the six months ended June 30, 2016 to RMBI,833.1 million (US$2 70.4 million) in
the same period in 2017 primarily due to increase in financing income from
RMB324. 0 million in the six months ended June 30, 2016 to RMB1,527.4 million
.h
(US$225.3 million) in the same period in 2017 as a result of the substantial
increase in amount of transactions from approximately RMB9.4 billion in the six
months ended June 30, 2016 to RMB35.4 billion (US$5.2 billion) in the same
period in 201 7. The increase in amount of transactions was due to the substantial
in the number of active 2.5 million
\]O\UI
increase borrowers from in the six months
ended June 30, 2016 to 7.0 million in the same period in 2017. Such increase in
the number ofactive borrowers was primarily the result of (i) the shift ofour target
borrower base from college students to young consumers in general and (ii)
increase in borrower engagement efficiency. The attractiveness of our products
and our brand value also led to an increase in drawdowns by borrowers of their
credit. The number of transactions per active borrower increased to 5.8 in the six
10 months ended June 30, 2017 from 4.5 in the same period in 2016. Such short—term
credit drawdowns generated lower revenue per transaction, partially offsetting the
11
higher revenue driven by increasing number of transactions.
12
13 (Emphasis added).
14 41. The Registration Statement also stated that the Company focused on borrowers with
15 “emerging prime credit quality” who had been underserved by traditional financial institutions. The
16
Registration Statement stated that Qudian used technology to make “personalized credit accessible”
17
to this underserved segment of borrowers. The Registration Statement stated in pertinent part:
18
We target hundreds of millions of quality, unserved or underserved consumers in
19 China. They are young, mobile-active consumers who need access to small credit
for their discretionary spending but are underserved by traditional financial
20
institutions due to their lack of traditional credit data and the operational inefficiency
21 of traditional financial institutions. We believe our operating efficiency and big data
analytics capability to understand our prospective borrowers from different
22 behavioral and transactional perspectives, assess their credit profiles and offer them
instantaneous and affordable credit products with customized terms distinguishes our
23 business and offerings.
24
25 We target the large and growing number of creditworthy borrowers in
China who we believe are of emerging prime credit quality but have limited credit
26 history and access to traditional consumer credit from banks or other lenders. As
27
we have been focused on providing credit products to young consumers across
China, we have gained extensive experience and understanding into the behavior and
28 consumption preference of such demographic of users since our inception. In the six
_ 9 _
CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE SECURITIES ACT OF 1933
months ended June 30, 2017, approximately 90.8% of active borrowers are between
18 and 35 years of age.
(Emphasis added).
42. In addition, the Registration Statement stated that Qudian employed robust credit
A
assessment and monitoring tools, “big data” analytics and a variety of other techniques to ensure that
it was only making loans to borrowers who had demonstrated the ability and “willingness” to repay
\IO‘NUI
the loans. The Registration Statement stated the following in pertinent part:
We aggregate our borrowers’ behavioral data with data and credit analyses
from various partners as inputs for our credit assessment model. As an innovator in
the application of artificial intelligence to financial services, we utilize machine
10 learning to accurately assess borrowers ’credit profiles. Wefocus on data analyses
that not only reflect borrowers’ ability to repay but also their willingness to do so.
11 These analyses are based on the prospective borrowers’ social and shopping
behavioral data, among others, in addition to the characteristic metrics such as
12
locations and demographics. We have increased the number of variables analyzed
13 by our credit assessment system from a few to several hundred for each transaction,
and we assign each borrower a personalized credit limit based on his or her credit
14 profile. As borrowers repay, they build credit histories with us. Based on the credit
histories, our artificial intelligence—based credit assessment model enables us to
15 continually re-evaluate borrowers’ credit profiles and provide more personalized
credit limits. We offer borrowers with stronger credit profiles higher credit limits
16
and longer repayment durations, thereby driving higher engagement with them.
17
* * *
18
19
Our mission is to use technology to make personalized credit accessible. To
accomplish this, we employ big data-enabled technologies, such as artificial
20 intelligence and machine learning, to assess credit quality, and then offer small
credit products to quality, unserved or underserved consumers in China. We
21 believe there is a large unmet demand of small credit from the young, mobile-active
consumers in China for their frequent discretionary spending, which can o
Preview
“ ' 0R.3INAL Laurence M. Rosen, Esq. (SBN 219683) SAN FILED MATEQ 9 ‘ NTY ‘ THE ROSEN LAW FIRM, P.A. . ‘ 355 South Grand Avenue, Suite 2450 M v y; Los Angeles, CA 90071 . U.) ‘ ‘-‘«j . Telephone: (213) 785-2610 Cler Facsimile: (213) 226—4684 By -. Email: lrosen@rosenlegal.com - Counsel for Plaintiff \IO\ SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF SAN MATEO INGEUN SONG, Individually and on Behalf of ) Case No.: V 0 1 4 2 5 All Others Similarly Situated, I 18 C I ) 10 CLASS ACTION COMPLAINT FOR ) 11 Plaintiff, ‘ ) VIOLATIONS OF THE SECURITIES ACT ) OF 1933 12 V. ) ) JURY TRIAL DEMANDED 13 QUDIAN INC., MIN LUO, CARL YEUNG, LIANZHU LV, YI CAO, SHILEI LI, LI DU, 14 CHAO ZHU, TIANYU ZHU, DIANA ARIAS, 15 MORGAN STANLEY & CO. INTERNATIONAL PLC, CREDIT SUIS SE 18—cIV-D1425 (MP 16 SECURITIES (USA) LLC, CITIGROUP \ 1 Complaint GLOBAL MARKETS INC., CHINA 17 INTERNATIONAL CAPITAL g‘_ ’ CORPORATION HONG KONG K{iii1111111111111 vvvvvvvvvvvvvvvv 18 SECURITIES LIMITED, UBS __ 7—7 , 19 SECURITIES LLC, STIFEL, NICOLAUS & COIVIPANY, INC., NEEDHAM & COMPANY, 20 LLC, and NOMURA SECURITIES INTERNATIONAL, IN C., 21 Defendants. 22 23 24 25 26 27 28 CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE SECURITIES ACT OF 1933 Plaintiff Ingeun Song (“Plaintiff”) individually and on behalf of all other persons similarly situated, by Plaintiff’s undersigned‘attorneys, for Plaintiffs complaint against Defendants (defined below), alleges the following based upon personal knowledge as to Plaintiff and Plaintiff’s own acts, and information and belief as to all other matters, based upon, inter alia, the investigation (/1n conducted by and through Plaintiffs attorneys, which included, among other things, a review of the Defendants’ public documents, conference calls and announcements made by defendants, United States Securities and Exchange Commission (“SEC”) filings, wire and press releases published by \OOO\IO\ and regarding Qudian Inc. (“Qudian” or the “Company”), and information readily obtainable on the Internet. Plaintiff believes that substantial evidentiary support will exist for the allegations set forth 10 herein after a reasonable opportunity for discovery. 11 NATURE OF THE ACTION 12 1. This is a securities class action on behalf of all persons other than Defendants who 13 purchased Qudian American Depositary Shares (“ADSs”) in or traceable to the Company’s October 14 18, 2017 initial public offering (the “IPO”) seeking to pursue remedies under the Securities Act of 15 1933 (the “Securities Act”). 16 JURISDICTION AND VENUE 17 2. The claims asserted herein arise under and pursuant to Sections 11 and 15 of the 18 Securities Act (15 U.S.C. 77k and 77(0)). This Court has jurisdiction over the subject matter of §§ 19 this action pursuant to Section 22 of the Securities Act, 15 U.S.C. 77v, which explicitly states that § 20 “[e]xcept as provided in section 16(0), no case arising under this title and brought in any State court 21 of competent jurisdiction shall be removed to any court in the United States.” Section 16(c) of the 22 Securities Act refers to “covered class actions,” which are defined as lawsuits brought as class 23 actions or brought on behalf of more than 50 persons asserting claims under state or common law. 24 This is an action asserting federal law claims. Thus, it does not fall within the definition of a 25 “covered class action” under §16(c) and therefore is not removable to federal court under the 26 Securities Litigation Uniform Standards Act of 1998. 27 28 -1- CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE SECURITIES ACT OF 1933 3. Each Defendant has sufficient contacts with California, or otherwise purposefully avails itself of benefits from California or has property in California so as to render the exercise of jurisdiction over each by California courts consistent with traditional notions of fair play and 4; substantial justice. 4. The amount in controversy exceeds the jurisdictional minimum of this Court, and the total amount of damages sought exceeds $25,000. \IONLJI 5. Venue is pr0per in this Court because Defendants’ wrongful acts arose in and emanated from, in part, this County. The Violations of law complained of herein occurred in this County, including the dissemination of materially misleading statements into this County, the 10 purchase of the Company’s ADSs by members of the class who reside in this County, and the sale 11 of the Company’s ADSs by the Underwriter Defendants (defined below) in this County. 12 PARTIES 13 6. Plaintiff purchased Qudian ADSs pursuant and/or traceable to the IPO, and was 14 damaged thereby. Plaintiff is a citizen of California. 15 7. Defendant Qudian isa financial lending company based in Beijing, China. Its ADSs 16 sold in the IPO trade on the New York Stock Exchange (“NYSE”) under the ticker symbol “QD.” 17 8. Defendant Min Luo (“Luo”) is Qudian’s founder, was Qudian’s Chief Executive 18 (“CEO”) of the Board of Directors “Board”) the time of the Officer and Chairman (the at IPO. 19 Defendant Luo was also the controlling shareholder of the Company before and after the IPO by way 20 of his ownership of Qudian Class B shares. 21 9. Defendant Carl Yeung (“Yeung”) was Qudian’s Chief Financial Officer (“CFO”) 22 23 at the time of the IPO. 24 10. Defendant Lianzhu Lv (“Lv”) was a director and member of the Board of Qudian at 25 the time of the IPO. 26 11. Defendant Yi Cao (“Cao”) was a director and member of the Board of Qudian at 27 the time of the IPO. Defendant Cao also sold Qudian shares in the IPO. 28 -2- CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE SECURITIES ACT OF 1933 12. Defendant Shilei Li (“Li”) was a director and member of the Board at Qudian at the time of the IPO. 13. Defendant Li Du (“Du”) was a director and member of the Board of Qudian at the Ul-PnUJN time of the IPO. Defendant Du also sold Qudian shares in the IPO. 14. Defendant Chao Zhu (“Q Zhu”) was a director and member of the Board at the time of the IPO. (“T. Zhu”) of the of KOOONO'N 15. Defendant Tianyu Zhu was a director and member Board Qudian until September 2017. 10 16. Defendant Diana Arias (“Arias”) was the Company’s Senior Manager at the time of 11 the IPO. 12 17. The defendants identified in are referred to herein as the “Individual THIS—16 13 Defendants.” The Individual Defendants signed the Registration Statement (defined below) and, as 14 directors and/or executive officers of the Company, participated in the solicitation and sale of 15 Qudian ADSs to investors in the IPO for their own benefit and the benefit of Qudian. 16 17 18. Defendants Morgan Stanley & Co. International plc (“Morgan Stanley”) served as 18 an underwriter for the IPO and sold 14,252,850 ADSS for which it received certain fees and 19 commissions. Upon information and belief Morgan Stanley conducts business in California. 20 19. Defendant Credit Suisse Securities (USA) LLC (“Credit Suisse”) served as an 21 underwriter for the IPO and sold 5,616,890 ADSS for which it received certain fees and 22 commissions. Credit Suisse isregistered to do business in California and is a FlNRA registered 23 broker in California. Credit Suisse conducts business in California. Credit Suisse maintains an 24 25 office at 650 California Street, San Francisco, CA 94108. 26 20. Defendant Citigroup Global Markets Inc. (“Citigroup”) served as an underwriter 27 for the IPO and sold 4,914,778 ADSS for which it received certain fees and commissions. 28 Citigroup is registered to do business in California and is a F INRA registered broker in California. _ 3 _ CLASS ACTION COIVIPLAINT FOR VIOLATIONS OF THE SECURITIES ACT OF 1933 Citigroup conducts business in California. Citigroup maintains an office at 2450 Glendale Blvd., Los Angeles, CA 90039. 21. Defendant China International Capital Corporation Hong Kong Securities Limited (“China International”) served as an underwriter for the IPO and sold 6,108,365 ADSs for which it received certain fees and commissions. Upon information and belief China International conducts business in California. \DOO\]O\ 22. Defendant UBS Securities LLC (“UBS”) served as an underwriter for the IPO and sold 4,212,670 ADSs for which it received certain fees and commissions. UBS is registered to do 10 in California a FINRA registered broker in California. business and is UBS conducts business in 11 California. UBS maintains an office at 555 California Street, 34th/46th Floor, San Francisco, CA 12 94104. 13 23. Defendant Stifel, Nicolaus and Company, Incorporated (“Stifel”) served as an 14 15 underwriter for the IPO and sold 819,148 ADSs for which it received certain fees and 16 commissions. Stifel is registered to do business in California and is a FINRA registered broker in 17 California. Stifel conducts business in California. Stifel maintains an office at 1240 Rocky Ridge 18 Drive, Roseville, CA 95661. 19 24. Defendant Needham & Company, LLC (“Needham”) served as an underwriter for 20 the IPO and sold 945,187 ADSs for which it received certain fees and commissions. Needham is 21 registered to do business in California and is a FINRA registered broker in California. Needham 22 23 conducts business in California. Needham maintains an office at 535 Mission Street, Suite 2200, 24 San Francisco, CA 94105. 25 25. Defendant Nomura Securities International, Inc. (“Nomura”) served as an 26 underwriter for the IPO and sold 630,112 ADSs for which it received certain fees and 27 commissions. Nomura is registered to do business in California and isa FINRA registered broker 28 _4_ CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE SECURITIES ACT OF 1933 - in California. Nomura conducts business in California. Nomura maintains an office at 425 California Street, Suite 2600, San Francisco, CA 94104. 26. The defendants identified in 111118-25 are referred to herein as the “Underwriter Defendants.” \lONUI-P-UJN 27. The Underwriter Defendants drafted and disseminated the Registration Statement. The Underwriter Defendants’ failure to conduct an adequate due diligence investigation was a 00 substantial factor leading to the harm complained of herein. 28. Qudian, the Individual Defendants, and the Underwriter Defendants are collectively 10 referred to hereinafter as “Defendants.” 11 29. Pursuant to the Securities Act, the Underwriter Defendants are liable for the false 12 and misleading statements in the Registration Statement. The Underwriter Defendants failure to 13 conduct adequate due diligence investigations was a substantial factor leading to the harm 14 complained of herein. 15 30. In addition, the Underwriter Defendants met with potential investors and presented 16 highly favorable but materially incorrect and/or materially misleading information about the 17 Company, its business, products, plans, and financial prospects, and/or omitted to disclose material 18 information required to be disclosed under the federal securities laws and applicable regulations 19 promulgated thereunder. 20 31. Representatives of the Underwriter Defendants also assisted the Company and the 21 Individual Defendants in planning the IPO. They also purported to conduct an adequate and 22 reasonable investigation into the business, operations, products, and plans of file Company, an 23 undertaking known as a “due diligence” investigation. During the course of their “due diligence,” 24 the Underwriter Defendants had continual access 'to confidential corporate information concerning 25 the Company’s business, financial condition, products, plans, and prospects. 26 32. In addition to having access to internal corporate documents, the Underwriter 27 Defendants and/or its agents, including its counsel, had access to the Company’s lawyers, 28 management, directors, and top executives to determine: (1‘)the strategy to best accomplish the _ 5 _ CLASS ACTION COL/{PLAINT FOR VIOLATIONS OF THE SECURITIES ACT OF 1933 Offering; (2) the terms of the Offering, including the price at which the Company’s ADSs would be sold; (3) the language to be used in the Registration Statement; (4) what disclosures about the Company would be made .pUJN in the Registration Statement; and (5) what responses would be made to the SEC in connection with its review of the Registration Statement. As a result of those constant contacts and communications between the Underwriter Defendants’ representatives and the Company’s management and top executives, at a minimum, the Underwriter Defendants should have \OOO\]O\UI known of the Company’s undisclosed existing problems and plans, and the material misstatements and omissions contained in the Registration Statement as detailed herein. 33. The Underwriter Defendants caused the Registration Statement to be filed with the 10 SEC and to be declared effective in connection with offers and sales of the Company’s ADSs 11 pursuant and/or traceable to the IPO and the Registration Statement, including to Plaintiff and the 12 Class. 13 SUBSTANTIVE ALLEGATIONS 14 Background 15 34. Defendant Qudian is a lending company which provides online credit products 16 including funds in digital form and merchandise credit products. The Company serves customers 17 in China. 18 35. In 2015, Qudian established a strategic partnership with Ant Financial, one of its 19 principal shareholders. Alipay, operated by Ant Financial, is a leading online and mobile third—party 20 payment service provider in China. The Company engages the majority of its active borrowers 21 through the Alipay consumer interface, which has significantly contributed to the Company’s rapid 22 growth. The Company also collaborates with Zhima Credit, a credit assessment service provider 23 operated by Ant Financial. Following Qudian’s partnership with Ant Financial, its number of active 24 borrowers grew from only 250,000 in September 2015 to more than 5.5 million by June 2017. 25 36. The Company took a number of steps leading up to the IPO to reassure investors that 26 it had minimized regulatory risk and that itsrapid growth rate was the product of legitimate and 27 sustainable business practices. For example, while historically the Company also provided peer—to— 28 peer and campus credit lending services, these services were phased out in the months preceding the -6- CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE SECURITIES ACT OF 1933 IPO, partly in a response to increased governmental regulations and a ban on online lending to college students initiated by the Chinese government. In addition, the Company capped its APR at 36%, obtained licenses for online small-credit business and claimed that it employed user—friendly A collection methods, such as non-threatening text and telephone reminders. 37. On September 18, 2017, Qudian filed a registration statement on Form F-l withthe SEC for the IPO. After several amendments the registration statement was declared effective on October \OOONONUI 17, 2017 (the Form F —1, together with all amendments, is referred to herein as the “Registration Statement”). Materiallv False and Misleading Statements 1o 38. On or about October 18, 2017, Qudian filed a prospectus for the IPO on Form 11 424B4 which incorporated and formed part of the Registration Statement (the “Prospectus”). 12 Together, the Registration Statement and Prospectus were used to sell to the investing public 13 approximately 37.5 million Qudian ADSs, representing 37.5 million Qudian Class A ordinary 14 shares, at $24 per share thereby raising net proceeds of approximately $900 million. 15 16 39. The Registration Statement was negligently prepared and, as a result, contained 17 untrue statements of material fact, omitted material facts necessary to make the statements contained 18 therein not misleading, and failed to make adequate disclosures required under the rules and 19 regulations governing the preparation of such documents. 20 40. For example, the Registration Statement stated that Qudian had experienced rapid 21 22 grt in revenues, net income and active users in the years leading up to the IPO, but failed to disclose that this growth had been fueled by improper lending, underwriting and collection practices. 23 24 The Registration Statement stated the following in pertinent part: 25 We are the largest online provider of small cash credit products in China in terms of the number of active borrowers and the amount of transactions in the six 26 months ended June 30, 2017, according to the Oliver Wyman Report. In the six months ended June 30, 2017, we facilitated approximately RMB3 8.2 billion (US$56 27 billion) in transactions to 7.0 million active borrowers. 28 * * * -7- CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE SECURITIES ACT OF 1933 Since inception in 2014, our business has witnessed significant growth and increased borrower activities, as illustrated by the charts below: I 311mm summit? 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C a g 45., £33. .. :56” 23115 3”} C?” 5 Xi”?331% ' 391K! W? 2931? um Tim's: 321425252". @53q 1544 19 We have achieved significant scale and experienced strong growth in our 20 results of operations. Our total revenues increased from RMB24.1 million in the period from April 9 to December 31, 2014 to RMB235.0 million in 2015. Our total 21 revenues further reached RMB1,442.8 million (US$212.8 million) in 2016, which 22 was 5 14.0% higher than our total revenues in 2015. Our total revenues increased by 393. 3% from RMB3 71. 6 million in the six months ended June 30, 2016 to 23 RMB1,833.1 million (US$2 70. 4 million) in the same period in 201 7. Our net losses were RMB40.8 million 1n the period from April 9 to December 31, 2014 and 24 RMB233.2 million in 2015. In 2016, we recorded net income of R1V,[B576.7 million (U S$85.1 million). Our net income increased by 695.2% from RMBIZ2.4 million 25 in the six months ended June 30, 2016 to RMB9 73. 7million (US$143. 6 million) in 26 the same period in 201 7. 27 Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 28 2016 -8— CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE SECURITIES ACT OF 1933 Total revenues. Our total revenues increased from RMB371.6 million in the six months ended June 30, 2016 to RMBI,833.1 million (US$2 70.4 million) in the same period in 2017 primarily due to increase in financing income from RMB324. 0 million in the six months ended June 30, 2016 to RMB1,527.4 million .h (US$225.3 million) in the same period in 2017 as a result of the substantial increase in amount of transactions from approximately RMB9.4 billion in the six months ended June 30, 2016 to RMB35.4 billion (US$5.2 billion) in the same period in 201 7. The increase in amount of transactions was due to the substantial in the number of active 2.5 million \]O\UI increase borrowers from in the six months ended June 30, 2016 to 7.0 million in the same period in 2017. Such increase in the number ofactive borrowers was primarily the result of (i) the shift ofour target borrower base from college students to young consumers in general and (ii) increase in borrower engagement efficiency. The attractiveness of our products and our brand value also led to an increase in drawdowns by borrowers of their credit. The number of transactions per active borrower increased to 5.8 in the six 10 months ended June 30, 2017 from 4.5 in the same period in 2016. Such short—term credit drawdowns generated lower revenue per transaction, partially offsetting the 11 higher revenue driven by increasing number of transactions. 12 13 (Emphasis added). 14 41. The Registration Statement also stated that the Company focused on borrowers with 15 “emerging prime credit quality” who had been underserved by traditional financial institutions. The 16 Registration Statement stated that Qudian used technology to make “personalized credit accessible” 17 to this underserved segment of borrowers. The Registration Statement stated in pertinent part: 18 We target hundreds of millions of quality, unserved or underserved consumers in 19 China. They are young, mobile-active consumers who need access to small credit for their discretionary spending but are underserved by traditional financial 20 institutions due to their lack of traditional credit data and the operational inefficiency 21 of traditional financial institutions. We believe our operating efficiency and big data analytics capability to understand our prospective borrowers from different 22 behavioral and transactional perspectives, assess their credit profiles and offer them instantaneous and affordable credit products with customized terms distinguishes our 23 business and offerings. 24 25 We target the large and growing number of creditworthy borrowers in China who we believe are of emerging prime credit quality but have limited credit 26 history and access to traditional consumer credit from banks or other lenders. As 27 we have been focused on providing credit products to young consumers across China, we have gained extensive experience and understanding into the behavior and 28 consumption preference of such demographic of users since our inception. In the six _ 9 _ CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE SECURITIES ACT OF 1933 months ended June 30, 2017, approximately 90.8% of active borrowers are between 18 and 35 years of age. (Emphasis added). 42. In addition, the Registration Statement stated that Qudian employed robust credit A assessment and monitoring tools, “big data” analytics and a variety of other techniques to ensure that it was only making loans to borrowers who had demonstrated the ability and “willingness” to repay \IO‘NUI the loans. The Registration Statement stated the following in pertinent part: We aggregate our borrowers’ behavioral data with data and credit analyses from various partners as inputs for our credit assessment model. As an innovator in the application of artificial intelligence to financial services, we utilize machine 10 learning to accurately assess borrowers ’credit profiles. Wefocus on data analyses that not only reflect borrowers’ ability to repay but also their willingness to do so. 11 These analyses are based on the prospective borrowers’ social and shopping behavioral data, among others, in addition to the characteristic metrics such as 12 locations and demographics. We have increased the number of variables analyzed 13 by our credit assessment system from a few to several hundred for each transaction, and we assign each borrower a personalized credit limit based on his or her credit 14 profile. As borrowers repay, they build credit histories with us. Based on the credit histories, our artificial intelligence—based credit assessment model enables us to 15 continually re-evaluate borrowers’ credit profiles and provide more personalized credit limits. We offer borrowers with stronger credit profiles higher credit limits 16 and longer repayment durations, thereby driving higher engagement with them. 17 * * * 18 19 Our mission is to use technology to make personalized credit accessible. To accomplish this, we employ big data-enabled technologies, such as artificial 20 intelligence and machine learning, to assess credit quality, and then offer small credit products to quality, unserved or underserved consumers in China. We 21 believe there is a large unmet demand of small credit from the young, mobile-active consumers in China for their frequent discretionary spending, which can o