Five US law firms filed a class action lawsuit against Ruhnn, accusing it of false and misleading statements in its prospectus

Leifeng.com reported that recently, several US law firms filed a class action lawsuit against Ruhan, the "first internet celebrity e-commerce stock", alleging that its prospectus contained false, misleading statements or undisclosed information, which led to its stock price falling after its IPO and harmed the interests of investors.

According to a press release recently issued by Bernstein Liebhard, a well-known American investor relations law firm, five American law firms including Kaplan Fox & Kilsheimer LLP, Bernstein Liebhard LLP, Block & Leviton LLP, Bernstein Liebhard LLP and Glancy Prongay & Murray LL issued statements on October 9, Eastern Time, claiming that they had filed a class action lawsuit on behalf of investors who purchased Ruhnn Holdings' American depositary receipts between March 31 and October 7, 2019, investigating the company and seeking compensation.

BernsteinLiebhard Law Firm claimed that Ruhan’s prospectus contained false and/or misleading statements and/or failed to disclose relevant information. Its statement highlighted three points: First, the number of online stores of Ruhan dropped by nearly 40% when it went public; second, the number of KOLs of Ruhan’s entire business dropped by nearly 44% when it went public; and third, the company’s net income from all business segments dropped by 46% consecutively as a result.

Bernstein Liebhard also alleges that Ruhan's statements about its business, operations, and prospects were materially false and misleading at all relevant times and lacked a reasonable basis. Since the IPO, Ruhan's American Depositary Receipts have traded significantly below their IPO price due to the omission of disclosure of material adverse facts in the prospectus, causing harm to shareholders.

The class action lawsuit has been filed in the U.S. District Court for the Eastern District of New York, alleging that Ruhnn violated the Securities Act of 1933.

Although the case is still under trial and has not yet been concluded, being targeted by Bernstein Liebhard is undoubtedly a very difficult matter for Ruhan. Bernstein Liebhard enjoys a great reputation in the United States and has been selected for the "Plaintiffs' Hot List" of the American Law Journal for 13 consecutive times. Since 1993, Bernstein Liebhard has recovered more than $3.5 billion in losses for its clients. In addition to representing individual investors, the law firm has also been hired by some of the largest public and private pension funds in the United States to monitor assets and file lawsuits on their behalf.

In response to the collective accusations by the five US law firms, a relevant person in charge of Ruhnn Holdings said: "All the information disclosed by the company is correct and completely compliant and legal. Currently, the company's US lawyer STB Law Firm is helping the company handle such matters. The company's daily operations are normal and are not affected in any way. "

At the same time, a relevant person in charge of Ruhnn Holdings also said: "This is a business model in the United States. Many law firms are distorting the facts under the banner of so-called investigations in order to obtain part of the settlement funds from listed companies and make money. Therefore, there are a large number of small law firms in the United States that specialize in this kind of business. "

As the "first internet celebrity e-commerce stock", this is not the first time that Ruhan has gotten into trouble. It can be said that almost its entire growth process has been accompanied by doubts.

On April 3, 2019, New York time, Ruhnn was officially listed on the Nasdaq, with an opening price of $11.5 per share. The stock price fell below the issue price of $12.5 per share at the opening, and the stock price continued to fall during the trading session, closing down 37.2%, with the market value falling to $649 million. Many investors lamented: "This is the first time I have seen a new stock that fell 15% below the issue price", "It plummeted 30% on the first day of the new stock issuance", "It's rare to see this in a few years"... From the IPO to the close of October 11, Ruhnn's stock price has been cut in half compared to the issue price.

Less than a week after Ruhan went public, Wang Sicong analyzed Ruhan’s business model in his WeChat Moments. He said that Ruhan had three major problems: first, the losses caused by the excessively high proportion of marketing expenses; second, the irreproducibility of Internet celebrities; and most importantly, Ruhan’s model “has not been successfully verified, nor has it been proven that it can cultivate new KOLs.”

Wang Sicong wrote in his circle of friends:

1. Loss (In 2018, the gross profit was 300 million, but the fulfillment fee was 100 million, the marketing fee was 146 million, the comprehensive management fee was 130 million, plus other operating income of 710,000, resulting in a total operating loss of 72.35 million. There is income, but the money is spent inexplicably, especially the marketing fee of nearly 150 million, which is puzzling. What is the point of spending so much marketing fee on KOL? What will happen to the performance if the marketing fee is stopped? )

2. Non-replicability (more than 100 internet celebrities were signed, but only Zhang Dayi accounted for 50.8%, 52.4% and 53.5% of the revenue in fiscal years 2017, 2018 and the first three quarters of fiscal year 2019, respectively. What an unhealthy ratio).

3. To be frank, Ruhan’s influencer incubation, influencer e-commerce, and influencer marketing models have not been successfully tested, nor have they proven that they can cultivate new KOLs.

Wang Sicong's doubts are not without reason. Although Ruhan Holdings intends to discover more "potential stocks" of Internet celebrities to be cultivated after its establishment, Zhang Dayi is still Ruhan's absolute top card. The prospectus shows that as of the end of last year, Ruhan had 113 contracted Internet celebrities, 148.4 million fans, and 91 self-operated online stores (39% of repeat purchase users). In fiscal years 2017, 2018, and the first three quarters of fiscal years 2019, the GMV contributed by top KOLs accounted for 60.7%, 65.2%, and 55.2%, respectively. Among them, there were three top KOLs in fiscal years 2018 and the first three quarters of fiscal years 2019, with Zhang Dayi ranking first, and the number of Weibo fans is 6.65 million more than that of Daikin, which ranks second. Zhang Dayi is entitled to 49% of the net profit from the online store opened by Ruhan in her name.

Excluding the top ten KOLs, the remaining 103 KOLs of Ruhan contributed about 670 million yuan in GMV in the past nine months. In total, each KOL contributed about 720,000 yuan in GMV per month on average.

According to the prospectus, Ruhnn had a net loss of RMB 40.1 million in fiscal year 2017 and RMB 90 million (approximately USD 13.1 million) in fiscal year 2018. In the first three quarters of fiscal year 2019, it had a net loss of RMB 57.5 million (approximately USD 8.4 million), compared to a net loss of RMB 26.1 million in the same period last year.

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