Gaotu Techedu, Inc. (GOTU) Failed to Disclose the Impact of China’s Ban on For-Profit Tutoring on Its Business Prospects
A shareholder filed a class action on behalf of all investors who purchased or otherwise acquired Gaotu Techedu Inc. (NYSE: GOTU) American depository shares (“ADSs”) between March 5, 2021 and July 23, 2021, for violations of the Securities Exchange Act of 1934. Gaotu purports to be a technology-driven education company, providing online K-12 after-school tutoring services in the People’s Republic of China.
According to the complaint, during the class period, defendants failed to disclose among other things that: (1) China was barring tutoring for profit in core school subjects and the policy change would restrict foreign investment in a sector that had become essential to success in Chinese school exams; and (2) the impact such regulations would have on Gaotu’s operations and profitability and the value of Company securities.
On July 23, 2021, Reuters reported that China is barring tutoring for profit in core school subjects, which triggered a heavy sell-off in shares of tutoring firms. Further, “[a]ll institutions offering tutoring on the school curriculum will be registered as non-profit organisations, and no new licences [sic] will be granted.” On this news, the price of Gaotu’s ADSs fell 63.3% to close at $3.52 per ADS on July 23, 2021, damaging investors.
Then, on November 6, 2021, the Financial Times published an article entitled “How China’s tech bosses cashed out at the right time-Sales of US-listed shares came ahead of significant moves in price.” The article detailed the unreported trade of a shell company holding shares of executives at Gaotu. The sale occurred in March 2021, ahead of the ban on for-profit tutoring, when the shares were worth as much as $119m, compared to their $4m value at the time of reporting.
What’s Next: Similarly situated shareholders may be eligible to participate in the class action against Gaotu Techedu Inc. Shareholders who want to act as lead plaintiff for the class must file their papers by February 28, 2023. A lead plaintiff is a representative party acting on behalf of other class members in directing the litigation. You do not have to participate in the case to be eligible for a recovery.
All representation is on a contingency fee basis. Shareholders pay no fees or expenses.
