GSX Techedu Inc. (GSX) Accused of Misleading Shareholders
According to the complaint for alleged violations of the Securities Exchange Act of 1934 between June 6, 2019 and April 13, 2020, in June 2019, GSX touted its rapid growth in student enrollment and profitability and stated that the Company “pride of rigorous and systematic teacher selection and coaching process” in its initial public offering documents. GSX then continued to report strong revenue and enrollment growth throughout the relevant period, attributing it to improved “corporate and organizational capabilities.” However, on February 25, 2020, Grizzly Research LLC issued a report alleging GSX “ha been drastically overstating its profitability in its US public filings, especially for 2018” as well as indications that GSX used fake student enrollment mechanisms to boost student count and did not hire teachers using the high-quality recruitment they had touted. Finally, on April 14, 2020, a report published by Citron Research further alleged that GSX’s “2019 revenue was overstated by 70%” and that GSX’s “filings are riddled with suspicious transactions.” Following these disclosures, GSX’s stock price had a total decline of 31% to close at $31.20 per share on April 14, 2020.