Wins Finance Holdings Inc.
Lead Plaintiff Deadline: 09/22/2020
SUMMARY OF CASE:
A securities class action has been filed against Wins Finance Holdings Inc. (WINS) on behalf of a class consisting of all persons other than Defendants who purchased or otherwise acquired Wins securities between October 31, 2018 through July 6, 2020. This case has been filed in the USDC – C.D.CA.
Wins, through its subsidiaries, purports to provide financing solutions for small and medium enterprises in the People’s Republic of China. The Company purports to offer financial guarantees, as well as financial leasing, advisory, consultancy, and agency services in Jinzhong City, Shanxi Province, and Beijing.
In 2014, Wins entered into a RMB 580 million credit arrangement with Guohong Asset Management Co., Ltd. (“Guohong” and the “Guohong Loan”), pursuant to which Guohong’s repayment was due to Wins in October 2019.
In September 2017, Wins engaged Centurion ZD CPA & Co. (“CZD”) as its independent registered public accounting firm after dismissing its previous accounting firm.
The Complaint alleges that throughout the Class Period, Defendants made materially false and misleading statements regarding the Company’s business, operational and compliance policies. Specifically, Defendants made false and/or misleading statements and/or failed to disclose that: (i) the ultimate repayment of the RMB 580 million Guohong Loan was highly uncertain; (ii) nonpayment of the Guohong Loan would have a significant impact on the Company’s financial and operating condition; (iii) weaknesses in Wins’s internal control over its financial reporting persisted despite the Company’s repeated assurances to investors that it was taking steps to remediate these weaknesses; (iv) the foregoing issues, among others, made the resignation of Wins’s independent auditor foreseeably likely; and (v) as a result, the Company’s public statements were materially false and misleading at all relevant times.
On October 31, 2019, Wins filed a notification of inability to timely file Form 20-F on Form NT 20-F with the SEC (the “2019 NT 20-F”).
The following trading day, the Company’s stock price declined from $11.90 to $11.20, or 5.8%, on unusually high trading volume.
On November 19, 2019, Wins issued a press release announcing its receipt of a notification letter from the NASDAQ Listing Qualifications and its intent to submit a plan of compliance. The press release stated, in relevant part: The Company was unable to timely file its 2019 20-F due to the uncertainly over the recovery of RMB 580 million (approximately $83 million) in principal under an agreement the Company entered into in 2014 with Guohong Asset Management Co., Ltd., which was due to be repaid in October 2019. The Company has commenced discussions with Guohong Asset Management Co., Ltd. to recover the amount due, but there is no assurance that the Company will be able to recover any or all of the amount due. However, the failure to collect this amount will not impact the Company’s ongoing operations. The Company is currently working with its auditors on finalizing the Company’s financial statements for its fiscal year ended June 30, 2019 in light of the uncertainty around this payment.
On May 26, 2020, Wins issued a press release announcing that the Company received a delisting determination letter from Nasdaq. The press release stated, in relevant part, “[a]s disclosed previously, the Company is working assiduously to complete its delinquent filing with SEC and to regain compliance with the Nasdaq listing rule as soon as possible.”
In reaction to this news, Wins stock closed at $7.81 that day, in contrast to its previous close of $10.06, a decline of 22.3%, on unusually high trading volume.
The Company’s undisclosed ongoing financial difficulties—including nonrepayment of the Guohong Loan—and material control weaknesses came to a head on June 30, 2020, when CZD resigned as the Company’s independent auditor after less than three years in that role. On July 6, 2020, Wins issued a press release announcing CZD’s resignation in which it stated, in relevant part: CZD expressed an adverse opinion on the Company’s internal control over financial reporting as of June 30, 2017 and 2018 because of material weaknesses. During the Company’s years ended June 30, 2017 and 2018 and through June 30, 2020, except with respect to the material weaknesses described below, there were no “reportable events” (defined below) requiring disclosure pursuant to Item 16F(a)(1)(iv) of Form 20-F. As used herein, the term “reportable event” means any of the items listed in paragraphs (a)(1)(v)(A)-(D) of Item 16F of Form 20-F. The following material weaknesses have been identified and included in management’s assessment: lack of sufficient accounting personnel qualified in US GAAP, and SEC reporting; and insufficient accounting staff, which results in a failure to segregate duties sufficiently to ensure a timely and proper preparation and review of the financial statements.
On this news, Wins’s stock price fell $2.06 per share, or 6.1%, to close at $31.70 per share on July 7, 2020.
As a result of Defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the Company’s securities, Plaintiff and other Class members have suffered significant losses and damages.