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Pinduoduo Entangled in More Lawsuits, Now With U.S. Shareholders

The lawsuits against Pinduoduo sent stock sliding in its first full week on Nasdaq. On Friday, shares were trading down more than 2 percent in early afternoon.

Anna Vodopyanova
    Aug 03, 2018 10:15 AM  PT
Pinduoduo Entangled in More Lawsuits, Now With U.S. Shareholders

Newly-listed Pinduoduo Inc. (Nasdaq: PDD) faces multiple class action lawsuits in the United States on allegations that the popular Chinese e-commerce platform sold counterfeit products, and thereby reported misleading information to stockholders.

Rosen Law Firm, Law Offices of Howard G. Smith, Schall Law Firm, Glancy Prongay & Murray, and others announced this week they were looking into claims on behalf of Pinduoduo's shareholders related to trademark infringement.

By early afternoon Friday, the stock of the e-commerce platform was trading at $19.21 per ADS, down more than 2 percent, 

Days before Pinduoduo went public on Nasdaq, a Beijing-based diaper maker, Daddy's Choice, filed a lawsuit in New York claiming the platform sold counterfeit diapers. Then, on Monday, the stock of just-listed Pinduoduo plunged 9 percent after Skyworth, which sells televisions, followed with accusations on social media, urging the company to immediately withdraw all the fake products carrying the "Skyworth" brand.

The action by U.S. law firms was in line with Shanghai's Industry and Commerce Bureau's investigation into the e-commerce platform for third-party sales of knockoff products, announced by China's State Administration for Market Regulation in Chinese media earlier this week.

On its website on Friday, the state regulator said Pinduoduo agreed to step up vetting of the products listed on its platform. The company should "strengthen platform management, regulate business activities of third-party vendors, stick to law and maintain a healthy, fast and sustainable development," the regulator wrote in a statement.

Huang Zheng, Pinduoduo's chief executive officer, vowed to "thoroughly rectify and reform," and cooperate with the investigation, according to the statement.

Legal troubles for the company started back home before it opened its doors to U.S. stockholders last week. Since 2017, Pinduoduo has fought 224 disputes with merchants and consumers in China, according to Forbes, citing the attorney team of Daddy's Choice. Of those, 200 were filed against its parent, Shanghai Xunmeng Technology Co. Ltd., founded by ex-Googler Colin Huang. The majority of the cases were withdrawn, Forbes reported.

Boasting nearly 350 million buyers in the past year, Pinduoduo competes with China's e-commerce giants, Alibaba Group Holding Ltd. (NYSE: BABA) and JD.Com Inc. (Nasdaq: JD). The platform gives discounts on its products and makes them accessible to China's underserved population of online shoppers living in smaller cities.

On the day of its IPO last Thursday, Pinduoduo's shares soared more than 40 percent from the offering price of $19 per American depositary share. This week, allegations of knockoff product sales sent its stock as low as $18.90 per share. 

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The lawsuits against Pinduoduo sent its stock sliding in its first full week of trading. 

Intraday on Friday, shares were trading at $19.21 apiece, down more than 2 percent.

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