Ebang International Holdings Inc. (Nasdaq: EBON) responded to the allegations from Hindenburg Research with a generic denial Wednesday morning, but its stock failed to recover from Tuesday’s tumble, instead dipping even lower.
“The Hindenburg Report contain many errors, unsupported speculations and inaccurate interpretations of events,” Ebang wrote. The company added that it will further review the claims and take any actions to protect the interests of its shareholders.
“The Company endeavors to provide full and accurate disclosure to investors and rebut any false claims that attempt to impair market confidence in EBON's business, operations and financial statements. The Company is committed to maintaining the highest standards of corporate governance, as well as transparent and timely disclosure in compliance with the applicable rules and regulations of the United States Securities and Exchange Commission and the Nasdaq Exchange.”
In response to the statement, EBON stock inched 14 cents higher early Wednesday, but quickly slipped back into red territory, trading down 3%, at $5.36 per share, by midday. On Tuesday, shorted by Hindenburg, Ebang’s shares tumbled as low as 22% intraday.
The short-seller claimed Ebang transferred the capital it received from U.S. fundraisings into a "series of opaque deals with insiders and questionable counterparties” and made up the trade metrics on its new crypto-exchange platform, Ebonex.
Meanwhile, investors’ rights litigators have jumped in on the opportunity. Several firms, including Labaton Sucharow LLP, Rosen Law Firm, and Ademi LLP, announced an investigation into Ebang for potential violations of the federal securities laws. The firms cite the decline in EBON’s stock value on Tuesday as damaging to investors.
“Labaton is investigating whether Ebang and certain of its executives may be liable for securities fraud,” Labaton Sucharow said in a statement today. Similarly, Rosen Law is investigating potential securities claims “resulting from allegations that Ebang may have issued materially misleading business information to the investing public.”
Near the same time a year ago, began the demise of Chinese coffee giant Luckin Coffee (OTC: LKNCY) as a U.S.-listed company. Following a series of allegations by short-sellers including Muddy Waters, Luckin confirmed inflating its 2019 sales by 2.2 billion yuan. As a result, its founding chairman, chief executive officer, and a number of other high-level employees were sacked from Luckin, the company was delisted from the Nasdaq exchange, and its market capitalization lost about 90% of its value.
To top it off, the scandal turned the gears of tightening the listing restrictions for Chinese firms. The Trump administration felt eager to turn Wall Street into yet another battle front with China, while the markets rooted for increased oversight of foreign firms. This led to the recent adoption – first by the former president in December 2020, and then by U.S. Securities and Exchange Commission last month, –of the Holding Foreign Companies Accountable Act.
As a result, if certain firms fail to declare ties to foreign governments and refuse U.S. PCAOB inspections over the next three years, they may become delisted from U.S. stock exchanges.