A Canaan stockholder is taking the Chinese Bitcoin mining company to court in the U.S. for violating securities law.
The lawsuit alleges that the Canaan misled investors about the company's financial health and operations status in its initial public offering (IPO) filing to the Securities and Exchange Commission (SEC).
The plaintiff, named Phillippe Lemieux, stated that he bought 200 Canaan shares close to an all time high price on February 12 at $8.50 each.
In the lawsuit, Lemieux claims that Canaan misleadingly labelled a $150 million purchase agreement with purchasing firm, Hangzhou Granshores Weichaeng Technology as "strategic cooperation," while in fact, the chairman of said company, actually owns 9.7% of Canaan shares
The complaint also alleges that Canaan secretly removed some distributors from its website before the IPO, and that some of the company's stated clients are probably not even in the Bitcoin mining industry.
Based in Hangzhou, China, Canaan is a worldwide leader in producing Blockchain servers and ASICs microprocessor solutions. Their mining rigs are sold worldwide and the company has grown to become the main competitor for Bitmain in the cryptocurrency mining market.
With City Group, Galaxy Digital, and CMB International Capital are among some of its underwriters, and they too have been named in the lawsuit.
The company went public on Nasdaq November 2019, and raised $90 million in its opening round. Although the stock surged by 80% last month, the price has been relatively indifferent since launching.
Suspiciously, one of the original underwriters Credit Suisse dropped out of the IPO a few days before the launch. And it’s not the first time Canaan has applied for an IPO.
It tried to list in mainstream China through a reverse merger in 2016 and then tried to float in Hong Kong last year. It failed on both occasions because regulators had doubts about Canaan’s business model and prospects, according to Reuters.
Regarding the lawsuit, the case is still to be determined by the court. Lemieux’s representatives Rosen Law Firm are taking a stance, however, and have asked for other Canaan investors to join the class action.
It remains to be seen how the lawsuit concludes, but the case raises the question as to why Canaan is so eager to IPO. The answer to that might be the Chinese government.
Despite its public opposition to Bitcoin, it is well-known that China is trying to take the lead with government backed digital currencies, and once they launch the digital yuan, Canaan might be thinking a national digital currency will affect the mining industry and ultimately the company’s value.
It remains to be seen how the lawsuit will play out. The fact that Credit Suisse pulled out just before the IPO, and Canaan’s over-eagerness to IPO does throw up suspicion. It will be interesting if more investors follow suit and join the lawsuit, which would weigh an outcome in the plaintiff’s favour.
Author: Tommy Limpitlaw