Ambow Shares Plunge on Lawsuit

A Chinese school operator, Ambow Education Holding Inc. has been sued by the investors as they accuse Ambow of orchestrating a fake acquisition in order to facilitate an initial public offering in the biggest economy of the world, US. The shares of Ambow declined by more than 12% as this news report came out.

The investors who sued Ambow are being led by Byron Brown and they are looking for unspecified damages and legal fees. They are asking for the fees on behalf of the buyers of Ambow’s American depositary receipts related to the IPO of the same, held on 5th August, 2010. The amended complaint was filed in the Federal court of Los Angeles on 19th February.

Ambow incidentally runs lower, middle and high schools. Apart from that, it runs colleges and career centers as well. According to those who sued Ambow, the company wrongly announced that it had acquired Changsha Study School way back in 2008. Ambow, allegedly, only paid for borrowing the school’s name and revenue for its IPO.

As far as the complaint is concerned, it states that the cash for the purchase was later returned back to Ambow secretly citing software sales as reason. The complaint cites statement from one family member of the owner of Changsha and some other reputed Chinese media articles.

In last July, Ambow reported the earnings for the last time and for the 1st quarter of 2012; it had actually experienced a loss of $12.7 million. The company is a foreign private issuer and hence, is not bound to file the financial results on every quarter. The last earnings report was released by the spokeswoman of the company, Many Li. She commented that the company has the obligation of reporting the results by end of this April. As far as the recent complaint is concerned, Li or any other official of Ambow has declined to make any statement regarding the same. They are expected to wait till the probe is completed.

A former employee of the company had already made similar allegations and on 5th July, 2012, Ambow stated that it will be conducting an internal investigation for finding out the truth about alleged wrongful conduct and impropriety related to the purchase of the training school Changsha.

Ambow’s ADRs went down by 19 cents to $1.37 having dropped by 31% in 2013 till yesterday.