A class action lawsuit was filed against PDD Holdings (PDD) by Levi & Korsinsky on August 13, 2024. The plaintiffs (shareholders) alleged that they bought PDD ADS (American Depositary Shares) at artificially inflated prices between April 30, 2021 and June 25, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought PDD stock during that period can click here to learn about joining the lawsuit.
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PDD is a Chinese multinational commerce group that operates a portfolio of businesses, including an e-commerce platform, Pinduoduo, and an online marketplace, Temu.
PDD’s Misleading Claims
According to the lawsuit, PDD and three of its current and/or former senior executives and/or directors (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about the safety of PDD’s apps and the company’s ability to prevent goods made by forced labor from being offered on its Temu platform, from SEC filings and related material.
For instance, in an annual report filed at the beginning of the Class Period, PDD disclosed that it processes a large amount of data and is required to comply with the People’s Republic of China’s (PRC) regulations and other applicable laws related to privacy and cybersecurity.
In the annual report filed in April 2022, PDD again emphasized the importance of ensuring the security of the storage and transmission of confidential information, including buyers’ personal information, on its platform and systems. Further, in the annual report filed in April 2023, the company stated that changes in U.S. and international trade policies, mainly related to China, could negatively impact its business and results.
In contrast to these disclosures related to compliance with regulations, subsequent events (discussed below) revealed that PDD allegedly misled investors about its practices.
Plaintiffs’ Arguments
The plaintiffs maintain that the Defendants deceived investors by lying and withholding important information about the company’s business practices and prospects during the Class Period. The matter became clear via a series of events between March 21, 2023 and June 25, 2024, with several media reports revealing malware on PDD’s apps and the sale of products manufactured using forced labor.
Specifically, in a press release on June 25, the Attorney General of Arkansas said that he has filed a lawsuit against PDD and WhaleCo Inc. (PDD’s subsidiary that operates Temu in the U.S.) for violating the Arkansas Deceptive Trade Practices Act (ADTPA) and the Arkansas Personal Information Protection Act (PIPA).
He contended that unlike Amazon (AMZN) and Walmart (WMT), Temu is not an online marketplace but a “data-theft business” and is “functionally malware and spyware.” He further accused the platform of being designed in a way that it can gain unrestricted access to a user’s phone.
To conclude, PDD allegedly misled investors about the compliance of its business practices with the applicable laws and regulations. Consequently, PDD stock has declined about 32% year-to-date, causing damage to shareholder returns.
