Ebang International Holding, Inc. (NASDAQ: EBON) allegedly deceived investors into pouring over $100 million into its initial public offering (IPO) by misusing the offering proceeds and inflating its sales report, according to a lawsuit seeking class-action status filed by investor Tommie Zaker in the Southern District of New York.
It’s the latest in a series of blows against the manufacturer of ASIC mining machines stemming from a scathing new report by Hindenburg Research, highlighting alleged improprieties and misconduct taking place at the firm.
The Hindenburg Research characterizes Ebang as “Yet Another Crypto ‘China Hustle’ Absconding With U.S. Investor Cash.” Instead of using the massive fundraising proceeds as advertised, it allegedly transferred much of the cash out of the company through a series of opaque deals with insiders and questionable counter-parties such as bond purchases linked to its U.S. underwriter.
In the complaint, Zaker also alleges Ebang knowingly sold defective units to clients during the IPO process last summer. It cites Ebang’s Ebonex cryptocurrency exchange as nothing more than “merely the purchase of an out-of-the-box crypto exchange” from BlueHelix.
Ebang responded, calling these charges inaccurate and speculative. In its announcement, the firm also stated that it would examine the claims made by Hindenburg and take “appropriate” steps to protect its investors.
Based on the “materially false and/or misleading statements” and failure to “disclose material adverse facts about the company,” shareholders have suffered significant losses and damages, Zaker maintains. He seeks to have the class-action lawsuit cover the June 2020 IPO and subsequent fundraising activities as recently as this month.
This incident is not the first time Ebang has found itself embroiled in controversy. The Hindenburg Research mentions Ebang’s two ill-fated attempts to go public on the Hong Kong stock exchange. Media outlets at the time reported that Ebang suspended its plans following scrutiny over its involvement in an alleged sales inflation scheme with Yindou—a Chinese peer-to-peer online lending company that defaulted on its 20,000 retail investors.
While Ebang claims to be a leading ASIC hardware maker, the report alleges Ebang hasn’t released a new model miner in almost two years while sales have plummeted. It further accuses Ebonex of displaying fictitious trading volumes.
Whether Ebang is a “cautionary tale for inexperienced retail investors enthused by anything crypto-related” remains to be proven. Public companies must provide an accurate picture of their business, it’s really very simple. They can’t obfuscate important details.
Ebang’s share price has been on a downward spiral since mid-March, and this report will only hamper efforts for it to bounce back.
See also: Equity analyst John Pitts and fintech expert Len Mazur discuss TAAL, Bitcoin and the transaction processing industry
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