Canaan Sued Over Alleged Fake Deal, Stock Sees Historic Low

While the present local weather appears uneasy for all cryptocurrency companies, a couple of of them must match additive difficulties.

Earlier this calendar month, traders filed a class-action causa con to Canaan, a Nasdaq-listed cryptocurrency mining {hardware} manufacturer. The case is au fond primarily supported a February report submitted by an evaluation group proverbial as Marcus Aurelius Value, which argued that the mining agency has made deceptive statements relating to its monetary system well being.

The second-largest Bitcoin mining operation is in bother

Canaan is thought of to be the second-largest Bitcoin (BTC) mining machine manufacturer on the earth. The agency was established in 2013 by Nangeng Zhang, also referred to as “Pumpkin Zhang.” Earlier that 12 calendar months, his group allegedly engineered and produced one of many first cryptocurrency mining gadgets primarily supported ASIC expertise.

Being importantly louder and extra power-consuming than beginner mining setups primarily supported art processing models, ASIC rigs are purpose-built to mine Bitcoin on an industrial scale. In flip, ASIC machines have turned Bitcoin mining right into a capital-intensive enterprise run by a restricted pool of gamers.

Canaan was additively the primary crypto mining firm to pierce the mainstream monetary system market by acquiring listed on a significant inventory change. After failing to safe an preliminary public providing in Hong Kong final 12 calendar months – apparently because of the Hong Kong inventory change’s mistrust in cryptocurrency enterprises – Canaan seemed towards the United States, with a funding determine of $400 million current previous to the itemizing.

However, the IPO itself, which happened in November 2019 on the Nasdaq, didn’t go precisely as deliberate. Just one week earlier than the sale, Canaan’s largest banking confederate, Credit Suisse, born out. The business enterprise institution “was concerned whether the offering could secure ample orders,” Bloomberg’s sources argued on the time.

As a end result, the IPO’s dimension was dramatically lowered: Documents submitted on the time contained a projected $100 million purpose, which is over 75% lower than the determine expected initially. Furthermore, Canaan’s IPO launch was attended by a 40% worth crash inside the following weeks.

Analysts declare that Canaan hasn’t been 100% trustworthy with traders

Recent developments counsel that the Canaan IPO was not entirely unsuccessful but additionally allegedly deceptive for traders. In late February, MAV issued a report on Canaan, by which the analysts for the most part centered on what they declare to be an covert associated celebration dealing pertaining to Canaan’s Nov. 27 providing on the Nasdaq.

Specifically, one calendar month earlier than the IPO, Canaan introduced a “strategic partnership” with Hong Kong exchange-listed firm Grandshores, which power have the last mentioned buy as a good deal like $150 million price of Canaan mining gear.

This dealing raised a number of questions, as Marcus Aurelius Value famous. First of all, that one order would intend most everything of Canaan’s tracking income, which quantities to $177 million. Furthermore, the analysts argued that Grandshores had no manner of following by way of on the settlement, because it has a $50 million market cap and a $16-million money steadiness.

Moreover, they suspected that Grandshores and Canaan may be related. Hong Kong inventory change filings listing Yao Yongjie as its chairman, whereas Canaan’s filings with the U.S. Securities and Exchange Commission disclose that he’s a confederate at an organization that owns 9.7% of Canaan shares. Yongjie can be listed as an angel investor in Canaan on a Reuters profile. The analysts complete their argument:

“We, therefore, wonder if the giant Grandshores letter of intent, which we take for for the most part bogus, was used by CAN as a device to hype its business enterprise prospects to investors.”

From a authorized perspective, if the analysts’ conclusion is true, the failure to incorporate this as a associated celebration dealing in Canaan’s IPO filings may have penalties. SEC rules require the revelation of any dealings between the registrant and any 5% shareholder that exceed $120,000.

Canaan representatives have beforehand instructed Cointelegraph that Yongjie will not be the owner of the stakeholder firm talked about inside the filings and that he owns lower than 1% of Canaan shares. They additively stressed that the Grandshores contract will not be a proper gross sales contract, which is why they elect to “avoid shoddy and to protect our IPO investors” by not revealing it. The representatives defined:

“It is a framework agreement between two parties, which Canaan granted Grandshores as a distributor and permit him to resale no more than $150 million of miners.”

Interestingly, Grandshores has disclosed this dealing as a associated celebration dealing in its filings on the Hong Kong inventory change. The firm neglected Cointelegraph’s requests for remark.

The MAV report listed much more irregularities circumferent the Canaan IPO. For occasion, shortly earlier than its IPO, Canaan deleted eight of the 11 official distributors it had beforehand listed on its web site. Andres Romero, the CEO of a type of distributors proverbial as Nova Bit Mining Solutions, can be a Canaan worker, in response to his archived LinkedIn web page.

When the Financial Times requested Romero to touch upon his dealings with each corporations, he mentioned that he now not labored for Nova Bit and that he hadn’t had time to replace his LinkedIn profile. Romero has since modified his web page, stating that he stopped working at Nova Bit once again in September 2019.

The MAV report additively proverbial that, regardless of Canaan’s monetary system assertion coverage over $36 million in money, the agency was sued in 2019 by a trafficker for allegedly failing to pay an bill of roughly $1.7 million resultant from “gross sales problems and market circumstances” – which means that its monetary system well being may have been far worse than offered inside the SEC filings.

Finally, the paper doubted the sustainability of Canaan’s consumer base, 87% of whom are allegedly Chinese clients, stating: “In addition to related parties, other major customers proverbial in the Chinese listing documents filed by [Canaan] admit businesses that appear to be in entirely different industries.” One such buyer proverbial as Tianjin Garments Import & Export Co Ltd, which makes a speciality of “clothing, fabrics, blankets, carpets and stone carvings.”

Investors are acquiring indignant

Based on the next allegations, on March 4, an investor named Phillippe Lemieux filed a class-action causa con to Canaan in an Oregon court docket. Largely citing the MAV report and arguing that securities legal guidelines have been violated, Lemieux’s authorized group is strict unspecified “compensable damages.”

Such a causa was entirely a matter of time, given the variety of traders who misplaced cash on cryptocurrency mining over the previous few years, says Mark D’Aria, CEO of Bitpro cryptocurrency mining consultancy agency:

“It strikes me as similar to the class-action suit causa once against Ripple, where they are arguing whether or not it was an unregistered security. No one who made money off of XRP cares whether it was an unregistered security or not, but anyone who lost money is looking any reason to recoup it from Ripple, even or not.”

“We were not surprised by the report’s findings,” Juan Villaverde, Weiss Ratings’s lead cryptocurrency specialist, instructed Cointelegraph, elaborating that there’s a behavioral sample amongst such corporations: “The fact of the matter is many Chinese crypto companies behave in a similar fashion and have been doing so for some time.”

According to Villaverde, the truth that Canaan’s IPO utility was turned down by the Hong Kong and Chinese inventory exchanges, forcing the agency to make a “deal of last resort” inside the U.S., was ample to trigger suspicion that its filings weren’t all appropriate:

“What analysts have found regarding this chip manufacturer is ugly but not entirely different from what analysts have found in other Chinese firms that chose to list in the U.S. after being rejected in their home country.”

However, Matt D’Souza, co-founder and CEO of crypto mining {hardware} dealer Blockware Solutions, believes that Canaan required to transfer its sale to the U.S. resultant from higher buyer demand, no more lax restrictive rules:

“I don’t believe they were denied by the exchange but rather investors in that region were uninterested in investment in the IPO. Shanghai, Hang Seng indexes have been in downtrends and peaked in 2019, so China has been in a bear market for 2 years. Only the best stocks get their IPOs filled.”

In a bull market, even so, “even the junk companies get funding,” D’Souza continued, and the Nasdaq was in a greater place than the Chinese market on the time resultant from buying and merchandising tariffs and the general sentiment:

“It’s easier to IPO in the U.S. from the perspective of we have far more capital and robust markets. We have higher standards for accounting principles, the fees to list, the scrutiny, audit requirements, the requirement to follow U.S. Gaap accounting, which is more rigorous than Chinese regulations.”

In D’Souza’s view, Canaan “may have gone bankrupt” if the corporate didn’t increase $90 million from the IPO sale, even so in the end, it was “another lemon delivered to investors,” which additive stigmatized the crypto IPO sector.

Both the Rosen Law Firm – which is dealing with Lemieux’s class-action causa – and the Schall Law Firm – a shareholder rights judicial legal proceeding agency that has begun an investigation into supposed violations of securities legal guidelines by Canaan – have neglected Cointelegraph’s requests for remark. The SEC ombudsman was not out there to remark both.

Most just lately, one other legislation agency, Robbins Geller Rudman & Dowd LLP, filed a securities class-action causa con to the Chinese mining big. Meanwhile, Canaan powerfully denies all allegations raised by the MAV, which it notably proverbial as a “short marketer” in its assertion. The mining big’s adviser instructed Cointelegraph:

“We are aware of the short marketer allegations and the securities class-action suits that have been filed in the U.S. The allegations are entirely baseless. Given the current legal legal proceedings, we cannot comment in detail at this time, but we powerfully deny the allegations and we will smartly defend ourselves in court.”

The firm’s inventory (NASDAQ:CAN) is buying and merchandising at simply $3.37 as of press time, which is the bottom worth ever – whereas it could possibly be associated to the whirling allegations, the general present market local weather may be a significant factor.

Canaan Sued Over Alleged Fake Deal, Stock Sees Historic Low

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