Renren, a once high-flying Chinese social network that has turned into an emerging investor, has settled with US shareholders for $ 300 million over allegations of corporate misconduct.
Dissident investors Blame the company Direct the best assets, including hundreds of millions of dollars worth of digital lender SoFi, to insiders of the Renren network, including Softbank.
The settlement represents a rare victory in which shareholders of a US-listed China-based company founded in the Cayman Islands were able to win compensation for a company’s allegations of illegal activity.
“This is an extraordinary result in every respect. It is very rare to resolve a proceeding beyond the damages we originally filed,” Renren’s estimated liability was approximately $ 240 million. Said the plaintiff’s lawyer, William Reed IV.
The shareholder proceedings filed in the New York State Court consisted of so-called derivative suits in which investors sued Renren’s directors on behalf of the company for breach of trustee obligations. Ren Ren agreed on Friday to pay general shareholders $ 300 million after deducting statutory costs. It denied any cheating.
In 2018, Renren’s founder and CEO Joseph Cheng founded a subsidiary, Oak Pacific Investment. The subsidiary will hold shares in the company’s investment portfolio and will be spun off from it. OPI’s assets included several early-stage companies such as mortgage lender Lending Home and the real estate platform Fundrise.
But its most prominent portfolio company was 13% interest in Internet lender SoFi. Renren has invested $ 240 million in SoFi and its private market value has exceeded $ 4 billion by March 2017.
Renren shareholders were given what the plaintiff described as “Hobson’s Choice” and could either buy it to OPI or receive a special dividend from Renren. However, only large investors were eligible to buy OPI, and virtually all individual investors, many of whom were also Chinese, were locked out.
Shareholders in the proceedings said that the $ 500 million pegged to OPI was “hundreds of millions of dollars” in fair value to benefit Chen, Softbank, venture capital group DCM, etc. they purchased. Claimed to be in short supply. Interest in OPI.
Minority shareholders own about one-third of Renren’s shares, giving them proportional claims against OPI. Renren estimates the total investment portfolio to be $ 695 million, and despite the surge in private market valuations, SoFi holdings were below initial costs.
“These companies were exempt from diplomatic immunity in the US capital markets and had to change that,” said Renren’s shareholders, who held shares for years before the OPI spin-off. Said Peter Halesworth. He filed a lawsuit with Hong Kong-based Oasis Investment in 2018, calling for increased payments.
Since 2010, a total of 239 Chinese companies have been listed on the Nasdaq and New York Stock Exchange, raising more than $ 100 billion. And while US investors have access to high-growth companies, Chinese groups will be a favorite target for US shareholders claiming financial fraud and management interests.
According to a survey by Advisory Group Duff & Phelps, 70% of Chinese companies published in the United States chose Cayman Islands corporations. In Caribbean countries, law firms have been denied the ability to pay fees subject to settlement or judgment, which has tended to make it difficult to carry out derivative suits.
Ren Ren initially listed on the New York Stock Exchange in 2011 and “Facebook of China”.. A court in New York had previously accepted plaintiffs’ allegations that Renren’s activities in the United States could adequately determine allegations of fraud in the United States.
Renren’s share price soared 45% on Friday, reaching a market capitalization of $ 576 million as shareholders expected to pay a settlement. SoFi was launched in 2021 and currently has a stock value of $ 12 billion.
According to court filings, $ 300 million will be paid by OPI and Chen.
Ren Ren and his lawyer did not respond to requests for comment.
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