Ambow Education Holding Inc. (AMBO), a Chinese school operator, was sued by investors who say the company orchestrated a “fake acquisition” to facilitate an initial public offering in the U.S. The shares fell more than 12 percent in New York trading.
Byron Brown and other investors are seeking unspecified damages and legal fees on behalf of U.S. purchasers of Beijing- based Ambow’s American depositary receipts in connection with the Aug. 5, 2010, offering, according to an amended complaint filed Feb. 19 in federal court in Los Angeles.
Ambow, which runs lower, middle and high schools, as well as colleges and career centers, wrongly said it had acquired Changsha Study School in 2008, while it actually paid “to borrow this school’s name and revenue for the IPO,” the plaintiffs allege.
“The cash for the purchase was secretly returned back to Ambow in the form of fake software sales,” according to the complaint, which cites statements from a member of the Changsha owner’s family and “reputable Chinese media” articles.
The company last reported earnings in July, when it posted a $12.7 million net loss for the first quarter. As a so-called foreign private issuer, the company isn’t required to file quarterly financial results, according to spokeswoman Mandy Li in Beijing. It is obliged to report results by the end of April, Li said when contacted by e-mail Jan. 30.
An e-mail to Li today seeking comment on the amended complaint wasn’t immediately returned.
Ambow said July 5 that it would conduct an internal investigation into allegations by a former employee of financial impropriety and wrongful conduct in connection with the purchase of a training school in 2008. The company said in a filing that it wouldn’t comment until the probe was complete.
Ambow’s ADRs fell 19 cents to $1.37 at 11:44 a.m. in New York Stock Exchange composite trading. They dropped 31 percent this year before today.
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