The law firm of Kirby McInerney LLP reminds investors that a class action lawsuit has been filed in the U.S. District Court for the Southern District of New York on behalf of those who acquired Waterdrop Inc. (“Waterdrop” or the “Company”) (NYSE: WDH) American Depository Shares (“ADSs”) from May 4, 2021 through September 14, 2021, inclusive (the “Class Period”). Investors have until November 15, 2021 to apply to the Court to be appointed as lead plaintiff in the lawsuit.
Waterdrop operates an insurance technology platform and is based in Beijing, China. Waterdrop has historically operated three business segments: (i) an insurance marketplace that matches consumers with health and life insurance products; (ii) medical crowdfunding, which enables people to provide donations to people with significant medical costs; and (iii) mutual aid, which enabled people suffering from over 100 types of critical illness to spread their medical cost burdens. Waterdrop discontinued its mutual aid segment in March 2021, shortly before the IPO.
On April 16, 2021, Waterdrop filed a registration statement on a Form F-1 for the IPO, which, after an amendment, was declared effective on May 6, 2021 (the “Registration Statement”). On May 7, 2021, Waterdrop filed a prospectus for the IPO on a Form 424B4, which incorporated and formed part of the Registration Statement. The Registration Statement was used to sell to the investing public 30 million Waterdrop ADSs at $12 per ADS.
On June 17, 2021, Waterdrop issued a press release announcing Waterdrop’s financial results for the quarter conducted before the IPO. In doing so, Waterdrop reported that its operating costs and expenses had ballooned over 75%, or RMB579.1 million to RMB1,343.9 million (US$205.1 million). As a result, Waterdrop suffered an operating loss for the quarter of RMB460.6 million (US$70.3 million), compared with an operating loss of RMB111.1 million for the same period of 2020 – a more than four-fold increase. This rapid increase in operating expenses was due largely to the cessation of Waterdrop’s mutual aid business and growing customer acquisition costs.
Then, on August 11, 2021, multiple news sources reported that China’s banking and insurance watchdog, the China Banking and Insurance Regulatory Commission, had issued an order directing insurance companies to cease improper marketing and pricing practices rampant in the industry and enhance their user privacy protections. Failure to comply would reportedly result in the offenders being “severely punished” by Chinese authorities. As Bloomberg reported, “[r]egulators have since moved to shutter some operations including mutual aid healthcare platforms operated by Waterdrop.” The article continued: “The latest move will stymie growth in an industry that had been expected to grow to 2.5 trillion yuan (US$385 billion) in a decade.”
Finally, on September 8, 2021, Waterdrop disclosed that its operating losses for the quarter ended June 30, 2021 had continued to accelerate, totaling RMB815.4 million (US$126.3 million), compared with an operating profit of RMB7.2 million for the same period of 2020. This was once again due to a sharp increase in Waterdrop’s operating costs and expenses, as Waterdrop’s operating costs and expenses during the quarter increased by RMB1,081.1 million, or 160.5% year over year, to RMB1,754.7 million (US$271.8 million) from RMB673.6 million for the same period of 2020. On September 13, 2021, Waterdrop ADSs dropped to $3.01 per ADS – approximately 75% below the price at which Waterdrop ADSs were sold to the investing public just four months previously.
The lawsuit alleges that the IPO’s Registration Statement failed to disclose that Waterdrop was the subject of an intense regulatory investigation and pending crackdown by Chinese authorities because of a variety of market abuses perpetrated by Waterdrop used to artificially inflate Waterdrop’s short-term financial results in the lead up to the IPO, including, among other things: (i) operating insurance platforms without proper governmental authorizations; (ii) mispricing risks for consumers; and (iii) illicitly using client information. The Waterdrop class action lawsuit further alleges that, unbeknownst to investors, the reason that Waterdrop had discontinued its mutual aid segment was because it had been ordered to do so by Chinese regulators. Furthermore, Waterdrop had suffered rapidly accelerating operating losses in the first quarter of 2021 which was completed weeks before the IPO.
If you purchased or otherwise acquired Waterdrop ADSs, have information, or would like to learn more about these claims, please contact Thomas W. Elrod of Kirby McInerney LLP at 212-371-6600, by email at investigations@kmllp.com, or by filling out this contact form, to discuss your rights or interests with respect to these matters without any cost to you.
Kirby McInerney LLP is a New York-based plaintiffs’ law firm concentrating in securities, antitrust, whistleblower, and consumer litigation. The firm’s efforts on behalf of shareholders in securities litigation have resulted in recoveries totaling billions of dollars. Additional information about the firm can be found at Kirby McInerney LLP’s website: http://www.kmllp.com.
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