At least four U.S. law firms are recruiting plaintiffs in a securities fraud class action against New York Stock Exchange-listed Chinese early education service provider RYB Education Inc. after allegations of child abuse in several of its kindergartens prompted a public uproar.
New York-based shareholder litigation firms, including Pomerantz, The Rosen Law Firm, Bronstein, Gewirtz & Grossman and Bragar Eagel & Squire, accuse RYB and chief executive Shi Yanlai of making misleading statements to investors and of failing to implement sufficient measures at its kindergartens to protect children from harm and abuse.
Beijing-based RYB went public in September in an initial public offering that raised $133 million. On the listing, RYB was advised by Skadden, Arps, Slate, Meagher & Flom China practice head Julie Gao, while underwriters Credit Suisse Securities and Morgan Stanley were represented by Kirkland & Ellis Hong Kong partner David Zhang and Beijing partner Steve Lin. Commerce & Finance Law Offices and Grandall Law Firm were Chinese counsel to the issuer and the underwriters, respectively.
On Nov. 22, eight parents of one of RYB’s kindergartens in Beijing reported to local police that their children were found with needle marks on their bodies and were given unidentified pills. Parents also reported that children were “made to stand naked” in class.
Local police soon arrested one 22-year-old female teacher who allegedly disciplined children using sewing needles. On Wednesday, Beijing police said in a statement that no molestation and drugging were found after reviewing 113 hours of surveillance footage. The police also said footage was lost due to a damaged hard drive.
The law firms are suing because RYB’s share price dropped by 38 percent to $16.45 on Nov. 24 from the previous closing, as the public outcry became widespread. The company announced a $50 million share buyback immediately. RYB closed on Nov. 28 at $22.20.
RYB issued a statement on Tuesday apologizing to the public, saying that it has a “zero-tolerance policy towards unethical or illegal behavior.” The company, whose Beijing facility costs between $540 and $750 per month, has been aware of the potential danger of abuse.
In its prospectus for the IPO, the company included among risk factors that despite training and supervision, it cannot assure its teachers will completely follow its service manual and standards all the time.
“For example, video footage that allegedly depicts improper behavior of a teacher at one of our then-directly operated kindergartens was released online in April 2017. It soon led to broad distribution and caused negative publicity on our operations and harmed our brand,” RYB wrote.
The company was referring to a video depicting a teacher from another of RYB’s Beijing kindergartens pushing and kicking children and pulling children’s hair. RYB apologized and fired the teacher.