Pomerantz Appointed Lead Counsel in 17 Education & Technology Group Securities Litigation
On October 24, 2022, U.S. District Judge Fred W. Slaughter of the Central District of California appointed Pomerantz LLP as Lead Counsel on behalf of Wong Haping and He Xianghong– the Co-Lead Plaintiffs, and the class, in Zhang v. 17 Education & Technology Group Inc., 22-cv-4937 (C.D. Cal.). This securities class action alleges that 17 Education & Technology Group Inc. (“17EdTech” or the “Company”) misled the market in relation to its initial public offering (“IPO”) and the ongoing development of regulatory efforts in China that would materially impact its operations and financial performance.
17EdTech is an education technology company that provides in-school and after-school K-12 education services to schools, teachers, tutors, and students and parents in China, including subscription-based access to in-school classroom solutions, online tutoring courses, workbooks, study plans and assessment products. As a core offering, the Company provided tutoring services related to academic subjects to students in China from kindergarten through high school (“K-12 Academic AST Services”), but ceased this core offering at the end of 2021, merely a year after its December 2020 IPO.
Allegations against 17EdTech include that it failed to disclose that: (i) the Company would stop offering its K-12 Academic AST Services less than a year after its IPO; and (ii) 17EdTech's core business faced imminent curtailment and possible closure as a result of ongoing regulatory efforts by Chinese authorities.
The truth began to emerge on July 23, 2021, when 17EdTech issued a press release to comment on news reports that Chinese regulators were “considering a new set of regulations concerning after-school tutoring service related to school subjects taught in China’s compulsory education system,” stating that no regulations had been published yet and that it was the Company’s policy “not to comment on market speculations.”
On this news, 17EdTech’s share price fell 38.7%.
Then, on July 26, 2021, 17EdTech announced that the new regulations would require institutions that provide K-12 Academic AST Services to be “registered as non-profit” and would be prohibited from having foreign ownership. Registered institutions would also be prohibited from “raising capital to invest in businesses that teach academic subjects in compulsory education.” The Company revealed that “compliance measures to be taken by the Company will have a material adverse impact on the Company’s results of operations and prospect.”
On this news, 17EdTech’s share price fell a further 26.2%.
On August 25, 2021, 17EdTech announced that the new regulations prohibited providers of K-12 Academic AST Services from "financing by way of publicly listing its securities" and investing in “Academic AST providers through capital markets fundraising." The Company also revealed that it had stopped offering online K-12 Academic AST Services “over weekends, national holidays and school break periods.”
On this news, 17EdTech’s share price fell a further 5%.
Finally, on June 9, 2022, 17EdTech announced its first quarter 2022 financial results in which it revealed a year-over-year decrease of 50.8% in net revenues. The Company stated that these results were “mainly due to the cessation of the Company’s online K-12 tutoring services by the end of 2021 in order to be compliant" with the latest regulations, which "prohibit the provision of tutoring services relating to academic subjects to K-12 students."
On this news, 17EdTech’s share price fell a further 21.3%.
Since 17EdTech’s IPO, its share price has fallen as much as 85% from its $10.50 IPO price.