US judge clears Nio investor class action lawsuit over factory claims

The company logo of Chinese electric vehicle startup Nio Inc. is seen on the day of its initial public offering (IPO) on the NYSE in New York, the United States, September 12, 2018. REUTERS/Brendan McDermid

Aug 9 (Reuters) – Investors in Nio Inc can file a class action in a lawsuit alleging the Chinese electric vehicle maker lied about building its own factory in Shanghai when it went public in 2018, a US judge has ruled .

The lawsuit in a federal court in New York is seeking damages from Nio, its executives and insurers for a drop in its share price after the automaker said in March 2019 it had announced its plans to build the new factory it said it was expanding “under construction” during the year, abandoned IPO.

U.S. District Judge Nicholas Garaufis late Tuesday issued an order certifying a class of all investors who purchased Nio American Depositary Shares (ADS) in the September 2018 IPO, as well as a class of investors who bought between October 8, 2018 and the March 5, 2019 Bought ADS .

The defendants have denied the allegations. Her attorneys did not immediately respond to requests for comment.

The verdict is one of the last hurdles for investors before court proceedings. Securities class actions rarely go to court; those that are not dismissed usually lead to settlements. The company can also ask the judge to rule in its favor without a trial.

Investors assumed the Nio factory would have its own manufacturing capabilities and reduce its reliance on a Chinese state-owned manufacturer, which some analysts considered “third-rate.”

However, the lawsuit states that construction work has never started, citing former employees and the lack of necessary building permits.

Investors also claimed that Morgan Stanley (MS.N), Goldman Sachs (GS.N) and several other underwriters failed to properly verify the company’s statements.

When Nio announced in March 2019 that the facility would not be built, the ADS price fell 30%, from about $10 to $7 per share, investors said.

Nio ADS traded at about $13.50 a share on Wednesday, down about 3.9% from Tuesday’s close. The case reads: NIO, Inc., Securities Litigation, U.S. District Court, Eastern District of New York, No. 19-cv-01424.

reporting by Jody Godoy in New York; Edited by Jonathan Oatis

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Jody Godoy reports on banking and securities law. You can reach her at [email protected]