Yirendai Ltd (NYSE:YRD), a Chinese company active in the loan market, is being investigated by several shareholder rights law firms over a possible violation of securities laws. China recently released updated regulations for its financial sector that affects the country’s peer lending market, which severely affected the company’s stock.
Yirendai is a consumer credit purveyor. It uses technology to connect lenders with borrowers over the Internet. As such, it has simplified access to credit for many consumers and built a successful business.
But Chinese regulators believe that the industry that Yirendai operates in has been loosely regulated, leading to the rollout of new restrictions. In particular, China has capped the amount that an individual can borrow in the peer lending market at about $150,000 (1 million yuan.)
The action of capping individual borrowing on the peer lending market could spell doom for consumer finance purveyors such as Yirendai. Some analysts even say that some players could be forced out of business by the new regulations.
To get a picture of the panic that has gripped investors, shares of Yirendai skidded more than 22% after news about new peer lending regulations in China entered the market.
Did Yirendai hide something from investors?
It is the quite sudden and steep fall in the share price of Yirendai that has triggered legal action against the company. Shareholder rights attorneys at Lundin Law PC, Lundin Law PC and Glancy Prongay & Murray LLP have all announced that they are investigating the company. The investigations are being carried out on behalf of investors who may have suffered losses as a result of shares of Yirendai declining after news of the new China peer lending regulations hit the market.
The investigators will be looking to see if Yirendai withheld information that may have helped investors to avoid the losses they suffered, such as the chances for sudden government interference as just happened.
No class action suit has been certified against Yirendai, but the law firms are encouraging shareholders in Yirendai to contact them if they need to discuss their rights in the ongoing investigations.
How Yirendai fared in 2Q2016
Yirendai Ltd facilitated loans worth $682.9 million in 2Q2016, indicating an increase of 118% over the same quarter last year. The company generated net revenue of $110.4 million, which rose 140% YoY, while net income rose 226% to $39.2 million.