Source : Pomerantz LLP

SHAREHOLDER ALERT:  Pomerantz Law Firm Reminds Shareholders with Losses on their Investment in X Financial, Inc. of Class Action Lawsuit and Upcoming Deadline – XYF

NEW YORK, Jan. 16, 2020 (GLOBE NEWSWIRE) -- Pomerantz LLP announce that a class action lawsuit has been filed against X Financial, Inc. (“X Financial” or the “Company”) (NYSE: XYF) and certain of its officers.   The class action, filed in United States District Court, for the Eastern District of New York, and docketed under 19-cv-06908, is on behalf of a class consisting of investors who purchased or otherwise acquired X Financial American Depositary Shares (“ADSs”) pursuant and/or traceable to the Company’s September 19, 2018 initial public offering (the “IPO”) seeking to pursue remedies under the Securities Act of 1933 (the “Securities Act”).

If you are a shareholder who purchased X Financial ADSs pursuant and/or traceable to the Company’s September 19, 2018 IPO, you have until February 7, 2020, to ask the Court to appoint you as Lead Plaintiff for the class.  A copy of the Complaint can be obtained at   To discuss this action, contact Robert S. Willoughby at or 888.476.6529 (or 888.4-POMLAW), toll-free, Ext. 9980. Those who inquire by e-mail are encouraged to include their mailing address, telephone number, and number of shares purchased. 

[Click here for information about joining the class action]

X Financial is a finance technology company based in Shenzhen, China.  The Company operates a peer-to-peer (“P2P”) platform that matches borrowers and lenders.  The Company’s primary source of revenue is the fees it charges for facilitating and processing loans between the two groups on its platform.
X Financial facilitates two primary types of loans.  The Company’s Xiaoying Card Loan (“card loan”) product is a credit card balance transfer product.  The Company describes card loans as “our flagship product targeting prime borrowers.”  X Financial derived 36.7% of its revenues in 2017 from card loans, making it the Company’s largest product.  X Financial offers its card loan product in amounts, or “ticket sizes,” from RMB2,000 to RMB60,000.
X Financial’s Xiaoying Preferred Loan (“preferred loan”) is a product marketed primarily to small- and medium-sized enterprises (“SMEs”).  Preferred loans, the Company’s second largest product, accounted for 22.6% of the Company’s revenues in 2017.  The Company offers its preferred loans at a variety of ticket sizes, typically depending on the type of investor, but generally between RMB100,000 and RMB600,000, making preferred loans significantly larger than card loans.

The Complaint alleges that the company’s Registration Statement was negligently prepared and, as a result, contained untrue statements of material fact or omitted to state other facts necessary to make the statements made not misleading and was not prepared in accordance with the rules and regulations governing its preparation.  Specifically, the Registration Statement made false and/or misleading statements and/or failed to disclose that: (i) the Company’s total loan facilitation amount was not growing, but rather was contracting; (ii) the number of investors actively using X Financial’s platform was shrinking; (iii) demand from SMEs for the Company’s preferred loans was plummeting; (iv) the Company’s preferred loans had performed so poorly that it had begun drastically scaling back its preferred loans in the first quarter of 2018, several months before the IPO, and was in the process of phasing out such loans completely; (v) demand for the Company’s card loans was also plummeting; (vi) the revenue and loan facilitation growth provided in the Registration Statement leading up to the IPO was achieved by relaxed credit and due diligence standards, under which the Company had underwritten tens of millions of dollars’ worth of poor quality loans that suffered from a disproportionately high risk of default as compared to the Company’s earlier loan vintages; (vii) the Company was suffering from accelerated delinquency rates from poor quality loans that it had underwritten in the first, second, and third quarters of 2018, which had caused the Company’s delinquency rate to sharply rise; (viii) the Company’s product mix had significantly deteriorated; (ix) the Company’s net revenue was on track to decline by 22% during the third quarter of 2018; and (x) as a result, the Registration Statement was materially false and/or misleading and failed to state information required to be stated therein.
On November 20, 2018, X Financial held its first earnings call after the IPO to discuss its financial results.  As executives explained on the call, the negative operational and financial results reported in the day’s press release had been caused by market and other problems that had long preceded the IPO.  Defendant Tang, for example, blamed the “decline in loan facilitation” on “the lows we saw in July when the market turmoil was at a peak” and said that the “[n]umber-one driver” was “the lack of funding during the July and August time.”  He confirmed that X Financial and its executives had access to this adverse information as it unfolded, stating we are “able to manage our risk on a very much real-time basis.”  Speaking specifically about preferred loans, defendant Tang told investors that demand for loans had dried up even earlier, prompting significant reductions in preferred loans “over the last three quarters” (i.e., the last nine months), stating: “Then on the preferred loan, because of the operating environment for SME owners are very difficult these days, and our preferred loan did suffer a higher-than-expected loss than our earlier estimate. And as a result, actually, over the last three quarters, we have been consistently reduced our [sic] preferred loan business.”

During the November 20, 2018 earnings call, analysts questioned X Financial’s executives about the rapidly contracting preferred loans and rising delinquency rates.  In response, they conceded that low demand and “very high” delinquency rates for X Financial’s preferred loans had produced a cascading effect that torpedoed the Company’s overall financial results.  As these executives explained, plummeting demand and high default rates had, in turn, forced the Company to make the “big [strategy change] to . . . scale down the preferred loan business.”  Scaling down preferred loans, meanwhile, had prompted “a change in product mix resulting from a significant increase in the proportion of revenue generated by Xiaoying Card Loan.”  The pivot to depending on card loans had, in turn, caused a reduction in X Financial’s “average loan ticket size by 20% to even 25%” and also caused further increases in the Company’s overall delinquency rate, as card loans by nature represented significantly higher risks.

In subsequent financial reports, X Financial has confirmed that the problems described above started before the IPO.  For example, on a March 19, 2019 earnings call to discuss the Company’s fourth quarter and fiscal year 2018 results, defendant Cheng affirmed that X Financial’s loan volume had been declining “since [the] middle of last year,” which had caused declines in the Company’s ticket size.

On April 25, 2019, X Financial filed its annual report for 2018 on Form 20-F.  The report contained a chart entitled “Delinquency Rate by Vintage of Xiaoying Preferred Loan,” which illustrated the dramatic increase in delinquency rates leading up to and during the IPO—including in first, second, and third quarters of 2018—and that such negative trends were accelerating.

Then on May 21, 2019, during X Financial’s earnings call to discuss the Company’s first quarter 2019 results, defendant Tang admitted that X Financial was unlikely to achieve significant loan or revenue growth because its preferred loan business had failed “over the last year” and that the Company was shelving the entire business.

On November 22, 2019, X Financial’s ADSs closed at $1.74 per ADS.  This price represented an 81.68% decline from the $9.50 per share price at which X Financial’s ADSs had been sold to the investing public in the IPO.

As of the date this complaint was filed, X Financial’s ADSs continue to trade below the $9.50 per share IPO price.

The Pomerantz Firm, with offices in New York, Chicago, Florida, and Los Angeles, is acknowledged as one of the premier firms in the areas of corporate, securities, and antitrust class litigation. Founded by the late Abraham L. Pomerantz, known as the dean of the class action bar, the Pomerantz Firm pioneered the field of securities class actions. Today, more than 80 years later, the Pomerantz Firm continues in the tradition he established, fighting for the rights of the victims of securities fraud, breaches of fiduciary duty, and corporate misconduct. The Firm has recovered numerous multimillion-dollar damages awards on behalf of class members. See

Robert S. Willoughby
Pomerantz LLP