Seven US law firms are investigating Pinduoduo for fake products

Pinduoduo might soon find itself under US regulators scrutiny after seven US law firms have announced investigations against Chinese e-commerce platform Pinduoduo on behalf of the company’s investors. The statements issued by the firms show that the investigation launched against Pinduoduo by Chinese watchdog for selling counterfeit goods has caused the company’s stock price to plunge and investors to suffer losses, Beijing News reports.

In less than one week after its strong debut on Nasdaq, shares of Pinduoduo slumped on August 1st after China’s State Administration for Market Regulation ordered Shanghai’s Industry and Commerce Bureau to launch an investigation. The company has come under attention after reports of third-party vendors using the company’s platform to sell counterfeit goods.

The law firms’ investigation will focus on whether Pinduoduo misled and withheld information to public investors. It will also evaluate whether Pinduoduo and certain of its officers and/or directors have violated US federal securities laws, according to the report. The seven law firms include Bronstein, Gewirtz & Grossman LLC, Schall Law Firm, Rosen Law Firm, Pomerantz LLP, Glancy Prongay & Murray LLP, Faruqi & Faruqi LLP, and Law Offices of Howard G. Smith. All of the firms have published investor alerts.

Pinduoduo’s shares are currently trading at $19.66. Its opening price on Nasdaq on July 26th was at $19.27. On August 1st, shares dropped to $19.28 which is 30% less than its first day’s closing price of $26.70 losing nearly $9 billion of market value.

Screenshot of Pinduoduo’s current prices retrieved August 3rd, 2018 at 10:30 AM Beijing time.

At the time of its Nasdaq debut, Pinduoduo was raised to the status of Alibaba’s Taobao most powerful rival. Similar to its Chinese rivals, the company offers a wide range of products from daily groceries to home appliances. Pinduoduo’s strength lies in its integration of social components into the traditional online shopping process, which the company describes as the “team purchase” model.

The company came under attention for selling fake goods on the platform which cater to the need of low-income users in rural China. Talks about the quick rise of IPO has sparked deeper thoughts on the widening inequality of wealth distribution in China.

The incredible rise of Pinduoduo, Tencent’s most powerful Taobao rival