China-based Canaan, the Second-largest producer of Bitcoin (BTC) mining equipment, has found itself amidst a class-action lawsuit filed by its investors who claim that Canaan misled its investors with false statements and also hid a number of issues from them. This resulted in investors suffering damages.

Investor rights-focused law firm Rosen Law Firm has filed a lawsuit on behalf of all the investors that purchased the securities of Canaan during the company’s Initial Public Offering (IPO) held back in November 2019.

Canaan reportedly filed the IPO back in July seeking to raise a sum of $400 million on the Nasdaq exchange. As it went live it only managed to raise $90 million, selling 10 million shares priced at the bottom of its marketed range of $9 per share. While many expected that the company would have met the targeted amount of $100 million, only 14 investors indicated an interest in 5% of the shares.

The failure was supposedly a result of the company losing its biggest banking partner, Credit Suisse, just a week before the IPO.

Now, Canaan investors are stating that they were misled, and once the factual company details entered the market, they suffered damages. They now want the damages recovered under the federal securities laws.

Misleading investors

As per the filing, Canaan failed to disclose that the “strategic partnership” with Hong Kong Exchange-listed company Grandshores (HK 1647), which would have the company purchase up to $150 million worth of equipment, “was actually a transaction with a related party.”

Surprisingly, Grandshores appears to be a related party to Canaan. Yao Yongjie, listed as Grandshores chairman on the Hong Kong Stock Exchange filings, is listed as a partner at a company that owns 9.7% of Canaan shares. However, a Reuters profile lists him as an angel investor in Canaan.

Also, Canaan’s financial health was reportedly “worse than what was actually reported” to the investors. The filing further added:

“The company had recently removed numerous distributors from its website just prior to the IPO, many of which were small or suspicious businesses; and (4) several of the Company’s largest Chinese clients in prior years were clients who were not in the Bitcoin mining industry and, thus, would likely not be repeat customers.”

Furthermore, several of the company’s largest Chinese clients were not in the Bitcoin mining industry and won’t likely come back with another order.

Rosen Law firm is calling the investors to join the class action if they want to do so. The lead plaintiff is yet to be chosen. Meanwhile, the company’s shares have dropped by almost 50% since the trading begun in November.

As of now, the ASIC mining industry is under tremendous pressure with the upcoming Bitcoin (BTC) halving almost the door. Bitmain, the leading mining equipment manufacturer has even laid off 50% of its staff preparing for the mining revenue dip.