Relevant Period: Before Sept. 21, 2020
Contact An Attorney Now: HTHT@hbsslaw.com
Huazhu Group Limited (HTHT) Investigation:
The investigation centers on whether Huazhu manipulated its financial results by under reporting the number of hotels it owns and their related operating costs to appear more profitable.
Since 2017, Huazhu has attracted investor interest by reporting profits significantly better than its direct Chinese-listed competitors. Recently, however, the legitimacy of Huazhu’s outsized profits from its Chinese operations was called into question.
Specifically, on Sep. 21, 2020, analyst Bonitas Research released a scathing report, claiming the company “lied about the ownership of its hotel portfolio to produce fake financials.” According to the Bonitas report, while the company claims it operates 688 hotels, it secretly controls 1,952 hotels, either through Huazhu subsidiaries or related third parties. Moreover, the Bonitas report states that Huazhu understated its employee count by at least 16%. According to Bonitas, by failing to account for these “off-book hotels,” “Huazhu generated significantly less profit and held significantly less PP&E [Property, plant, and equipment] assets than reported in both its SEC filings and HKEX Global Offering.” Specifically, Bonitas calculates fake profits took the form of $300M of fake PP&E on its CYE 2019 balance sheet.
This news sent the price of Huazhu American Depositary Shares sharply lower.
“We’re focused on investors’ losses and whether Huazhu misreported assets, related party transactions, and profitability,” said Reed Kathrein, the Hagens Berman partner leading the investigation.
Whistleblowers: Persons with non-public information regarding Huazhu should consider their options to help in the investigation or take advantage of the SEC Whistleblower program. Under the new program, whistleblowers who provide original information may receive rewards totaling up to 30 percent of any successful recovery made by the SEC. For more information, call Reed Kathrein at 844-916-0895 or email HTHT@hbsslaw.com.
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Reed Kathrein, 844-916-0895