In Wake Of Investor Lawsuits Against Chinese E-Cigarette Maker RLX, Billionaire CEO’s…

Just five months after a blockbuster IPO on the New York Stock Exchange that made four of its cofounders into billionaires, Chinese vaping giant RLX Technology has been hit by at least four class-action lawsuits alleging the company understated the risks to investors in its initial filing with the U.S. Securities and Exchange Commission. The flurry of announcements—the first lawsuit was filed on June 9 by an individual investor, quickly followed by several law firms including shareholder rights litigators Schall Law Firm and Kessler Topaz Meltzer & Check—have come at the same time as the firm’s share price fell by 18% since the beginning of the month, reducing the net worth of RLX founder Kate Wang by nearly $600 million, to an estimated $2.9 billion as of Monday afternoon. RLX stock was trading at $9.42 per share at 2 pm ET on Monday, down from $29.51 a share on the day of the IPO.

It’s been a tumultuous year for the three-year-old company, which Wang says she launched in 2018 in an effort to get her chain-smoking father to quit cigarettes. When RLX went public on January 22, Wang had an estimated net worth of $9.1 billion. Her fellow cofounders David Jiang ($4.2 billion at the time), Wen Yilong ($2.7 billion) and Du Bing ($1.2 billion) also broke into the billionaire ranks for the first time. Two months later, the Chinese government released draft regulations that proposed regulating e-cigarettes as tobacco products—a move that could potentially bring them under the state-owned monopoly that exclusively sells cigarettes, which would curb or even eliminate RLX’s core market—and the stock tanked, cutting Wang’s net worth by more than 40%, to $3.4 billion. Since the IPO, the four cofounders have collectively lost nearly $12 billion in the value of their RLX shares. David Jiang now has an estimated net worth of $1.3 billion, while Wen and Du have fallen out of the three-comma club.

The proposed tobacco regulations are at the heart of the lawsuits filed against the company. The suits claim that RLX’s initial registration document failed to warn investors of the risks posed by Chinese regulators. One lawsuit, filed by Portnoy Law Firm, alleges that “RLX knew, or had information making it foreseeable to know, that China was moving forward in its establishment of a national standard for e-cigarettes, likely to affect RLX performance.”

It’s not clear that these lawsuits are based on very strong claims when it comes to Chinese regulations. In its filing with the SEC, RLX listed 50 pages of potential risks to investors, including how new e-cigarette regulations in China could have a “material and adverse effect” on the company’s business.

Another claim in the lawsuits centers on the company’s financials, arguing that RLX overstated its success and used projected figures instead of real sales numbers. RLX released first-quarter earnings on June 2, showing that revenues grew 48% from the previous quarter to $366 million, a significant slowdown from the 147% growth posted in 2020. RLX recorded a net loss of $20 million on $585 million sales in 2020.

“We are aware that a U.S. securities litigation complaint has been filed against us in a U.S. court. The Company believes the allegations to be without merit,” a spokesperson for RLX told Forbes in a statement. “We have engaged U.S. counsel to defend against this and related lawsuits vigorously and to protect the rights of the Company.”