Gaotu Techedu Inc.

On July 23, 2021, Reuters reported that China was barring for-profit tutoring programs, citing a government document that was widely circulated. The regulatory move “threatens to decimate the $120 billion private tutoring industry.”

On this news, Gaotu’s ADS price fell 63.3%, to close at $3.25 per ADS on July 23, 2021, thereby injuring investors.

Then, on November 6, 2021, the Financial Times published an article alleging, among other things, that Gaotu leaders had been aware that Beijing was considering stricter regulations on the tutoring industry. The article also reported that a shell company holding shares for Gaotu’s executives sold $119 million worth of shares days after the Chinese president remarked that home-schooling was a “stubborn disease” that was putting too much pressure on Chinese children and their parents.

The complaint filed in this class action alleges that throughout the Class Period, Defendants made materially false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects. Specifically, Defendants failed to disclose to investors that: (1) China was barring tutoring for profit in core school subjects and the policy change would restrict foreign investment in a sector that had become essential to success in Chinese school exams; (2) the impact such regulations would have on Gaotu’s operations and profitability and the value of Company securities; and (3) as a result, Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis at all relevant times.