A.O. Smith Corp.
The complaint alleges that during the Class Period the defendants failed to disclose that the Company had used a distribution partner, Jiangsu UTP Supply Chain ("UTP"), to artificially inflate the Company's sales and gross margins in the important Chinese market. As a result of this adverse information being withheld from the market, the price of the Company's stock was artificially inflated during the Class Period. On May 16, 2019, analyst firm J Capital Research USA LLC ("J Capital") published a report alleging that A.O. Smith used several manipulative practices to show higher sales and earnings in its China operations. The report stated that A.O. Smith had undisclosed business relationships and entanglements with UTP, accounting for up to 75% of the Company's product sales in China. The report also questioned whether A.O. Smith had unencumbered access to more than $530 million in cash on hand it claimed to hold in China. On this report, the price of A.O. Smith shares declined 6%.