A class action lawsuit was filed against AXT, Inc. (NASDAQ:AXTI) on May 6, 2024. The plaintiffs (shareholders) alleged that they bought AXTI stock at artificially inflated prices between March 24, 2021 and April 3, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought AXTI stock during that period can click here to learn about joining the lawsuit.
California-based AXT is a material science company that develops and manufactures high-performance compound and single-element semiconductor wafer substrates. The company’s wafer substrates find application in semiconductor or optoelectronic devices. AXTI also has a manufacturing subsidiary, Tongmei, in China and partial ownership in ten Chinese raw material-producing companies.
The plaintiffs maintain that AXT and two of its senior officers (Individual Defendants) deceived investors by lying and withholding vital information about the company’s property holdings, production, compliance with environmental regulations, and other issues from SEC filings and related material. By doing so, the Defendants repeatedly made false and misleading public statements throughout the Class Period.
The information became clear on April 4, before the market opened, in a report published by J Capital Research. The report alleged that AXT was undergoing tumultuous times in its Chinese operations, especially at Tongmei. As per the report, AXTI’s sales and production had fallen drastically, while environmental problems continued to pose a problem. Moreover, the report noted that the Beijing Public Security Bureau fined Tongmei in 2020 for failure to reveal the quantities and types of explosive precursor hazardous chemicals within the deadline.
Interestingly, at the beginning of the Class Period, the company disclosed in its annual report that the Chinese government is encouraging employees to report potential safety or environmental violations, “but there may not be actual violations.”
However, later in another annual report during the Class Period, the company pointed out that the Chinese central government was pressuring manufacturing companies to improve air quality and cut pollution. The government’s actions “impacted manufacturing companies through mandatory shutdowns, increased inspections and regulatory reforms.” Accordingly, several companies, including AXT, were forced to shut down operations for several days in Q4 FY17.
As per the class action lawsuit, AXT caused its shares to trade at artificially inflated prices by knowingly and recklessly misleading investors about the company’s business practices during the Class Period.
Notably, AXTI stock crashed nearly 35% on April 4, massively impacting shareholders’ returns.
