A new complaint was filed against Xiao-I Corp. (AIXI) by shareholder (plaintiff) Yunfan Fan on October 15, 2024, in the U.S. District Court for the Southern District of New York. The defendants in the complaint are the company and ten other company executives (individual defendants).
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The plaintiff alleges that he bought AIXI stock at artificially inflated prices on or about March 9, 2023 (date of its initial public offering) and/or between March 9, 2023, and July 12, 2024 (the “Class Period”). The plaintiff is now seeking compensation for his financial losses. To learn more about the lawsuit, click here.
China-based Xiao-I Corp. is an artificial intelligence (AI) company with a focus on Cognitive Intelligence and natural language processing applications. Xiao-I Corp.’s ADS (American depositary shares) were listed on the Nasdaq stock exchange on March 9, 2023.
The filed complaint alleges that during the Class Period, the defendants misled Xiao-I Corp. investors in violation of Sections 10(b) and 20(a) of the Securities Exchange Act.
Plaintiff’s Allegations
According to the complaint, Xiao-I intentionally misrepresented information presented in its financial statements and registration documents with the U.S. SEC (Securities and Exchange Commission). In particular, the defendants allegedly misled investors about the true extent and severity of risks the company faced. Importantly, Xiao-I was required to maintain a minimum closing share price of $1 per share to remain listed on Nasdaq.
For instance, the company did not disclose that some of its Chinese shareholders did not comply with foreign investment enterprise requirements or that the company did not use the proceeds for the intended business purposes. Furthermore, Xiao-I failed to comply with the U.S. GAAP (Generally Accepted Accounting Principles) accounting practices while preparing its financials.
Additionally, Xiao-I did not disclose that it was required to incur significant amounts on research and development expenses to successfully compete in the AI market, which was impacting its finances. All these led to an overstatement of the company’s AI capabilities, R&D expenses, and ability to compete in the AI industry.
Owing to all of these factors, the company was unable to maintain the $1 per share minimum listing price and faced the risk of being delisted from Nasdaq.
Xiao-I Corp.’s Misrepresentations
In contrast to the claims made by Xiao-I and its executives, the company was unable to maintain the $1 minimum bid price requirement of Nasdaq and was on warning for delisting. The company did not disclose these risks coherently to investors.
Unfortunately, on July 11, the Nasdaq sent a notice of non-compliance regarding the minimum bid price requirement from the Listing Qualifications Department of The Nasdaq Stock Market Inc., as the company had failed to maintain a minimum closing price of $1 for 30 consecutive business days. Xiao-I was given 180 days or until January 7, 2025, to regain compliance with the rule.
Consecutively, Xiao-I undertook a one-for-nine reverse ADS split to boost its per share trading price. Accordingly, the company was able to regain compliance with Nasdaq’s minimum bid price requirement, effective September 9, and is currently able to remain listed.
To conclude, the defendants allegedly misled investors about the company’s potential risks, inducing investors to buy the shares. Year-to-date, AIXI shares have declined nearly 74%, leading to significant losses for shareholders.
