FOLLOW US

Vietnamese electric car manufacturer VinFast Auto and several executives have been hit with a proposed class action alleging they exaggerated the strength of VinFast's business model and prospects following a merger with a special-purpose acquisition company last year.

According to the suit filed by shareholder Meng Qian on Friday, VinFast completed a $27 billion merger with blank-check company Black Spade Acquisition Co. last August. Qian alleges the merger's offering documents, as well as statements VinFast made to investors, were false and misleading because they did not disclose that the company lacked sufficient capital to execute its purported growth strategy and would be unable to meet its 2023 delivery targets.

Qian claims the merger was overvalued due to the alleged misrepresentations. Shares of VinFast declined when news outlets, analysts, and the company itself acknowledged VinFast's financial struggles, the suit alleges.

In addition to VinFast, the suit's individual defendants include VinFast's founder and CEO Pham Nhat Vuong, former CEO Le Thi Thu Thuy, former Chief Financial Officer David Mansfield, and four others who signed the registration statement filed in connection with the merger in June 2023.

The class period begins Aug. 15, 2023, the day after the merger was completed. That day, VinFast's ordinary shares began publicly trading on the Nasdaq Stock Market, according to the suit. For several weeks following the company's debut, the defendants made misleading statements about VinFast's business, strengths, and long-term growth strategies, the suit claims.

For example, the suit states, the company said on Oct. 5, 2023, when announcing third-quarter financial results, that it expected to deliver between 40,000 and 50,000 vehicles in full-year 2023. On the same day, Mansfield told investors that VinFast had a "concrete action plan" to accelerate its global expansion, the complaint states.

Several days later, on Oct. 15, 2023, the market reacted negatively to an article regarding VinFast's growth outlook, the suit claims. Bloomberg reported that VinFast plans to "aggressively move'' into southeast Asian markets and expects to raise "a lot of capital" to fuel its global expansion strategy, the suit states. The company will rely on support from its parent company Vingroup JSC and its founder Vuong for the next 18 months, the article stated, according to the suit.

On this news, VinFast's shares declined $1.45, or 18%, to close at $6.53 per share on Oct. 16, 2023, according to the complaint.

The suit alleges that shares declined again in January when VinFast announced it failed to meet guidance expectations it had affirmed in October. VinFast only delivered 34,855 electric vehicles in 2023, falling short of its annual target of 40,000 deliveries. The defendants attributed the sales shortcoming to economic headwinds that led to slow electric vehicle adoption rates in certain regions, the complaint states.

In response, several market analysts commented on VinFast's "disappointing" announcement, the suit claims.

On this news, VinFast's shares declined 13 cents per share, or 2%, to close at $5.64 per share on Jan. 18, according to the complaint.

Following the announcement of lower-than-expected electric vehicle sales, the defendants continued making misleading statements regarding VinFast's growth capacity, the suit alleges. On April 17, VinFast announced it delivered 9,689 electric vehicles for the quarter, about 10% of the 100,000 total electric vehicle deliveries it had targeted for the year.

On this news, VinFast's shares declined 35 cents, or 11%, to close at $2.72 per share on April 17.

"The Q1 2024 press release showed continuing weakness in demand and difficulties in generating additional sales, contrary to prior representations … Less than a year after the SPAC merger, the truth concerning VinFast's poor financial health was fully on display," the suit states.

The suit claims VinFast and the individual defendants acted with scienter, or actual knowledge of wrongdoing or reckless disregard, and violated the Securities Act and the Exchange Act. Qian seeks damages with pre- and post-judgment interest.

Counsel for Qian declined to comment on the suit. A representative of VinFast did not immediately respond to requests for comment on Monday.

Qian is represented by Phillip Kim and Laurence M. Rosen of The Rosen Law Firm PA and Brian Schall of The Schall Law Firm.

Counsel information for VinFast and the individual defendants was not immediately available on Monday.

The case is Qian v. VinFast Auto Ltd. et al., case number 1:24-cv-03956, in the U.S. District Court for the Eastern District of New York.