Troubles for RYB worsen as shares sell off

RYB Education Inc, whose kindergarten in Beijing is under investigation over allegations of child abuse, saw its shares fall almost 9 percent on the New York Stock Exchange on Wednesday amid a rising tide of class-action lawsuits.

Also, the company did not release its third-quarter earnings after the market close on Wednesday, as originally stated in a company press release.

The selloff, in which RYB’s American depositary shares fell $1.87, or 8.42 percent, to $20.33, happened after the Beijingbased company said there were parent complaints about other RYB-branded kindergartens and that it was cooperating with police. It gave no other details.

The shares lost another 30 cents in after-hours trading.

On Tuesday, Chinese police said they had detained a teacher suspected of using knitting needles to discipline children in the Beijing kindergarten, though they added that some other claims of child abuse were unfounded.

The allegations and police investigation announced on Nov 23 created an online furor in China, generating more than 76 million mentions of “RYB” on Tencent Holdings Ltd’s WeChat messaging service.

RYB’s shares lost nearly 40 percent the next day before recovering some losses earlier this week. The plunge almost wiped out most of the 44 percent rise in the company’s stock since its initial public offering in September.

Before it listed shares in New York, RYB’s IPO prospectus flagged abuse by teachers as a possible risk to investors.

Class-action lawsuits filed this week on behalf of investors in RYB by several New York Citybased law firms — with the latest coming on Wednesday — allege “that RYB made false and/or misleading statements and/or failed to disclose that RYB failed to establish safety policies to prevent sexual abuse from occurring at its schools. RYB failed to remedy problems within its system, exposed children to harm and unreasonable risk of harm while in the company’s care and as a result RYB securities traded at artificially inflated prices during the class period, and class members suffered significant losses and damages”.

The lawsuits seek to recover damages for alleged violations of US securities laws under the Securities Exchange Act of 1934.

RYB says on its website that it runs a network of more than 1,300 directly owned and franchised play-and-learn centers and nearly 500 kindergartens for children up to age 6 in about 300 Chinese cities and towns.

In a statement before its shares opened for trading on Nov 24, RYB said it was planning a $50 million share-buyback program and had established a task force led by independent company directors to do a “thorough self-inspection across all teaching facilities”.

Last week’s allegation of abuse at a kindergarten was not the first case of alleged abuse at an RYB school.

In 2015, a court in Jilin province found two teachers guilty of physically abusing children at one of RYB’s kindergartens in Siping. In that case, staff at the school on “multiple occasions used needles and intimidation tactics to abuse many of the children under their care”, according to the court decision.

Earlier this year, RYB said it had found “serious mistakes” at another one of its Beijing schools and had asked the principal to step down after videos emerged showing teachers hitting and pushing children.