Case 1:21-cv-03060-KPF Document 1 Filed 04/08/21 Page 1 of 41
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
`
`TOMMIE ZAKER, Individually and On
`Behalf of All Others Similarly Situated,
`
`
`
`
`
`EBANG INTERNATIONAL HOLDINGS
`INC., DONG HU, and LEI CHEN,
`
`
`
`
` Case No.
`
`CLASS ACTION COMPLAINT FOR
`VIOLATIONS OF THE FEDERAL
`SECURITIES LAWS
`
`
`JURY TRIAL DEMANDED
`
`
`
`Plaintiff,
`
`Defendants.
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`
`
`
`
`
`
`v.
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`
`
`
`
`
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`

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`Case 1:21-cv-03060-KPF Document 1 Filed 04/08/21 Page 2 of 41
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`Plaintiff Tommie Zaker (“Plaintiff”), individually and on behalf of all others similarly
`
`situated, by and through his attorneys, alleges the following upon information and belief, except
`
`as to those allegations concerning Plaintiff, which are alleged upon personal knowledge. Plaintiff’s
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`information and belief is based upon, among other things, his counsel’s investigation, which
`
`includes without limitation: (a) review and analysis of regulatory filings made by Ebang
`
`International Holdings Inc. (“Ebang” or the “Company”) with the United States (“U.S.”) Securities
`
`and Exchange Commission (“SEC”); (b) review and analysis of press releases and media reports
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`issued by and disseminated by Ebang; and (c) review of other publicly available information
`
`concerning Ebang.
`
`NATURE OF THE ACTION AND OVERVIEW
`
`1.
`
`This is a class action on behalf of persons and entities that purchased or otherwise
`
`acquired Ebang securities between June 26, 2020 and April 5, 2021, inclusive (the “Class Period”).
`
`Plaintiff pursues claims against the Defendants under the Securities Exchange Act of 1934 (the
`
`“Exchange Act”).
`
`2.
`
`Ebang purports to be a leading application-specific integrated circuit (“ASIC”) chip
`
`design company and a leading manufacturer of Bitcoin mining machines.
`
`3.
`
`On April 6, 2021, before the market opened, Hindenburg Research published a
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`report alleging, among other things, that Ebang is directing proceeds from its IPO last year into a
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`“series of opaque deals with insiders and questionable counterparties.” According to the report,
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`Ebang raised $21 million in November 2020, claiming the proceeds would go “primarily for
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`development,” and that instead the funds were directed to repay related-party loans to a relative of
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`the Ebang’s Chief Executive Officer, Dong Hu. The report also noted that Ebang’s earlier efforts
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`to go public on the Hong Kong Stock Exchange had failed due to widespread media coverage of a
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`1
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`Case 1:21-cv-03060-KPF Document 1 Filed 04/08/21 Page 3 of 41
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`sales inflation scheme with Yindou, a Chinese peer-to-peer online lending platform that defrauded
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`20,000 retail investors in 2018, with $655 million “vanish[ing] into thin air.”
`
`4.
`
`On this news, the Company’s share price fell $0.82, or approximately 13%, to close
`
`at $5.53 per share on April 6, 2021, on unusually heavy trading volume.
`
`5.
`
`On April 6, 2021, after the market closed, Ebang issued a statement stating that,
`
`though it believed the report “contain[ed] many errors, unsupported speculations and inaccurate
`
`interpretations of events,” the “Board, together with its Audit Committee, intends to further review
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`and examine the allegations and misinformation therein and will take whatever necessary and
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`appropriate actions may be required to protect the interest of its shareholders.”
`
`6.
`
`On this news, the Company’s share price fell $0.12, or 2.17%, to close at $5.41 per
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`share on April 7, 2021. The stock price continued to decline over the next trading session by $0.38,
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`or 7%, to close at $5.03 per share on April 8, 2021, on unusually heavy trading volume.
`
`7.
`
`Throughout the Class Period, Defendants made materially false and/or misleading
`
`statements, as well as failed to disclose material adverse facts about the Company’s business,
`
`operations, and prospects. Specifically, Defendants failed to disclose to investors: (1) that the
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`proceeds from Ebang’s public offerings had been directed to an low yield, long term bonds to an
`
`underwriter and to related parties rather than used to develop the Company’s operations; (2) that
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`Ebang’s sales were declining and the Company had inflated reported sales, including through the
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`sale of defective units; (3) that Ebang’s attempts to go public in Hong Kong had failed due to
`
`allegations of embezzling investor funds and inflated sales figures; (4) that Ebang’s purported
`
`crytocurrency exchange was merely the purchase of an out-of-the-box crypto exchange; and (5)
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`that, as a result of the foregoing, Defendants’ positive statements about the Company’s business,
`
`operations, and prospects were materially misleading and/or lacked a reasonable basis.
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`2
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`Case 1:21-cv-03060-KPF Document 1 Filed 04/08/21 Page 4 of 41
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`8.
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`As a result of Defendants’ wrongful acts and omissions, and the precipitous decline
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`in the market value of the Company’s shares, Plaintiff and other Class members have suffered
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`significant losses and damages.
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`JURISDICTION AND VENUE
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`9.
`
`The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange
`
`Act (15 U.S.C. §§ 78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder by the SEC (17
`
`C.F.R. § 240.10b-5).
`
`10.
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`This Court has jurisdiction over the subject matter of this action pursuant to 28
`
`U.S.C. § 1331 and Section 27 of the Exchange Act (15 U.S.C. § 78aa).
`
`11.
`
`Venue is proper in this Judicial District pursuant to 28 U.S.C. § 1391(b) and Section
`
`27 of the Exchange Act (15 U.S.C. § 78aa(c)). Substantial acts in furtherance of the alleged fraud
`
`or the effects of the fraud have occurred in this Judicial District. Many of the acts charged herein,
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`including the dissemination of materially false and/or misleading information, occurred in
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`substantial part in this Judicial District.
`
`12.
`
`In connection with the acts, transactions, and conduct alleged herein, Defendants
`
`directly and indirectly used the means and instrumentalities of interstate commerce, including the
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`United States mail, interstate telephone communications, and the facilities of a national securities
`
`exchange.
`
`PARTIES
`
`13.
`
`Plaintiff Tommie Zaker, as set forth in the accompanying certification, incorporated
`
`by reference herein, purchased Ebang shares during the Class Period, and suffered damages as a
`
`result of the federal securities law violations and false and/or misleading statements and/or material
`
`omissions alleged herein.
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`Case 1:21-cv-03060-KPF Document 1 Filed 04/08/21 Page 5 of 41
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`14.
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`Defendant Ebang is incorporated under the laws of the Cayman Islands with its
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`principal executive offices located in China. Ebang’s Class A ordinary shares trade on the
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`NASDAQ exchange under the symbol “EBON.”
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`15.
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`Defendant Dong Hu (“Hu”) was the Company’s Chief Executive Officer (“CEO”)
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`at all relevant times.
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`16.
`
`Defendant Lei Chen (“Chen”) was the Company’s Chief Financial Officer (“CFO”)
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`at all relevant times.
`
`17.
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`Defendants Hu and Chen (together, the “Individual Defendants”), because of their
`
`positions with the Company, possessed the power and authority to control the contents of the
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`Company’s reports to the SEC, press releases and presentations to securities analysts, money and
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`portfolio managers and institutional investors, i.e., the market. The Individual Defendants were
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`provided with copies of the Company’s reports and press releases alleged herein to be misleading
`
`prior to, or shortly after, their issuance and had the ability and opportunity to prevent their issuance
`
`or cause them to be corrected. Because of their positions and access to material non-public
`
`information available to them, the Individual Defendants knew that the adverse facts specified
`
`herein had not been disclosed to, and were being concealed from, the public, and that the positive
`
`representations which were being made were then materially false and/or misleading. The
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`Individual Defendants are liable for the false statements pleaded herein.
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`SUBSTANTIVE ALLEGATIONS
`
`Background
`
`18.
`
`Ebang purports to be a leading ASIC chip design company and a leading
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`manufacturer of Bitcoin mining machines.
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`4
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`Case 1:21-cv-03060-KPF Document 1 Filed 04/08/21 Page 6 of 41
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`Materially False and Misleading
`Statements Issued During the Class Period
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`19.
`
`The Class Period begins on June 26, 2020. On that day, Ebang filed its prospectus
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`in connection with its initial public offering (the “IPO Prospectus”). Regarding the use of capital,
`
`the IPO Prospectus stated:
`
`The primary purposes of this offering are to create a public market for our Class A
`ordinary shares for the benefit of all shareholders, retain talented employees by
`providing them with equity incentives and obtain additional capital. We plan to use
`the net proceeds of this offering as follows, assuming no exercise of the
`underwriters’ option to purchase additional Class A ordinary shares:
`
`• approximately 35.0%, or US$31.8 million, for expansion of overseas
`business and new businesses,
`including establishing research and
`development centers and taking selling and marketing initiatives overseas;
`
`• approximately 20.0%, or US$18.2 million, for our development and
`introduction of new mining machines;
`
`• approximately 15.0%, or US$13.6 million, for corporate branding and
`marketing activities; and
`
`•
`
`the remainder of the net proceeds for general corporate purposes, which
`may include working capital needs and other corporate uses.
`
`20.
`
`As to Ebang’s operations, the IPO Prospectus further stated:
`
`In recent years, sales of Bitcoin mining machines have increased as a result of the
`increasing adoption of blockchain technology and interest in cryptocurrencies,
`particularly when cryptocurrency prices increased. Global sales of Bitcoin
`computing hardware, the majority of which comprise sales of Bitcoin mining
`machines, have surged at a compound annual growth rate, or CAGR, of 61.3% from
`approximately US$0.2 billion in 2015 to approximately US$1.4 billion in 2019 and
`are expected to further increase at a CAGR of 24.8% to approximately US$4.3
`billion in 2024, according to the F&S report.
`
`*
`
`*
`
`*
`
`Our blockchain products business primarily comprises sales of Bitcoin mining
`machines and mining machine hosting services. In 2018 and 2019, our revenues
`from sales of Bitcoin mining machine and related accessories were US$307.1
`million and US$89.9 million, respectively, and our revenue from provision of
`mining machine hosting services was US$7.7 million and US$15.7 million,
`respectively.
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`Case 1:21-cv-03060-KPF Document 1 Filed 04/08/21 Page 7 of 41
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`21. Moreover, regarding product defects, the IPO Prospectus went on to state:
`
`Product defects resulting in a large-scale product recall or product liability
`claims against us could materially and adversely affect our business, results of
`operations and reputation
`
`We manufacture products in accordance with internationally accepted quality
`standards and specifications provided by our customers. However, we cannot
`assure you that all products produced by us are free of defects. Consequently, any
`product defects identified by our customers or end users might erode our reputation
`and negatively affect our customer relationships and future business. Product
`defects may also result in product returns and large-scale product recalls or product
`liability claims against us for substantial damages. For example, we are currently
`involved in an ongoing lawsuit against us in relation to our sales of mining
`machines to an individual customer who alleged that, among other things, our
`products did not meet advertised performance and product quality specifications.
`See “Business—Legal Proceedings.” Such claims, irrespective of the outcomes or
`the merits, would likely be time-consuming and costly to defend and could divert
`significant resources and management attention. Furthermore, even if we are able
`to defend any such claim successfully, we cannot assure you that our customers
`will not lose confidence in our products or that our future relationships with our
`customers will not be damaged. As a result, our business, results of operations,
`reputation and brand image could be materially and adversely affected by any
`product defects.
`
`22.
`
`On August 14, 2020, Ebang issued a press release announcing that it was preparing
`
`to establish a cryptocurrency exchange. Specifically, the Company stated:
`
`Ebang International Holdings Inc. (Nasdaq: EBON, the “Company,” “we” or
`“our”), a leading application-specific integrated circuit (“ASIC”) chip design
`company and a leading manufacturer of high-performance Bitcoin mining
`machines, today announced that on August 13, 2020, it has established a wholly-
`owned subsidiary in Singapore in preparation for establishing a cryptocurrency
`exchange.
`
`Mr. Dong Hu, Chairman and CEO of the Company, commented, “With our newly
`established subsidiary in Singapore, we expect to expand our industry chain layout
`from providing equipment to offering trading services. We plan to establish a robust
`risk control system and develop an optimal transaction system, with the support
`from our dedicated professional team and industry experts, in order to provide
`investors with safe, fast and stable digital asset transaction services through
`blockchain technology. We look forward to providing systematic support to the
`development of blockchain and maximizing the values for our shareholders.”
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`6
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`Case 1:21-cv-03060-KPF Document 1 Filed 04/08/21 Page 8 of 41
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`23.
`
`On September 25, 2020, Ebang reported its financial results for the first six months
`
`of fiscal 2020:
`
`Operational and Financial Highlights for the First Six Months of Fiscal Year
`2020
`
`Total computing power sold in the first six months of 2020 was 0.25 million
`Thash/s, representing a year-over-year decrease of 86.02% from 1.82 million
`Thash/s in the same period of 2019.
`
`Total net revenues in the first six months of 2020 were US$11.04 million,
`representing a 50.60% year-over-year decrease from US$22.35 million in the same
`period of 2019.
`
`Gross loss in the first six months of 2020 was US$0.97 million, representing a
`94.59% year-over-year decrease from US$17.87 million in the same period of
`2019.
`
`Net loss in the first six months of 2020 was US$6.96 million compared to US$19.07
`million in the same period of 2019.
`
`*
`
`*
`
`*
`
`Mr. Hu continued, “With the preparatory work we have initiated in Singapore and
`Canada, we are at an initial preparatory stage of executing our plan to launch
`blockchain-enabled financial business by establishing cryptocurrency exchange(s)
`and online brokerage(s) and by combining the blockchain-enabled financial
`businesses with the traditional ones to capture the entire value chain of the
`blockchain industry. Marching into these new fields, we are staying true to our
`mission in strengthening the technological innovation in our products and services
`to ensure their competitiveness in the market.”
`
`24.
`
`On October 23, 2020, Ebang filed its registration statement on Form F-1 for an
`
`offering of Class A ordinary shares and warrants to purchase Class A ordinary shares. It was
`
`subsequently amended on October 26, 2020, November 6, 2020, and November 16, 2020 before
`
`the Company filed a related prospectus on Form 424b4 on November 20, 2020 (collectively, and
`
`together with October 23, 2020 registration statement, the “November Prospectus”). Regarding
`
`the use of capital, the November Prospectus stated:
`
`The primary purposes of this offering are to create a public market for our Class A
`ordinary shares for the benefit of all shareholders, retain talented employees by
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`7
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`Case 1:21-cv-03060-KPF Document 1 Filed 04/08/21 Page 9 of 41
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`
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`providing them with equity incentives and obtain additional capital. We plan to use
`the net proceeds of this offering as follows:
`
`• approximately 30%, or US$5.8 million assuming sales of all 4,000,000
`Units at the initial closing, no sales of Additional Units and no exercise of
`the related warrants, or approximately US$11.7 million, assuming sales of
`all of the Units we are offering and no exercise of the related warrants, for
`development and application of blockchain technology into financial
`services;
`
`• approximately 30 %, or US$5.8 million assuming sales of all 4,000,000
`Units at the initial closing, no sales of Additional Units and no exercise of
`the related warrants, or approximately US$11.7 million, assuming sales of
`all of the Units we are offering and no exercise of the related warrants, for
`sourcing core intellectual properties relating to our businesses;
`
`• approximately 20%, or US$3.9 million assuming sales of all 4,000,000
`Units at the initial closing, no sales of Additional Units and no exercise of
`the related warrants, or approximately US$7.8 million, assuming sales of
`all of the Units we are offering and no exercise of the related warrants, for
`corporate branding and marketing activities; and
`
`•
`
`the remainder of the net proceeds for general corporate purposes, which
`may include working capital needs and other corporate uses.
`
`25.
`
`As to Ebang’s operations, the November Prospectus further stated:
`
`In recent years, sales of Bitcoin mining machines have increased as a result of the
`increasing adoption of blockchain technology and interest in cryptocurrencies,
`particularly when cryptocurrency prices increased. Global sales of Bitcoin
`computing hardware, the majority of which comprise sales of Bitcoin mining
`machines, have surged at a compound annual growth rate, or CAGR, of 61.3% from
`approximately US$0.2 billion in 2015 to approximately US$1.4 billion in 2019 and
`are expected to further increase at a CAGR of 24.8% to approximately US$4.3
`billion in 2024, according to the F&S report.
`
`*
`
`*
`
`*
`
`Our blockchain products business primarily comprises sales of Bitcoin mining
`machines and mining machine hosting services. In 2018, 2019 and the six months
`ended June 30, 2019 and 2020, our revenues from sales of Bitcoin mining machine
`and related accessories were US$307.1 million, US$89.9 million, US$12.6 million
`and US$4.5 million respectively, and our revenue from provision of mining
`machine hosting services was US$7.7 million, US$15.7 million, US$7.2 million
`and US$6.1 million, respectively.
`
`
`
`8
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`

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`Case 1:21-cv-03060-KPF Document 1 Filed 04/08/21 Page 10 of 41
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`
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`26. Moreover, regarding product defects, the November Prospectus went on to state:
`
`Product defects resulting in a large-scale product recall or product liability
`claims against us could materially and adversely affect our business, results of
`operations and reputation
`
`We manufacture products in accordance with internationally accepted quality
`standards and specifications provided by our customers. However, we cannot
`assure you that all products produced by us are free of defects. Consequently, any
`product defects identified by our customers or end users might erode our reputation
`and negatively affect our customer relationships and future business. Product
`defects may also result in product returns and large-scale product recalls or product
`liability claims against us for substantial damages. For example, we are currently
`involved in an ongoing lawsuit against us in relation to our sales of mining
`machines to an individual customer who alleged that, among other things, our
`products did not meet advertised performance and product quality specifications.
`See “Business—Legal Proceedings.” Such claims, irrespective of the outcomes or
`the merits, would likely be time-consuming and costly to defend and could divert
`significant resources and management attention. Furthermore, even if we are able
`to defend any such claim successfully, we cannot assure you that our customers
`will not lose confidence in our products or that our future relationships with our
`customers will not be damaged. As a result, our business, results of operations,
`reputation and brand image could be materially and adversely affected by any
`product defects.
`
`27.
`
`Regarding Ebang’s cryptocurrency exchange, the November Prospectus stated:
`
`We may not successfully develop, market or launch any cryptocurrency
`exchanges or online brokerages
`
`We have established wholly-owned subsidiaries in Singapore, Canada and
`Australia in preparation for establishing cryptocurrency exchanges since August
`2020. . . . Additionally, as we have limited experience in operating the proposed
`business, we will need to obtain additional management, regulatory compliance
`technical expertise and devote substantial time and effort to these initiatives, which
`may not be as profitable as we expected or at all. We also need to obtain additional
`capital resources to pursue development of cryptocurrency exchanges or online
`brokerages, and we may not be successful in raising that capital. In addition, we
`may face relevant restrictions from existing and future regulations in connection
`with our expansion into this new line of business. While we have been closely
`monitoring the development of the relevant regulations and have been in
`communication with regulatory authorities, this new business initiative may not be
`viable due to regulatory concerns. Our plan to develop, market or launch any
`cryptocurrency exchanges or online brokerages may suffer significant delays in our
`efforts and may ultimately not be successful. It is possible that the launch of our
`cryptocurrency exchanges and/or online brokerages may never occur, and even
`if the proposed business is successfully developed, it is possible that it will not be
`
`9
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`

`

`Case 1:21-cv-03060-KPF Document 1 Filed 04/08/21 Page 11 of 41
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`accessed or utilized by a sufficient number of users or will otherwise not achieve
`viable business scale or market acceptance..
`
`[Second and third emphases added.]
`
`28.
`
`On December 31, 2020, Ebang announced that it would launch a cryptocurrency
`
`exchange, stating in a press release:
`
`Ebang International Holdings Inc. (Nasdaq: EBON, the “Company,” “we” or
`“our”), a blockchain technology company in the global market, today announced
`that the Company expects to commence public testing of its cryptocurrency
`exchange and officially launch the exchange in the first quarter of 2021. Currently,
`the Company has completed the internal testing of its cryptocurrency exchange.
`
`Mr. Dong Hu, Chairman and CEO of the Company, commented, “The completion
`of the internal testing of our cryptocurrency exchange is another step forward in
`expanding our blockchain financial services business. Meanwhile, we will also
`explore other business opportunities in the blockchain and cryptocurrency industry
`such as establishing mining farms and cryptocurrency mining to optimize the
`structure of our offerings in the blockchain industry value chain.”
`
`29.
`
`On February 5, 2021, Ebang filed its registration statement on Form F-1 for an
`
`offering of Class A ordinary shares and warrants to purchase Class A ordinary shares. On February
`
`11, 2021, Ebang filed a related prospectus on Form 424b4 (together with the February 5, 2021
`
`registration statement, the “February Prospectus”). Regarding the use of capital, the February
`
`Prospectus stated:
`
`The primary purposes of this offering are to obtain additional capital to further
`expand our operations. We plan to use the net proceeds of this offering as follows:
`
`• approximately 55%, or US$41.2 million, for research, development,
`production and sales of ASICs and equipment related to cryptocurrencies;
`
`• approximately 25%, or US$18.7 million, for expansion of our
`cryptocurrency mining business as well as establishment and operation of
`cryptocurrency mining farms; and
`
`•
`
`the remainder of the net proceeds for general corporate purposes, which
`may include working capital needs and other corporate uses.
`
`
`
`10
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`Case 1:21-cv-03060-KPF Document 1 Filed 04/08/21 Page 12 of 41
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`
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`30.
`
`As to Ebang’s operations, the February Prospectus further stated:
`
`In recent years, sales of Bitcoin mining machines have increased as a result of the
`increasing adoption of blockchain technology and interest in cryptocurrencies,
`particularly when cryptocurrency prices increased. Global sales of Bitcoin
`computing hardware, the majority of which comprise sales of Bitcoin mining
`machines, have surged at a compound annual growth rate, or CAGR, of 61.3% from
`approximately US$0.2 billion in 2015 to approximately US$1.4 billion in 2019 and
`are expected to further increase at a CAGR of 24.8% to approximately US$4.3
`billion in 2024, according to the F&S report.
`
`*
`
`*
`
`*
`
`Our blockchain products business primarily comprises sales of Bitcoin mining
`machines and mining machine hosting services. In 2018, 2019 and the six months
`ended June 30, 2019 and 2020, our revenues from sales of Bitcoin mining machine
`and related accessories were US$307.1 million, US$89.9 million, US$12.6 million
`and US$4.5 million respectively, and our revenue from provision of mining
`machine hosting services was US$7.7 million, US$15.7 million, US$7.2 million
`and US$6.1 million, respectively.
`
`31. Moreover, regarding product defects, the February Prospectus went on to state:
`
`Product defects resulting in a large-scale product recall or product liability
`claims against us could materially and adversely affect our business, results of
`operations and reputation
`
`We manufacture products in accordance with internationally accepted quality
`standards and specifications provided by our customers. However, we cannot
`assure you that all products produced by us are free of defects. Consequently, any
`product defects identified by our customers or end users might erode our reputation
`and negatively affect our customer relationships and future business. Product
`defects may also result in product returns and large-scale product recalls or product
`liability claims against us for substantial damages. For example, we are currently
`involved in an ongoing lawsuit against us in relation to our sales of mining
`machines to an individual customer who alleged that, among other things, our
`products did not meet advertised performance and product quality specifications.
`See “Business—Legal Proceedings.” Such claims, irrespective of the outcomes or
`the merits, would likely be time-consuming and costly to defend and could divert
`significant resources and management attention. Furthermore, even if we are able
`to defend any such claim successfully, we cannot assure you that our customers
`will not lose confidence in our products or that our future relationships with our
`customers will not be damaged. As a result, our business, results of operations,
`reputation and brand image could be materially and adversely affected by any
`product defects.
`
`
`
`11
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`

`

`Case 1:21-cv-03060-KPF Document 1 Filed 04/08/21 Page 13 of 41
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`
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`32.
`
`Regarding Ebang’s cryptocurrency exchange, the February Prospectus stated:
`
`We may not successfully develop, market or launch any cryptocurrency
`exchanges or online brokerages
`
`We have established wholly-owned subsidiaries in Singapore, Canada and
`Australia in preparation for establishing cryptocurrency exchanges since August
`2020. . . . Additionally, as we have limited experience in operating the proposed
`business, we will need to obtain additional management, regulatory compliance
`technical expertise and devote substantial time and effort to these initiatives, which
`may not be as profitable as we expected or at all. We also need to obtain additional
`capital resources to pursue development of cryptocurrency exchanges or online
`brokerages, and we may not be successful in raising that capital. In addition, we
`may face relevant restrictions from existing and future regulations in connection
`with our expansion into this new line of business. While we have been closely
`monitoring the development of the relevant regulations and have been in
`communication with regulatory authorities, this new business initiative may not be
`viable due to regulatory concerns. Our plan to develop, market or launch any
`cryptocurrency exchanges or online brokerages may suffer significant delays in our
`efforts and may ultimately not be successful. It is possible that the launch of our
`cryptocurrency exchanges and/or online brokerages may never occur, and even
`if the proposed business is successfully developed, it is possible that it will not be
`accessed or utilized by a sufficient number of users or will otherwise not achieve
`viable business scale or market acceptance..
`
`[Second and third emphases added.]
`
`33.
`
`On February 17, 2021, Ebang announced that it would launch a Bitcoin mining
`
`business. In a press release, the Company stated, in relevant part:
`
`Ebang International Holdings Inc. (Nasdaq: EBON, the “Company,” “we” or
`“our”), a blockchain technology company in the global market, today held a board
`meeting and passed a resolution (the “Resolution”) to launch Bitcoin mining
`business. According to the Resolution, the Company plans to operate its Bitcoin
`mining business by adopting a combination of deploying self-manufactured mining
`machines and mining machines purchased from other manufacturers as well as
`leasing computing powers from other mining farms. At the same time, the
`Company also expects to invest in data center constructions to provide support for
`Bitcoin mining activities.
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`Mr. Dong Hu, Chairman and CEO of the Company, commented, “With the
`development of Bitcoin mining business, the Company will not only just continue
`to position itself as a Bitcoin mining machine producer. This move will increase
`our revenue in cryptocurrency business and optimize our product offering structure.
`We believe it will help the Company’s transformation from a hardware
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`Case 1:21-cv-03060-KPF Document 1 Filed 04/08/21 Page 14 of 41
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`manufacturer to a blockchain company with comprehensive involvements in its
`industry chain.”
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`34.
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`On March 2, 2021, Ebang filed its registration statement on Form F-1 for an
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`offering of warrants to purchase Class A ordinary shares. On March 12, 2021, Ebang filed a related
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`prospectus on Form 424b4 (together with the March 2, 2021 registration statement, the “March
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`Prospectus”). Regarding the use of capital, the March Prospectus stated:
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`We will not receive any of the proceeds from the sale of the Warrant Shares by the
`Selling Shareholders pursuant to this prospectus. We may receive up to
`approximately US$150 million in aggregate gross proceeds from cash exercises of
`the Warrants, based on the per share exercise price of the Warrants. Any proceeds
`we receive from the exercise of the Warrants will be used to for working capital
`and general corporate purposes.
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`35.
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`As to Ebang’s operations, the March Prospectus further stated:
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`In recent years, sales of Bitcoin mining machines have increased as a result of the
`increasing adoption of blockchain technology and interest in cryptocurrencies,
`particularly when cryptocurrency prices increased. Global sales of Bitcoin
`computing hardware, the majority of which comprise sales of Bitcoin mining
`machines, have surged at a compound annual growth rate, or CAGR, of 61.3% from
`approximately US$0.2 billion in 2015 to approximately US$1.4 billion in 2019 and
`are expected to further increase at a CAGR of 24.8% to approximately US$4.3
`billion in 2024, according to the F&S report.
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`*
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`*
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`*
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`Our blockchain products business primarily comprises sales of Bitcoin mining
`machines and mining machine hosting services. In 2018, 2019 and the six months
`ended June 30, 2019 and 2020, our revenues from sales of Bitcoin mining machine
`and related accessories were US$307.1 million, US$89.9 million, US$12.6 million
`and US$4.5 million respectively, and our revenue from provision of mining
`machine hosting services was US$7.7 million, US$15.7 million, US$7.2 million
`and US$6.1 million, respectively.
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`36. Moreover, regarding product defects, the March Prospectus went on to state:
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`Product defects resulting in a large-scale product recall or product liability
`claims against us could materially and adversely affect our business, results of
`operations and reputation
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`We manufacture products in accordance with internationally accepted quality
`standards and specifications provided by our customers. However, we cannot
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`Case 1:21-cv-03060-KPF Document 1 Filed 04/08/21 Page 15 of 41