New Oriental involved in US lawsuit

US investors sued New Oriental and certain executives with violations of federal securities laws, according to an announcement on a US law firm's website.

A group of investors, purchased American Depository Shares from the firm between July 21, 2009 and July 17, 2012, sued New Oriental Education & Technology Group Inc in the United States District Court for the Central District of California, China Securities Journal reported Wednesday.

The prosecution said in the class action period that New Oriental Group made false or misleading statements and failed to disclose the facts of its business, operations and prospects.

After short seller Muddy Waters LLC, a small China-based research firm that focuses on uncovering fraudulent China stocks announced that financial statements in New Oriental Group units were fraudulent, the group sank to a five-year low, leading to declines in New York-traded Chinese stocks, according to previous China Daily reports.

Glancy Binkow & Goldberg LLP investigated accusations of New Oriental's variable interest entities and found that some of the details were consistent with the report released by Muddy Waters.

The company's share price began to rise again after the New Oriental Group Chairman Yu Minhong responded to the questions in the evening of July 19, according to the China Securities Journal.

In response to Muddy Waters' questions about the ownership of some of New Oriental's schools and the consolidation of their financial statements with the parent company, Yu said that those labeled as "New Oriental" are all regular chains of New Oriental Education & Technology Group, while 19 franchisee schools are authorized by New Oriental's sub-brand Pop Kids Education and 2 are New Oriental Stars.

The 21 schools only have the authority to use the brands Pop Kids Education and New Oriental Stars, rather than "New Oriental".