The TAL Education class action lawsuit alleges that, throughout the Class Period, defendants made false and misleading statements and failed to disclose that: (i) TAL Educations revenue and operational growth was the result of deceptive marketing tactics and illicit business practices that flouted Chinese laws, regulations, and policies, and exposed TAL Education to an extreme risk that more draconian measures would be imposed on TAL Education; (ii) TAL Education had engaged in misleading and fraudulent advertising practices, including the provision of false and misleading discount information designed to obfuscate the true cost of TAL Educations programs to its customers, the creation of fake customer reviews designed to fraudulently lure new customers to TAL Education programs, the misrepresentation of teacher qualifications and course qualities, and the marketing of rigged promotional events; (iii) TAL Education had defied Chinese policies designed to alleviate the burden imposed by tutoring services on students and their families, including by imposing hefty advances and recurring debt payments on course enrollees, by offering courses designed to give affluent students unfair advantages, by holding courses outside of allowable tutoring hours, and by linking for-profit courses to government-mandated schooling; (iv) as a result, TAL Education was subject to an extreme undisclosed risk of adverse enforcement actions, regulatory fines, and penalties, and the imposition of new rules and regulations adverse to TAL Educations business and financial interests; and (v) consequently, TAL Educations historical growth was not sustainable or the result of legitimate business tactics as represented, and defendants positive statements about TAL Educations business, operations, and prospects were materially false and misleading and lacked a reasonable factual basis. From March 4, 2021 through March 11, 2021, China held its annual Two Sessions parliamentary meetings. Media reports stated that attendees of the ongoing Two Sessions conference had proposed stricter regulations to rein in the online education industry, such as regulations aimed at enhancing teacher quality, limiting fee scams, reducing market abuse by large players like TAL Education, and reducing the stress that for-profit tutoring companies had placed on students in the Chinese educational system. As news of the governments focus on the after-school tutoring industry spread, the price of TAL Education ADSs began to drop from $76.04 when the market closed on March 5, 2021, to $56.31 by April 1, 2021, a 26% decline. Then, on May 12, 2021, news reports revealed that the impending government crackdown on for-profit tutoring companies in China would be much more drastic and far reaching than previously publicly known. Sources stated that anticipated rules would include measures such as banning on-campus tutoring classes, the provision of tutoring services during weekend hours, and the imposition of industry-wide fee limitations. On this news, the price of TAL Education ADSs dropped 13% over a two-day period. Thereafter, on June 1, 2021, Chinese regulators announced they had fined 15 off-campus training institutions, including TAL Education, for illegal activities such as false advertising and fraud. Among the violations by the 15 offenders were reportedly fabricating teacher qualifications, exaggerating the effects of training, and fabricating user reviews. The regulators gave examples of how TAL Educations subsidiary, Xueersi, had advertised false parent user reviews in Beijing and Shanghai. The offending companies, including TAL Education, were hit with maximum penalties for their illegal business practices, totaling a combined 36.5 million yuan ($5.73 million). Officials stated that the crackdown on the for-profit tutoring industry had grown out of the Two Sessions parliamentary meetings held earlier in the year and followed a deluge of complaints against bad industry actors, including 155,000 complaints and reports for education and training services received by authorities in 2020 alone and over 47,000 similar complaints and reports received by authorities in the first quarter of 2021. In addition to the issues outlined above, TAL Education was reportedly found to have: (i) forced students to pay hefty advances and take on recurring debt payments in violation of Chinese law; (ii) offered courses that gave students unfair advantages in contravention of Chinese government policies; (iii) engaged in illegal bait-and-switch tactics; (iv) misrepresented teacher qualifications and course qualities; (v) mishandled user data; and (vi) rigged promotional events to defraud consumers. On this news, the price of TAL Education ADSs dropped approximately 18% over a two-day period. Finally, on July 23, 2021, China unveiled a sweeping overhaul of its education sector, banning companies that teach the school curriculum from making profits, raising capital, or going public. This drastic measure effectively ended any potential growth in the for-profit tutoring sector in China. On this news, the price of TAL Education ADSs plummeted from $20.52 when the market closed on July 22, 2021, to just $4.40 by market close on July 26, 2021, a nearly 79% decline.
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