Hexindai (Nasdaq: HX)

Hexindai = Fraud

We believe that Hexindai has executed a fraud using fabricated financial statements to siphon all of its cash from the pockets of Unites States investors into the hands of China-based Hexindai insiders.

In our experience, when revenues are fake, profits are fake, transaction volumes are fake, and cash is fake, minority shareholders are victims of a financial crime which coincides with a worthless stock.

Hexindai Inc. (US: HX) (“Hexindai” or the “Company”) operates an online consumer finance marketplace facilitating peer-to-peer (“P2P”) lending between borrowers and investors in the PRC. With China’s consumer lending market estimated to grow at a CAGR of 49% from 2016 to 2020 and investor demand high, Hexindai completed a US$50 million Nasdaq initial public offering (“IPO”) equity listing in November 2017.

Evidence from local PRC filings, including Credit Reports and annual filings of Hexindai’s most significant guarantee insurance supplier, suggests to us that Hexindai lied in its Prospectus about the size and scale of its operations during its track record period to attract capital from US investors. Established in 2014, we estimate that Hexindai overstated its cumulative profits since inception by 1,343% and overstated its cumulative revenues since inception by 195%!

In its Prospectus, Hexindai claimed that it was going to use its IPO proceeds to grow and invest in its core business, an online consumer marketplace where borrowers are lent cash from independent lenders, not cash from Hexindai. However, once the IPO proceeds were deposited into its accounts, Hexindai immediately decided to change its use of the cash proceeds. Cash exited the business via a special dividend to shareholders (mostly insiders) and with Hexindai unexpectedly launching a direct lending business of unsecured loans nearing ~US$ 1 million in size to a few hundred Chinese individuals and/or businesses. We believe that the US$ 43 milion in net cash proceeds is gone, and we suspect all of it went to China-based insiders who live outside the jurisdictional reach of the United States.

As part of our diligence, we opened accounts on Hexindai’s online marketplace to confirm the user experience with what Hexindai described to investors. In January 2019, we spoke with Hexindai IR who confirmed to us that Hexindai is processing new borrower loans and that Changan is still providing default risk guarantee insurance for Hexindai’s platform lenders. Both of these statements are lies. As of today, Hexindai borrowers can no longer access Hexindai’s online marketplace borrower app and Hexindai’s default risk insurance partner has been forced to stop underwriting P2P guarantee insurance since December 17, 2018.

As with many previous examples of US-listed Chinese frauds, a large amount of the assets were ultimately held outside the jurisdictional reach of our US court systems, leaving little recourse for shareholders to recoup any value from their investments. This is why we think Hexindai is a zero.

For convenience purposes only, we have provided a Chinese translation of this report on our website.