A New York court ordered the freezing of $560 million in assets held by entities controlled by Renren CEO Joseph Chen, Softbank Group and others, an amount pegged to a stake in the personal finance startup Social Finance, which is slated for a blank-check merger this week.
Chen, who sits on SoFi’s board, Renren co-founder David Chao and Softbank are among the defendants in a 2018 suit brought by shareholders who claim the Chinese social networking company’s insiders and biggest investors engaged in self-dealing when they spun off its most valuable assets at artificially low prices, in particular a large stake in San Francisco-based SoFi. New York State Supreme Court Justice Andrew Borrok on Monday ordered the asset freeze while the suit continues.
Borrok’s ruling comes as SoFi is preparing for a merger this week with Social Capital Hedosophia Holdings Corp. V, a special purpose acquisition company founded by former Facebook executive Chamath Palihapitiya. SoFi, which was valued at $8.7 billion at the time the deal was announced in January, said it expects to begin trading on June 1.
The Renren shareholders, which include Heng Ren Silk Road Investments LLC and Oasis Investments II Master Fund Ltd., sued after Chen and Chao engaged in complex transactions that transferred most of the company’s assets to a vehicle called Oak Pacific Investments, which was then sold to a consortium that included the co-founders and Softbank. According to the plaintiffs, those assets were sold to Oak Pacific at artificially low prices, including SoFi shares that were valued in the deal at $269 million. They estimate those shares are now worth $560 million.
Borrok had ordered the assets attached earlier this month after the plaintiffs alleged that Oak Pacific sold 22 million SoFi shares at below-market value while delaying disclosure of its holdings, suggesting an attempt to hide assets. The judge also said he thought the Renren shareholders were likely to prevail in their claims because it appeared “these assets were spun off without legitimate corporate purpose.”
Eli Berman, a lawyer for Oak Pacific and Chen, declined to comment. Brian Pastuszenski, a lawyer for Chao, also declined to comment. Softbank and SoFi didn’t immediately respond to requests for comment.
Renren, which once aspired to be the Facebook of China, said in 2018 that it needed to divest its holdings to avoid being regarded as an investment company by the U.S. Securities and Exchange Commission. It said it wasn’t practical to sell the investments itself and distribute cash to investors because most of its holdings were in closely held startups.
The case is In re: Renren Inc. derivative litigation, 653594/2018, New York State Supreme Court, New York County.
