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The investigation is centered around whether the Company provided false or misleading statements or failed to disclose important information that could impact investors. On April 4, 2023, GDS made certain disclosures about its Chief Executive Officer (CEO), William Wei Huang, in its Form 20-F, which were previously omitted. The Form 20-F stated the following:
“Mr. Huang has engaged in and may continue to engage in various transactions, including derivative transactions, that could reduce his beneficial ownership in our company. Mr. Huang informed us that certain variable pre-paid forward sale contract transactions involving 42,457,504 ordinary shares, which he beneficially owned, and were originally entered into between May 2020 and June 2022, would expire between March 2023 and December 2023. If Mr. Huang chooses to settle these transactions by transferring ownership of the 42,457,504 ordinary shares to the counterparties, his beneficial ownership interest in our total issued share capital may fall below 5%. This would trigger an automatic conversion event unless the 5% threshold stated in our Articles of Association is lowered or he acquires additional shares to maintain his ownership at or above 5% or any other reduced threshold.”
“In the event this occurs, all Class B ordinary shares would automatically convert into Class A ordinary shares, and the dual-class share structure would be terminated. This change would be considered a change of control for certain sales agreements, domestic loan facility agreements of ours, our subsidiaries, and consolidated entities. If such provisions in the domestic loan agreements are activated, lenders may have the right to demand early repayment. A change of control could also result in breaches or early termination of other contracts or agreements. Moreover, it may have implications regarding China’s national security review regime and anti-monopoly merger filing requirements, if applicable. Any of these events could have a significant adverse impact on our business development, financial condition, and future prospects.”