Shareholder sues hotel group for stock drop following breach

A shareholder has filed a putative class action lawsuit against a Chinese hotel group in connection with a stock drop that followed news of a cyber breach.

Media outlets reported in August that Chinese police were investigating a possible leak of client information from the Shanghai-based Huazhu Group Ltd., which until June was known as the China Lodging Group Ltd., according to Monday’s lawsuit in Branden Hayes et al. v. Huazhu Group Ltd. and Min (Jenny) Zhang, which was filed in U.S. District Court in Los Angeles.

The media reports stated nearly 500 million pieces of customer-related information, including registration information, personal data and booking records, had emerged in an online post, according to the lawsuit.

On the news, the company’s share price immediately dropped 4.36% and continued to drop in subsequent days, according to the lawsuit.

The litigation, which is filed on behalf of those who acquired Huazhu securities between May 24, 2018, and August 28, 2018, charges that the company “failed to disclose material adverse facts about the company’s business,” including that it “lacked adequate security measures to protect customer information.”

It charges the company and its CEO, Ms. Zhang, with violating provisions of the Securities Exchange Act of 1934. 

Huazhu, which primarily conducts business in China, operates or franchises about 3,800 hotels.

A company spokesman could not immediately be reached for comment.

The lawsuit was first reported in The D&O Diary blog.

A textbook rental firm disclosed in a Securities and Exchange Commission filing late last month that it is notifying 40 million active and inactive registered users as well as regulatory authorities of a data breach.