Larry Chen, the former school teacher who became one of the world’s richest people, has lost his billionaire status as China cracks down on its private education sector.
Chen, the founder, chairman and chief executive officer of Gaotu Techedu Inc., is now worth $336 million, according to the Bloomberg Billionaires Index, after shares in his online-tutoring firm plunged by almost two-thirds in New York trading on Friday on reports of the regulatory overhaul.
On Saturday, China released new regulations that ban companies that teach school curriculums from making profits, raising capital or going public. It’s the latest blow for Chen, who has shed more than $15 billion in wealth since late January as Gaotu’s stock tumbled.
Gaotu “will comply with the regulations and fulfill social responsibilities,” Chen said in a statement on Weibo, a Chinese Twitter-like service, late on Saturday night.
Chen wasn’t the only one who saw his wealth plunge.
TAL Education Group CEO Zhang Bangxin’s fortune fell by $2.5 billion to $1.4 billion after the company’s shares plunged 71% in New York on Friday. New Oriental Education & Technology Group Inc. Chairman Yu Minhong also lost his billionaire status, shedding $685 million and leaving him with a stake value of $579 million after the firm sank 54%.
Both companies released similar statements vowing to comply with the new rules. Gaotu, TAL and New Oriental didn’t immediately respond to requests for comment on the wealth declines.
It’s the latest chapter in a spectacular rise and fall for Chen, who founded Gaotu, formerly called GSX, in 2014 and saw the stock rise more than 13-fold from its debut in 2019 through a Jan. 27 high.
But Gaotu’s shares have since lost 98% of their value, buffetted also by the implosion of an investor, Bill Hwang’s Archegos Capital Management.
Hwang’s family office had built highly leveraged positions in Gaotu and other firms using swaps. When some of those stocks fell, banks demanded collateral that Hwang was unable to provide, so they offloaded large blocks of Gaotu and other shares. Gaotu plunged as much as 56% in one day.
The company disclosed in September that it was being investigated by the U.S. Securities and Exchange Commission, and short sellers including Carson Block’s Muddy Waters questioned the firm’s business.
China’s harshest-ever curbs on its $100 billion private-tutoring and online education sector have hit investors from Tiger Global Management to Temasek Holdings Pte, with platforms losing the ability to go public, depriving their backers of exits, and foreign capital being banned from the sector.
The overhaul will also weigh on leading industry players over the next several years, Catherine Lim, a senior analyst at Bloomberg Intelligence, wrote in a note Sunday, referring to New Oriental and TAL.
Operating losses “can only worsen,” she said.