Quinn Emanuel recently achieved dismissal with prejudice on behalf of UP Fintech Holding Limited and its directors and officers in parallel securities class actions under Sections 11 and 15 of the Securities Act of 1933 in the Southern District of New York (the “SDNY”) and New York Supreme Court.
UP Fintech launched its initial public offering on March 20, 2019, shortly before the end of first quarter of 2019 (“1Q19”). In May and August 2019, the Company issued 1Q19 financials showing its two key metrics—trading volume and the resulting commission revenue—had declined substantially from the previous quarter. Subsequently, Plaintiffs’ firms filed parallel class actions in the Commercial Division of New York State’s Supreme Court and the SDNY, alleging that the offering materials should have disclosed that results for 1Q19—the quarter that was not yet complete at the time of the IPO—were expected to decline from the previous quarter. And both actions alleged breaches of Section 11 of the 1933 Act, which essentially imposes strict liability on the Company and any signatories because Section 11 action is subject to the pleading standards under Rule 8 of the Federal Rules of Civil Procedure, rather than the heightened pleading standards required under the Private Securities Litigation Reform Act of 1995.
Quinn Emanuel devised a strategy of utilizing the very same historical data in the IPO prospectus cited by plaintiffs to show that the accurate historical data suggest a volatile set of financial metrics that, when read in whole, could in no way suggest that the Company’s results would always be favorable in the future as alleged by plaintiffs. The firm also argued that plaintiffs failed to plead any actionable omissions because the Company did not have any duty to disclose intra-quarter results and that the omitted financials could not be material in light of the Company’s historical volatility and robust, detailed risk warnings.
In March 2021, Judge Furman of the SDNY granted the firm’s motion to dismiss with prejudice, holding that accurate historical disclosures cannot support claims for securities fraud; that plaintiffs failed to plead that the alleged declines in trading volume and commissions was a reportable trend under Item 303 of Regulation S-K; and that any omissions were immaterial in light of UP Fintech’s historical volatility and robust investor warnings. “In short,” Judge Furman concluded, “in light of the dramatic quarter-to-quarter swings in trading volume and commission revenue the Registration Statement (accurately) disclosed and its warnings about the volatility of such metrics, a reasonable investor would not have viewed the additional six weeks of commissions and eleven weeks of trading volume data that Plaintiffs cite as substantially altering the total mix of information.” Soon afterwards, Justice Masley of the New York Supreme Court dismissed the complaint on similar grounds, thereby resulting in a swift, clean defense victory for Quinn Emanuel’s client against Sections 11 and 15 claims.