An opinion issued in a securities fraud case against Qudian Inc., a leading provider of micro-loans to consumers in China, sided with the foreign company over allegations that it and its leaders committed fraud when its stock price plummeted 82% in November 2018 from its initial public offering price. The court said that although some of the statements by the company were actionable, the plaintiffs failed to show they were made with the requisite intent under federal securities law.
The 52-page opinion by Judge Gregory H. Woods explained that in June 2019, Qudian raised its net income guidance for the year, but not long after, the company’s performance plummeted, missing not only its upward-adjusted guidance but its initial mark as well. The complaint pointed to multiple reasons for Qudian’s downfall, including Chinese regulatory violations, other restrictions, and failed ventures.
Investors, purchasers of Qudian’s American Depositary Shares, sued the company and several of its executives for making false and misleading statements about the financial firm’s welfare and viability, setting a class period from Dec. 13, 2018 to Jan. 15, 2020.
Judge Woods took on the plaintiffs’ five categories of misleading statements, including things said on earnings calls by company leaders and statements from confidential witnesses. In one instance, and drawing all inferences in the plaintiffs’ favor, the court said it was plausible that that “a person who worked closely with Qudian’s CEO as well as Qudian’s funding partners would know that some of the funding partners were not conducting independent risk assessments” per confidential witness testimony.
Yet other statements were adjudged inactionable because the plaintiffs failed to show that they were false when made. Ultimately, the court dismissed the action on scienter grounds. In part, the opinion found no showing that Qudian and its leaders had an improper motive to commit fraud.
Judge Woods concluded that “[a]lthough Lead Plaintiffs have already amended their complaint, they have not yet had an opportunity to do so in response to an opinion of the Court,” and thus ruled that amendment would not be futile.