An order issued on Tuesday in a shareholder case against 360 Digitech Inc. found the federal securities fraud claims deficient. The two-page opinion drew from previous rulings made orally during the July 25 dismissal argument.
The case centers on the Chinese fintech company, which trades in the United States with American depositary shares, and allegedly failed to disclose critical information to shareholders. Its digital platform reportedly connects individual borrowers with financial institutions, through various means including its core product, the 360 Jietiao mobile application.
The share price reportedly tanked just over 20% when Chinese regulators said that 360 Jietiao was collecting users’ personal data illegally and temporarily removed the app from stores.
In March, Digitech moved to dismiss on grounds that the pleading fell short in several respects: no actionable misrepresentation or omission, no scienter, and no loss causation. The plaintiff moved to strike portions of the record, too.
In this week’s dismissal opinion, the Judge Alvin K. Hellerstein granted both requests. As to Digitech’s dismissal bid, the court said that the claims were legally insufficient because the alleged misrepresentations were either puffery or the plaintiff failed to plead the particular nature of any falsity.
“Plaintiff failed to allege that Digitech’s practices violated Chinese law in effect prior to May 1, 2021; what specific laws Digitech before that time; or what specific acts or practices violated those laws,” the opinion specified.
In addition, the court noted how Chinese law was essentially a moving target before and during the class period, with enforcement becoming increasingly strict. In view of the difficulties of compliance, Judge Hellerstein said Digitech’s disclosures about the regulatory landscape and risks of operation therein were adequate.
The court declined to rule on other issues such as scienter, adding that more information is necessary. Likewise, Judge Hellerstein advised the plaintiff to “differentiate the cause of the alleged loss from general market fluctuations that may have affected the entire industry or entire market,” to demonstrate loss causation.
The shareholders’ amended complaint is due by Sept. 26.
Labaton Sucharow LLP is lead counsel for the plaintiff and proposed class and Skadden, Arps, Slate, Meagher & Flom LLP is counsel for DigiTech.
