In re Qiwi PLC Sec. Litig.

Docket Number20-CV-6054 (RPK)(CLP)
Decision Date03 November 2023
CourtU.S. District Court — Eastern District of New York


Plaintiff Moset International Company (“Moset”) brings this putative securities class action against Qiwi plc (“Qiwi”), and a number of Qiwi's officers. See Am. Compl. (Dkt. #30). Moset alleges that defendants are civilly liable under Section 10(b) of the Securities Exchange Act of 1934 (“the Exchange Act), 15 U.S.C. § 78j(b), Securities and Exchange Commission (“SEC”) Rule 10b-5, 17 C.F.R. § 240.10b-5, and Section 20(a) of the Exchange Act, 15 U.S.C § 78t(a), for making false and misleading statements related to compliance with Russian regulations. Qiwi and individual defendant Protopopov have moved to dismiss the complaint. See Mem. in Supp. of Mot. to Dismiss (Dkt. #44) (“Defs.' Mem.”). For the reasons stated below, defendants' motion is granted.


The following facts are drawn from the complaint and are assumed true for the purposes of this order.

I Qiwi's Platform

Qiwi operates a “network of electronic wallets” and physical “terminals and kiosks” that let merchants and consumers make instant payments in Russia Kazakhstan, Moldova, Belarus, and other countries. Am. Compl ¶¶ 2, 24, 40. Qiwi's American Depository Shares are traded on the NASDAQ. Id. ¶ 24.

Qiwi's customers use a product called Qiwi Wallet to make and receive online payments.Id. ¶ 42. Almost 11,000 merchants are accessible to customers through the Qiwi Wallet system. Id. ¶¶ 45-46. To open an “anonymous” Qiwi Wallet, customers only need a phone number. See id. ¶ 43. Prior to July 2019, Qiwi's customers could make cash payments and withdrawals from “anonymous” e-wallets through Qiwi's physical distribution networks. Id. ¶ 42. By the end of 2019, 534.6 million e-wallets had been opened in Russian, and 36.2% of those wallets belong to Qiwi. Id. ¶ 44.

Qiwi also owns and controls Qiwi Bank JSC (“Qiwi Bank”), Id. ¶ 4, which is the platform for Qiwi Wallet, see id. ¶ 47. When a customer puts cash into a Qiwi Wallet account, Qiwi Bank issues virtual and physical cards to the customer. Ibid. Qiwi Bank also operates a money remittance system that provides transfer services to individuals and entities. Id. ¶ 49. A bank account is not required to participate in that system. See ibid. Qiwi's money remittances services include payouts of winnings to customers from sports gambling merchants. Id. ¶ 50.

The Central Bank of the Russian Federation (“CBR”), which regulates all financial markets in Russia, has issued a banking license for Qiwi Bank. Ibid.; Id. ¶¶ 4 n.1, 52. Qiwi is required to comply with the CBR's reporting and recordkeeping rules and is subject to routine CBR audits. Id. ¶ 4. As Qiwi explained in a March 2018 annual report, the CBR “may at any time conduct full or selective audits of any bank's filings.” Id. ¶ 51 (citation omitted).

In Russia, any bookmaker licensed by the Russian tax service can engage in interactive betting. Id. ¶ 54. Among other requirements, online bookmakers must be a member of a self-regulatory organization (“SRO”). Ibid.

The SROs control the Russian bookmaking industry and engage in regulatory oversight. Id. ¶ 58. But gambling transactions must be accepted through a centralized financial processing system called a TSUPIS. Ibid. The basic function of a TSUPIS is to transfer money between bettor and bookmaker accounts. Id. ¶ 59.

The TSUPIS system also allegedly protects consumers against criminal and fraudulent gambling activities. See id. ¶ 59. For example, to place legal bets, bettors must verify their identity, including their Russian citizenship and age, for the bookmaker and the TSUPIS. Id. ¶ 60. As of July 3, 2019, Russian law permitted bookmakers to accept interactive bets from bettors identified through a TSUPIS. Id. ¶ 64. A TSUPIS records and transmits information about bettors and their bets to SROs. Id. ¶ 63.

There are three TSUPIS in Russia, and Qiwi Bank operates one of them, TSUPIS-2, as a joint project with the Association of Bookmakers SRO (“Bookmakers SRO”). Id. ¶¶ 53, 61, 65. To register with the TSUPIS-2 system, bettors go to the Qiwi website and create a wallet. Id. ¶ 61. Qiwi Wallet is the only available payment method for TSUPIS-2. See ibid.

During the class period, online betting generated significant revenue for Qiwi. See id. ¶¶ 3,70-71. Plaintiff alleges that Qiwi captured nearly half of the legal bookmaking market. See Id. ¶ 67. Qiwi generated revenue from that market by charging percentage fees for deposits and prize winnings and by making commissions on payments between bookmakers and banks. See id. ¶ 68. Qiwi's income on payment processing fees was allegedly thirty-five to forty percent of its revenue in 2018. See id. ¶ 69. At the end of 2019, revenue derived from the betting industry amounted to more than a third of Qiwi's total revenue. Id. ¶ 8.

Plaintiff alleges that the individual defendants knew about Qiwi's revenue streams and the significant amount that online gambling contributed to Qiwi's business. Id. ¶ 72. For example, during an earnings call for the fourth quarter of 2018, defendant Karavaev, who at the time was Qiwi's Chief Financial Officer (“CFO”), said that the betting business was [h]alf of [the] payment services business.” Id. ¶¶ 28, 73. Plaintiff alleges that other defendants made comments on later earnings calls suggesting that online gambling was a significant part of Qiwi's business. See Id. ¶¶ 74-76 (defendants Solonin and Kiseleva).

II. Russia's Regulation and Enforcement Actions Between 2015 and 2020

Plaintiff alleges that between 2015 and 2019, Russia started cracking down on online gambling and businesses like Qiwi that facilitate payments to betting sites. See id. ¶ 5.

In July 2016, a Russian government agency sent Qiwi a cease-and-desist letter ordering Qiwi to stop linking to Internet casinos and permitting money transfers to bookmakers. Id. ¶ 92. Qiwi complied. See ibid. The president of the Bookmakers SRO allegedly said in response that if the government agency “made such a decision, then [Qiwi] had violations.” Ibid. Even though Russian bookmaking experts thought that the threat of further sanctions would force Qiwi to exert greater control over illegitimate transactions, plaintiff alleges that some bookmakers looked for loopholes in the Qiwi system that would allow for transfers to illegal companies. See id. ¶ 94. Plaintiff alleges that Qiwi did not close those loopholes because doing so would result in losses to Qiwi's revenue. Id. ¶ 95.

In November 2017, Russian passed a law banning money transfers to illegal bookmakers. Id. ¶ 96. That regulation required credit institutions to decline cross-border money transfers for gambling. See ibid. Faced with that new regulatory scheme, Russian banks were allegedly unwilling to handle international gambling transactions. See id. ¶ 97. But plaintiff alleges that Qiwi still did not take action to stop bookmakers from withdrawing offshore funds. See id. ¶ 98. And illegal offshore bookmakers allegedly found ways to continue using Qiwi Wallet. See ibid.

Plaintiff alleges that instead of stopping illegitimate gambling operators from accessing Qiwi Wallet, Qiwi advised investors in its Form 20-F Annual Report filed on March 28, 2018 (2017 20-F”) that its system has “been and may continue to be used for fraudulent, illegal or improper purposes” and that Qiwi Bank has “been the subject of CBR investigations in the past that have uncovered various violations and deficiencies in relation to, among other things, reporting requirements, anti-money laundering, cybersecurity, compliance with applicable epayments thresholds requirements in connection with electronic money transfers and the topping up of electronic accounts and other issues.” Id. ¶ 99. Qiwi also warned that the perceived risk of illegal activity on the Qiwi platform was “causing . . . regulators to impose restrictions on . . . operations” and that Qiwi was “recently notified that in 2018 Qiwi Bank will be subject to a CBR inspection as part of the ongoing supervisory process.” Id. ¶ 100. Qiwi admitted that it needed “to implement enhanced processes, procedures and controls in order to provide reasonable assurance that we are operating in compliance with applicable regulatory requirements.” See ibid.

In Qiwi's August 2018 Form 6-K, Qiwi made a similar disclosure that Qiwi Bank “is subject to extensive regulation and reporting obligations, which may . . . increase the . . . costs of doing business.” Id. ¶ 101. Qiwi also noted that “Qiwi Bank has been the subject of CBR investigations in the past that have uncovered various regulatory violations and deficiencies, which the Group has generally rectified.” See ibid. For example, in an interview on April 4, 2018, defendant Solonin, who co-founded Qiwi and served as its CEO from October 2012 through January 15, 2020, Id. ¶ 26, said that Qiwi “constantly interact[s] with law enforcement agencies and provide[s] them with tools to track transactions and calculate unscrupulous counterparties in the system.” Id. ¶ 103.

On March 18, 2019, Russian banned cash withdrawals from anonymous wallets. Id. ¶ 108. Ten days later, Qiwi noted in its Form 20-F Annual Report for 2018 that “Russian lawmakers and enforcement agencies . . . recently demonstrated increased scrutiny [of] . . . e-payments.” Id. ¶ 109.

Qiwi admitted that it “need[ed] to implement enhanced processes . . . to provide reasonable assurance that [Qiwi] [was] operating in compliance with . . . regulatory requirements.” Ibid.

In July 2019, the Russian Duma adopted a law prohibiting “bank payment agents from using a remote [cash register] in payment...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT