Willard v. UP Fintech Holding Ltd.

• Decision Date: 17 March 2021
• Docket Number: 19-CV-10326 (JMF)
• Citation: 527 F.Supp.3d 609
• Parties: Vicki Rongey WILLARD, individually and on behalf of all others similarly situated, et al., Plaintiffs, v. UP FINTECH HOLDING LIMITED, Tianhua Wu, John Fei Zeng, Yonggang Liu, Lei Fang, David Eric Friedland, Vincent Chun Hung Cheung, Binsen Tang, Xin Fan, Jian Liu, Xian Wang, Citigroup Global Markets Inc., Deutsche Bank Securities Inc., AMTD Global Markets Limited, China Merchants Securities (HK) Co., Limited, and Top Capital Partners Limited, Defendants.
• Court: U.S. District Court — Southern District of New York

527 F.Supp.3d 609

Vicki Rongey WILLARD, individually and on behalf of all others similarly situated, et al., Plaintiffs,
v.
UP FINTECH HOLDING LIMITED, Tianhua Wu, John Fei Zeng, Yonggang Liu, Lei Fang, David Eric Friedland, Vincent Chun Hung Cheung, Binsen Tang, Xin Fan, Jian Liu, Xian Wang, Citigroup Global Markets Inc., Deutsche Bank Securities Inc., AMTD Global Markets Limited, China Merchants Securities (HK) Co., Limited, and Top Capital Partners Limited, Defendants.

19-CV-10326 (JMF)

United States District Court, S.D. New York.

Signed March 17, 2021

527 F.Supp.3d 612

Joseph Alexander Hood, II, Jeremy Alan Lieberman, Pomerantz LLP, New York, NY, for Plaintiff Vicki Rongey Willard.

Phillip C. Kim, The Rosen Law Firm, New York, NY, for Plaintiff Xiuhu Sun.

Jacob J. Waldman, Michael Barry Carlinsky, Quinn Emanuel Urquhart & Sullivan, New York, NY, for Defendants UP Fintech Holding Limited, Tianhua Wu, John Fei Zeng, Yonggang Liu, Lei Fang, David Eric Friedland, Vincent Chun Hung Cheung, Binsen Tang, Xin Fan, Jian Liu, Xian Wang.

Susannah Sidney Geltman, Anthony C. Piccirillo, Simpson Thacher & Bartlett LLP, New York, NY, for Defendants Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Top Capital Partners Limited.

OPINION AND ORDER

JESSE M. FURMAN, United States District Judge:

527 F.Supp.3d 613

This putative class action arises out of an initial public offering conducted by UP Fintech Holding Limited ("UP Fintech"), an online brokerage firm that operates an app for Chinese-speaking investors to buy and sell securities. In particular, Lead Plaintiff Jian Ren brings claims under Sections 11 and 15 of the Securities Act of 1933 (the "Securities Act"), 15 U.S.C. §§ 77o, 77k, against UP Fintech; various officers or directors of UP Fintech (collectively, the "Individual Defendants"); and a handful of entities that were involved in underwriting the initial public offering. The Defendants that have been served and appeared in this action now move, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, to dismiss Plaintiffs’ claims. For the reasons that follow, that motion is granted.

BACKGROUND

The following facts are drawn from the operative Complaint, documents attached to or incorporated by reference into the Complaint, and public disclosure documents that UP Fintech was required to file by law. See Tongue v. Sanofi , 816 F.3d 199, 209 (2d Cir. 2016).

UP Fintech is an online brokerage firm incorporated under the laws of the Cayman Islands and headquartered in China. ECF No. 32 ("Compl."), ¶ 2. It operates an app called "Tiger Trade" and an associated website, which allow Chinese-speaking investors to trade securities across multiple markets and currencies by offering trade order placement and execution, margin financing, account management, investor education, community discussion, and customer support. Id. UP Fintech is the largest online broker by U.S. securities trading volume focused on Chinese investors. Id. ¶ 41. UP Fintech has two primary sources of revenue: (1) customer commission fees for trades, which accounted for approximately 75% of revenues in 2018; and (2) "interest income or financing service fees relating to margin financing." Id. ¶¶ 4, 42. As a result, its revenues and profitability "significantly depend on the trading volume on its platform" — that is, on "the total value of securities traded during a specific period of time." Id. ¶¶ 5, 43, 46 n.3.

In March 2019, UP Fintech conducted an initial public offering ("IPO") in the United States. After a series of amendments, UP Fintech filed its Registration Statement on Form F-1/A on March 18, 2019. Id. ¶ 44. The Registration Statement was deemed effective the following day and, on March 20, 2019 — approximately two weeks before the end of Q1 2019 on March 31, 2019 — UP Fintech filed the final prospectus for the IPO. Id. ¶¶ 7, 44; ECF No. 54-1 ("Registration Statement"). (Because the prospectus is incorporated into the Registration Statement, the Court refers to the two documents together as the "Registration Statement.") The Registration Statement explained that UP Fintech's "ability to earn commission fees, interest income or financing service fees largely depends on the number of customers on [its] trading platform and their trading volume." Registration Statement 82; Compl. ¶ 46. In a "Quarterly trends" section, UP Fintech touted its "continuous growth in revenues for the eight quarters from January 1, 2017 to December 31, 2018," noting that its "revenues from both trading commissions and financing service fees increased substantially during these periods," "[d]riven by the continued increases in the number of customers making trades, trading volume and margin financing balance." Registration Statement 102; Compl. ¶ 48. At the same time, it caveated this language by noting that "[r]evenues from brokerage commissions slightly decreased in the second quarter of

527 F.Supp.3d 614

2018 due to the slight decrease of [its] trading volume as a result of market volatility. [UP Fintech's] quarterly operating expenses also increased during these periods, generally consistent with the growth of [its] business expansion." Registration Statement 102; Compl. ¶ 50.

The Registration Statement also included charts with certain quarterly financial and operating metrics from Q1 2016 through Q4 2018. See Registration Statement 15, 79-80, 102. Most relevant here, the charts reported trading volume and commissions by quarter (although, in the case of the commissions, not before Q1 2017). The Complaint includes that data in a chart of its own, which is reproduced here as Figure 1:

Figure 1

Quarter Ended	Trading Volume (US$mm)	Trading Volume % Change Quarter over Quarter	Commissions (US$mm)	Commissions % Change Quarter over Quarter
31-Mar-2016	1,363.30
30-Jun-2016	3,495.10	156.4%
30-Sep-2016	5,085.70	45.5%
31-Dec-2016	6,393.90	25.7%
31-Mar-2017	12,494.00	95.4%	2.166
30-Jun-2017	13,988.40	12.0%	3.229	49.1%
30-Sep-2017	17,125.70	22.4%	4.424	37.0%
31-Dec-2017	19,687.80	15.0%	5.244	18.5%
31-Mar-2018	28,302.60	43.8%	6.625	26.3%
30-Jun-3018	21,395.30	-24.4%	5.182	-21.8%
30-Sep-2018	32,628.30	52.5%	7.154	38.1%
31-Dec-2018	36,895.20	13.1%	7.082	-1.0%

Compl. ¶ 49.¹ The charts in the Registration Statement did not include corresponding data for Q1 2019, which was not yet over at the time. But the Registration Statement included the following note with respect to Q1 2019 in a section titled "Recent Developments":

As of January 31, 2019, we had 83,546 customers with deposits and the account balance of such customers reached US$2,632.6 million, representing an increase of 11.7% from December 31, 2018. We generated US$2.9 million of revenues for the month ended January 31, 2019, including US$2.2 million in commissions and US$0.6 million in financing service fees. Our performance in January 2019 was partially affected by the generally quieter investment environment during the Chinese New Year season, given the fact that the vast majority of our client base are Chinese investors around the world.

Registration Statement 6-7; Compl. ¶ 52.

On March 20, 2019, UP Fintech completed its IPO. Compl. ¶ 6. Citigroup Global Markets Inc. ("Citigroup"), Deutsche Bank Securities Inc. ("Deutsche Bank"), AMTD Global Markets Limited ("AMTD"), China Merchants Securities (HK) Co., Limited

527 F.Supp.3d 615

("China Merchants"), and Top Capital Partners Limited (which is apparently now known as Tiger Brokers (NZ) Limited) ("Tiger Brokers"), all Defendants here, served as underwriters for the IPO. Id. ¶¶ 28-33; see also ECF Nos. 69-70. (The Court will refer to these Defendants collectively as the "Underwriter Defendants.") UP Fintech sold thirteen million American Depository Shares ("ADSs"), each of which represented fifteen shares of Class A common stock, at a price of $8.00 per share and received total proceeds of $96.72 million after underwriting discounts and commissions. Compl. ¶ 6; see also id. ¶¶ 1, 45. UP Fintech received an additional $14.508 million, after underwriting discounts and commissions, from the Underwriter Defendants’ "full exercise of their overallotment option." Id. ¶ 6.

On May 17, 2019, UP Fintech announced its unaudited financial results for Q1 2019 and, according to the Complaint, disclosed "for the first time that the Company's commissions were only $6.4 million in the first quarter of 2019, a 9.63% decrease from the $7.082 million reported in the previous quarter — a sharp contrast to the rosy upward trend painted in the Registration Statement." Id. ¶ 59. That decrease was caused by lower trading volume. See id. ¶ 60. Indeed, according to UP Fintech's Form 6-K, the trading volume "had declined" between Q4 2018 and Q1 2019 from $36,895.2 million to $27,862.8 million — in the words of the Complaint, a "shocking 24.5% drop." Id. To underscore the point, the Complaint includes a chart — reproduced as Figure 2 here — with data from the Registration Statement for Q1 2016 through Q4 2018 and the corresponding data for Q1 2019:

?

Compl. ¶ 61. According to Plaintiffs, "at the time of the IPO," which was "just eight trading days before the end of the first quarter of 2019, the Company had already learned that its trading volume and commissions for the first quarter of 2019 were sharply declining," but failed to disclose these facts in the Registration Statement. Id. ¶ 52.

The trading price of UP Fintech ADSs fell from $6.98 per share on May 16, 2019, to close at $5.77 per share on May 17,

527 F.Supp.3d 616

2019 — "a decline of more than 17%" and "of 28% from the $8 IPO [share] price." Id. ¶ 66. As of November 6, 2019, the company's stock had lost 49% of its value from the IPO price. Id. On that date, a putative class action was filed against the company and several Individual Defendants. ECF No. 1. Following the appointment of Jian Ren as Lead Plaintiff, ECF No. 24, Plaintiffs filed the operative Complaint on March 24, 2020, which added as Defendants the rest of the Individual Defendants as well as the Underwriter Defendants. Plaintiffs’...