Garnett v. Wang, 632 F.Supp.3d 574

Background

RLX Technology Inc., a China-based e‑cigarette company, completed a U.S. IPO on January 22, 2021 (≈116.5M ADS at $12.00; ~$1.4B gross proceeds).
In 2017–2020 Chinese regulators (notably the STMA and CNTC) issued a series of public pronouncements: replies to legislative proposals, an August 2018 ban on sales to minors, a November 2019 notice urging online sales/advertising closures, and various local/administrative measures restricting e‑cigarette use.
RLX’s Offering Materials disclosed existing Chinese measures, warned that China "may impose more stringent" regulation (including prohibition or taxes), and described regulatory uncertainty and past impacts (e.g., online‑sales revenue decline).
On March 22, 2021 (two months after the IPO) MIIT and STMA published a draft regulation proposing to treat e‑cigarettes like traditional tobacco products; RLX ADS dropped sharply thereafter.
Plaintiffs (buying ADS “pursuant or traceable to” the Offering Materials) brought Securities Act claims under §§ 11, 12(a)(2), and 15, alleging material omissions/misstatements about the imminence and certainty of national regulation. Defendants moved to dismiss.
The district court granted the motion, dismissing the Second Amended Complaint with prejudice.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Did the Offering Materials omit a material fact that China would imminently treat e‑cigarettes as tobacco products?	Garnett: STMA replies and other agency actions made such regulatory alignment inevitable and thus had to be disclosed.	RLX: STMA materials were precatory/studying options; Offering Materials warned of regulatory risk; no certainty existed pre‑IPO.	Held: No. The documents showed only an evolving regulatory process; no plausible allegation that alignment was inevitable.
Were the allegedly omitted regulatory facts material / already public?	Garnett: STMA statements and other China materials were material and not meaningfully accessible to typical U.S. investors.	RLX: Regulatory pronouncements were public and reported in English‑language press; information was in the public domain.	Held: Largely public; market/press coverage and general disclosures meant the omissions were not material.
Do the ‘‘bespeaks caution’’ doctrine and cautionary language bar liability for forward‑looking/regulatory statements?	Garnett: RLX’s use of terms like "may" was insufficient; forward statements were generic.	RLX: Prospectus included detailed cautionary language about regulatory uncertainty and specific risks; bespeaks‑caution applies.	Held: Bespeaks‑caution applies — Offering Materials warned of the precise contingency and were not misleading.
Do plaintiffs have standing under § 12(a)(2) and are DeVries/Cogency "statutory sellers"?	Garnett: Purchases were "pursuant or traceable to" Offering Materials; DeVries/Cogency solicited and signed materials.	Defs: Lead plaintiffs did not buy at IPO price; thus lack statutory standing. DeVries/Cogency may not qualify as statutory sellers.	Held: Plaintiffs lack § 12(a)(2) standing (no direct IPO purchases). Whether DeVries/Cogency are statutory sellers not resolved as dismissal was on other grounds.

Key Cases Cited

Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must state a plausible claim)
Ashcroft v. Iqbal, 556 U.S. 662 (2009) (court need not accept legal conclusions)
Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (2011) (materiality: likely to have altered the total mix)
Basic Inc. v. Levinson, 485 U.S. 224 (1988) (total‑mix materiality standard)
TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438 (1976) (defines materiality standard)
In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347 (2d Cir. 2010) (holistic review of offering materials; omissions law)
Iowa Pub. Emps.' Ret. Sys. v. MF Glob., Ltd., 620 F.3d 137 (2d Cir. 2010) (application of bespeaks‑caution doctrine)
Rombach v. Chang, 355 F.3d 164 (2d Cir. 2004) (non‑fraud securities pleading; Rule 9(b) context)
Stratte‑McClure v. Morgan Stanley, 776 F.3d 94 (2d Cir. 2015) (Item 303/management discussion disclosure standards)
In re ProShares Tr. Sec. Litig., 728 F.3d 96 (2d Cir. 2013) (material omissions and prospectus duties)