Khunt v. Alibaba Group Holding Ltd.
102 F. Supp. 3d 523
| S.D.N.Y. | 2015Background
- Alibaba raised over $25 billion in a U.S. IPO in late 2014; media reports on Jan. 28, 2015 said Chinese regulators publicly accused Alibaba of enabling illegal/antitrust practices, and Alibaba ADSs fell sharply thereafter.
- Seven substantially identical securities class actions were filed alleging violations of §10(b) and §20(a) of the Exchange Act for ADS purchasers during Oct. 21, 2014–Jan. 28, 2015; four actions were pending in this Court.
- Movants filed seven competing lead-plaintiff motions (including individual investors, a six-person “BABA group,” Christine Asia Co., Ltd. (CAC), and William Tai), and sought consolidation of the four cases before this Court.
- Key factual allegations: Alibaba allegedly concealed regulatory scrutiny by China’s SAIC (including issues of counterfeits, bribery, fake transactions, restricted items, and anticompetitive practices) and made bullish revenue statements prior to disclosures on Jan. 28–29, 2015 that caused two large market drops.
- The Court consolidated the four cases, applied the PSLRA lead-plaintiff framework, rejected aggregation of counsel-created investor groups, found CAC (controlled by Tai) to have the largest recoverable loss, ruled Tai and CAC adequate and typical, and appointed them co-lead plaintiffs and the Rosen firm as lead counsel.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the four actions pending before this Court should be consolidated | Movants: consolidate identical complaints for efficiency | Defendants: no opposition to consolidation (suggest stay pending JPML) | Granted consolidation of the four actions before the Court |
| Who is the "most adequate plaintiff" under the PSLRA (largest financial interest + Rule 23) | Various movants claimed largest losses (BABA group aggregated; CAC/Tai claimed largest individual losses) | Defendants took no position on lead plaintiff; urged staying decision until JPML transfer decision | Tai and CAC (treated together) are the most adequate lead plaintiffs: CAC has largest recoverable financial stake; Tai and CAC show preliminary typicality and adequacy |
| Whether a lawyer-created, unrelated investor group (BABA group) can aggregate losses to be "largest" | BABA group: aggregate losses to claim largest financial interest | Opponents: aggregation of unrelated, counsel-assembled groups defeats PSLRA purpose | Rejected aggregation — the BABA group is lawyer-created and its losses will not be combined |
| Proper method of loss calculation and timeliness of combining Tai and CAC | Some movants: FIFO, include pre-disclosure sales; BABA argued aggregation; others objected to Tai/CAC consolidating after the filing deadline | Defendants: suggested waiting; some movants argued belated combination is untimely | Court adopts LIFO method, applies Dura rule (exclude losses from pre-disclosure sales); allows Tai and CAC (sole owner/controller) to combine despite later amendment because they originally filed timely separate motions and are not unrelated parties |
| Appointment of lead counsel | CAC (as presumptive lead plaintiff) selected Rosen firm; Tai separately selected Glancy | Competing movants urged co-lead counsel or other counsel appointments | Court approved Rosen firm as sole lead counsel (no need for co-lead counsel; Rosen has relevant China experience and Chinese-language capability) |
Key Cases Cited
- Dura Pharm., Inc. v. Broudo, 544 U.S. 336 (U.S. 2005) (losses before public corrective disclosure are not recoverable under securities fraud proximate-causation principles)
- In re eSpeed, Inc. Sec. Litig., 232 F.R.D. 95 (S.D.N.Y. 2005) (discussion of FIFO vs. LIFO methodologies for calculating investor losses; courts often prefer LIFO)
- In re Cavanaugh, 306 F.3d 726 (9th Cir. 2002) (PSLRA lead-plaintiff framework and analysis of typicality/adequacy after identifying largest financial interest)
- In re Cendant Corp. Litig., 264 F.3d 201 (3d Cir. 2001) (procedural guidance on applying PSLRA presumption and Rule 23 requirements)
- In re Donnkenny Inc. Sec. Litig., 171 F.R.D. 156 (S.D.N.Y. 1997) (rejecting lawyer-created aggregated groups for lead-plaintiff status)