Reitan v. China Mobile Games & Entertainment Group, Ltd.
68 F. Supp. 3d 390
S.D.N.Y.2014Background
- Two putative securities-fraud class actions (Reitan and Chang) were filed against China Mobile Games & Entertainment Group, Ltd. (CMGE), certain officers/directors, and underwriters, alleging false/misleading statements and failures to disclose bribery, related‑party transactions, and weak internal controls that inflated CMGE ADS prices during Sept. 20, 2012–June 19, 2014.
- The actions name the same class, defendants, legal claims (Securities Act §§ 11, 15; Exchange Act § 10(b), § 20(a); Rule 10b‑5), and seek similar relief.
- Multiple movants sought appointment as lead plaintiff: an investor group (CMIG), OPI, Ashok Sagar, Miran (an institutional segregated portfolio), and Dormier (an individual).
- Several movants withdrew their lead‑plaintiff motions; Miran initially withdrew its motion but then filed a “withdrawal of withdrawal” seeking reinstatement; Dormier argued Miran’s reinstatement was procedurally barred.
- The Court consolidated Reitan and Chang under Fed. R. Civ. P. 42(a) because they present common questions of law and fact, and then addressed lead‑plaintiff selection under the PSLRA.
- The Court allowed an exception to the PSLRA’s 60‑day filing deadline for Miran (which had filed a timely original motion), found Miran to have the largest financial interest and to satisfy Rule 23 typicality and adequacy, appointed Miran as lead plaintiff, and approved Faruqi & Faruqi as lead counsel.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Reitan and Chang should be consolidated | Reitan/Chang: suits involve same class, defendants, claims, and facts so consolidation is appropriate | (No separate defendant position disputing consolidation in opinion) | Consolidation granted — cases involve substantially identical legal/factual questions under Rule 42(a) |
| Whether Miran’s "withdrawal of withdrawal" is procedurally barred / untimely | Miran: originally filed timely, withdrawal was a procedural misstep; reinstatement or treating new filing as timely should be permitted | Dormier: Miran’s reinstatement is procedurally barred and untimely under PSLRA 60‑day rule | Court allowed exception to 60‑day deadline because Miran previously filed timely, did not seek to manipulate losses, is institutional, and PSLRA policies would not be undermined |
| Who is the presumptive lead plaintiff under the PSLRA (largest financial interest) | Miran: claims net loss ~$84,834 and institutional status; seeks lead role | Dormier: claims net loss ~$40,668 and argued Miran’s filings (and relation to OPI) undermine adequacy | Miran appointed — has larger loss, is institutional, satisfies Rule 23 typicality and adequacy; presumption unrebutted |
| Whether Miran’s chosen counsel should be approved | Miran: selected Faruqi & Faruqi, an experienced securities‑litigation firm | (No direct defendant objection recorded) | Faruqi & Faruqi approved as lead counsel based on experience and ability to prosecute the class action |
Key Cases Cited
- Johnson v. Celotex Corp., 899 F.2d 1281 (2d Cir. 1990) (district courts have broad discretion to consolidate actions)
- Devlin v. Transportation Communications Int'l Union, 175 F.3d 121 (2d Cir. 1999) (consolidation promotes judicial economy and avoids duplication)
- Varghese v. China Shenghuo Pharm. Holdings, Inc., 589 F. Supp. 2d 388 (S.D.N.Y.) (PSLRA lead‑plaintiff framework and Rule 23 typicality/adequacy analysis)
- In re eSpeed, Inc. Securities Litigation, 232 F.R.D. 95 (S.D.N.Y.) (preference for institutional lead plaintiffs and lead‑plaintiff appointment factors)
- Kaplan v. Gelfond, 240 F.R.D. 88 (S.D.N.Y. 2007) (consideration of judicial economy and prejudice in consolidation and lead selection)
- In re Livent, Inc. Noteholders Securities Litig., 151 F. Supp. 2d 371 (S.D.N.Y. 2001) (PSLRA’s emphasis on prompt resolution of lead‑plaintiff disputes and rationale for quick proceedings)
- In re Initial Public Offering Securities Litigation, 214 F.R.D. 117 (S.D.N.Y.) (permitting amendments/adjustments to lead plaintiff filings in limited circumstances)