United States District Court, S.D. New York
IN RE IDREAMSKY TECHNOLOGY LIMITED SECURITIES LITIGATION
OPINION AND ORDER
PAUL OETKEN United States District Judge.
Consolidated Amended Class Action Complaint
(“Complaint”) in this action was filed on March
25, 2016, by Plaintiffs against iDreamSky Technology Limited
(“IDS”), its officers and directors, and four
underwriters (collectively, “Defendants”). (Dkt.
No. 38 (“Compl.”).) The Complaint alleges
violations of Sections 11, 12 and 15 of the Securities Act,
Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5.
Before the Court are two motions to dismiss, filed by IDS and
by the four underwriter Defendants. (Dkt. No. 40; Dkt. No.
42.) For the reasons that follow, these motions are granted
in part and denied in part.
allegations in the Complaint relate to American Depository
Shares (“ADSs”) issued by IDS in an initial
public offering (“IPO”) on August 7, 2014.
(Compl. ¶¶ 35-37.) In particular, Plaintiffs allege
that IDS failed to disclose the adverse financial impact of
delays in its release of the game Cookie Run in China and its
lack of an adequate third-party billing platform.
a mobile game-publishing platform in China. (Id.
¶ 27.) Game developers grant IDS access to the source
code of their games and IDS distributes the games through
both proprietary and third-party distribution channels, and
also offers “games as a service.” (Id.)
Run is a mobile game in which a gingerbread man must run,
run, run as fast as he can in order to escape an oven's
flames. (Id. ¶ 29.) Cookie Run is enormously
popular in South Korea-the Complaint reports that it was
downloaded on about half of all South Korean smartphones.
sought to localize and distribute Cookie Run in China, with
an expected release date in 2014. (Id. ¶¶
31, 38.) In order to do so, IDS needed to acquire the
necessary licenses and source code. (Id. ¶ 32.)
However, the Complaint alleges that this process was rife
with delay, due to disagreements with the Korean game
developer. (Id. ¶¶ 32-34.)
August 7, 2014, IDS filed a Registration Statement and
Prospectus with the Securities and Exchange Commission
(“SEC”) in connection with its initial public
offering of 7, 700, 000 ADSs. (Id. ¶¶
34-35.) Plaintiffs allege that the Registration Statement and
Prospectus failed to disclose the risks resulting from delay
in the Cookie Run launch and failed to include a general risk
disclosure. (Id. ¶¶ 45-46.) Plaintiffs
claim that IDS also failed to disclose risks relating to its
third-party billing platform, which experienced frequent
technical issues leading to IDS's inability to fully
monetize its mobile games. (Id. ¶¶ 42,
49.) Plaintiffs also claim that statements made by a company
officer in connection with the IPO and a press release issued
on November 25, 2014, were misleading because the revenue
guidance in the release incorporated projected revenues from
Cookie Run even though IDS and its officers knew that the
release of Cookie Run would be delayed. (Id.
March 13, 2015, IDS issued a press release revising its
revenue guidance because “in the fourth quarter of
2014, the launch of a popular casual game was delayed.”
(Id. ¶ 54.) And on March 23, 2015, IDS issued
another press release announcing its 2014 earnings, which
also confirmed that “revenue for the fourth quarter of
2014 was also negatively impacted as a result of a delay in
the launch of Cookie Run due to that [sic] the
Company received the source code of the game later than
scheduled.” (Id. ¶ 56.) On an earnings
conference call the same day, IDS confirmed that the Cookie
Run launch delay was one of the reasons for the
“shortfall on guidance” (id. ¶ 57),
and also noted ongoing problems “due to the third party
telecom carrier billing code issue” (id.
filed four putative class actions in this Court, naming as
Defendants IDS, its officers and directors (the
“Individual Defendants”), and four underwriters
of IDS's IPO (the “Underwriter Defendants”).
(Dkt. No. 1.) The Court then consolidated these actions on
January 25, 2016, designating Hoong as Lead Plaintiff, and
the operative Consolidated Amended Class Action Complaint was
filed on March 25, 2016. (Dkt. No. 35; Dkt. No. 38.) IDS and
the Underwriter Defendants separately move to dismiss the
claims against them. (See Dkt. No. 40; Dkt. No. 42.)
survive a motion to dismiss, a complaint must plead enough
facts to state a claim to relief that is plausible on its
face.” Litwin v. Blackstone Group, L.P., 634
F.3d 706, 715 (2d Cir. 2011) (quoting ECA & Local 134
IBEW Joint Pension Trust v. JP Morgan Chase Co., 553
F.3d 187, 196 (2d Cir. 2009)). “A claim has facial
plausibility when the plaintiff pleads factual content that
allows the court to draw a reasonable inference that the
defendant is liable for the misconduct alleged.”
Id. (quoting Ashcroft v. Iqbal, 556 U.S.
662 (2009)). For claims sounding in fraud, a plaintiff must
satisfy the heightened pleading standard of Federal Rule of
Civil Procedure 9(b), which requires that “the
circumstances constituting fraud . . . be stated with
particularity.” Novak v. Kasaks, 216 F.3d 300,
306 (2d Cir. 2000). In considering a motion to dismiss, the
court must “accept all factual allegations as true
and draw all reasonable inferences in the plaintiff's
favor.” Litwin, 634 F.3d at 715.
move to dismiss Plaintiffs' claims under Sections 11,
12(a)(1), and 12(a)(2) of the Securities Act, and Section
10(b) of the Exchange Act and Rule 10b-5 promulgated
thereunder. Section 11 imposes strict liability on certain
participants in a registered securities offering if
“any part of the registration statement . . . contained
an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading.” 15 U.S.C.
§ 77k(a). Section 12(a)(2) imposes similar liability for
misstatements or omissions in a prospectus. Id.
§ 77l(a)(2). And Section 12(a)(1) imposes similar
liability on sellers of unregistered securities. Id.
§ 77l(a)(1). Section 10(b) of the Exchange Act and Rule
10b-5 impose liability where a defendant made omissions or
misstatements of material fact, with scienter, in connection
with the sale of securities. See ATSI Commc'ns, Inc.
v. Shaar Fund, Ltd., 493 F.3d 87, 105 (2d Cir. 2007).
Court first considers Plaintiffs' Securities Act claims
and next considers Plaintiffs' Exchange Act
Securities Act Claims
threshold matter, Defendants argue that Plaintiffs'
Securities Act claims are subject to the heightened pleading
standard of Rule 9(b), rather than the more liberal
requirements of Rule 8(a), because they “sound in
fraud.” (Dkt. No. 41 at 9.) However, the Court need not
decide which ...