Judge Jesse M. Furman of the New York Southern District Court today dismissed an investor lawsuit targeting online brokerage UP Fintech Holding Limited, also known as Tiger Brokers, and its IPO underwriters, including Citigroup Global Markets Inc, Deutsche Bank Securities Inc, AMTD Global Markets Limited, and China Merchants Securities (HK) Co., Limited.

The putative class action arises out of an initial public offering (IPO) conducted by UP Fintech. In particular, Lead Plaintiff Jian Ren brought claims under Sections 11 and 15 of the Securities Act of 1933 against UP Fintech, various officers or directors of UP Fintech, and a handful of entities that were involved in underwriting the IPO.

UP Fintech is an online brokerage firm incorporated under the laws of the Cayman Islands and headquartered in China. Also known as Tiger Brokers, the company 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. UP Fintech is the largest online broker by US securities trading volume focused on Chinese investors.

In March 2019, UP Fintech conducted an IPO in the United States. After a series of amendments, UP Fintech filed its Registration Statement on March 18, 2019. 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.

The charts in the Registration Statement did not include corresponding data for Q1 2019, which was not yet over at the time.

On March 20, 2019, UP Fintech completed its IPO. UP Fintech sold 13 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. The company received an additional $14.508 million, after underwriting discounts and commissions, from the Underwriter Defendants’ “full exercise of their overallotment option.”

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.”

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, 2019 — “a decline of more than 17%” and “of 28% from the $8 IPO [share] price.”As of November 6, 2019, the company’s stock had lost 49% of its value from the IPO price.

On that date, a putative class action was filed against the company and several Individual Defendants. Following the appointment of Jian Ren as Lead Plaintiff, the Plaintiffs filed the operative Complaint on March 24, 2020, which added as defendants the Underwriter Defendants.

The plaintiffs’ principal allegation is that the defendants violated Sections 11 and 15 by failing to disclose in the Registration Statement

• (1) trading volume figures for January 2019;
• (2) the impact of January 2019’s trading volume and commission revenue on future performance; and
• (3) trading volume and commission revenue figures for the period between January 2 and March 19, 2019.

In dismissing the complaint, the Judge notes that the plaintiffs fail to plausibly allege that the alleged declines in trading volume and commissions even constituted a “trend,” such that disclosure was required by Item 303.

Second, considering the Registration Statement as a whole and drawing all reasonable inferences in Plaintiffs’ favor, the Court concluded that any omission was not material because it is not substantially likely that a reasonable investor would have viewed the allegedly missing data.

What’s more, these data were accompanied by cautionary language warning of volatility in trading volume on a quarterly basis and the risks that such volatility might pose to UP Fintech’s revenue growth.

In short, in light of the dramatic quarter-to-quarter swings in trading volume and commission revenue the Registration Statement (accurately) disclosed and its warnings about the volatility of such metrics, a reasonable investor would not have viewed the additional six weeks of commissions and eleven weeks of trading volume data that the plaintiffs cite as substantially altering the total mix of information.

That is, the alleged omissions were not “material”. It follows that the plaintiffs’ claims under both Section 11 and Section 15 fail and must be dismissed, the Judge said.