United States: Southern District Of New York Dismisses With Prejudice Securities Fraud Action Against Chinese Technology Company, Finding Statement That Company Was "Worth Billions" Nonactionable Puffery

On February 27, 2018, Judge Naomi Reice Buchwald of the United States District Court for the Southern District of New York dismissed with prejudice a putative securities fraud action brought against Chinese mobile internet service provider NQ Mobile, Inc. ("NQ") and its CEO and Vice President.  Finocchiaro, et al v. NQ Mobile Inc., et al., No. 1:15-cv-06385 (S.D.N.Y. Feb. 27, 2018).  Plaintiffs—shareholders of NQ—alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act by making affirmative misstatements about NQ's value and failing to disclose to investors certain material facts relating to NQ's corporate acquisition strategy, allegedly causing plaintiffs to suffer losses when the truth was revealed and NQ's stock dropped.  The Court held that the alleged affirmative misrepresentation was mere puffery which plaintiffs could not have reasonably relied upon and that the alleged material omissions were in fact properly disclosed.  Accordingly, the Court dismissed the complaint with prejudice. 

The Court first considered plaintiffs' allegation that NQ's CEO and Vice President misrepresented to investors that NQ "was worth billions" and that the company would not accept a non-binding offer it had received from a third party (to acquire all of NQ's outstanding ordinary shares and ADSs for a fixed cash consideration of $9.80 per share) because "that offer was too low."  The Court found the alleged misrepresentation to be immaterial, noting that rather than being an affirmative, specific representation concerning NQ's share or enterprise value, the defendants' statement that NQ was "worth billions" amounted to "obviously non-actionable puffery" made in connection with their disclosure that NQ intended to reject what defendants viewed as an undervalued acquisition offer.  The Court noted that the statement was, in light of information publicly available to plaintiffs, an "extraordinarily optimistic view of NQ's value"—which had a publicly disclosed total market cap of $479 million—and "precisely the type of vague and rosy affirmation of a company's current state of affairs that amounts to no more than immaterial puffery."  The Court added that defendants' other alleged misstatement—that NQ would not accept the buyout offer—was, in fact, true, because NQ ultimately rejected the acquisition attempt.  The Court also held that plaintiffs had not adequately alleged justifiable reliance on the alleged misstatements, because NQ's financial history, which clearly demonstrated that the company was in fact not worth billions, was fully available to plaintiffs, including in the publicly filed prospectus.  Finding that plaintiffs failed to adequately plead materiality or justifiable reliance, the Court held that plaintiffs had not stated an actionable claim based on defendants' alleged misrepresentations.

The Court then turned to plaintiffs' allegations that defendants deliberately omitted or delayed disclosure of material information relating to certain acquisitions that resulted in dilution of shares.  The Court noted that "silence, absent a duty to disclose, is not misleading under Rule 10(b)-5," and that such a duty arises only if there is a corporate insider trading on confidential information, a statute that requires disclosure, or a corporate statement that is otherwise inaccurate, incomplete, or misleading.  The Court determined that plaintiffs failed to plead a duty pursuant to which NQ was obligated to disclose its acquisitions to investors earlier than it did.  The Court noted that, to the contrary, defendants would have violated securities laws had they made disclosures in the private meetings referenced by plaintiffs, because such private disclosure of the details of NQ's acquisitions to only certain investors would violate SEC Regulation FD, which prohibits selective disclosure.  Adding that plaintiffs had not identified any filings in which the acquisitions should have been, but were not, disclosed prior to NQ's October 2014 disclosure—and that plaintiffs made no allegations that NQ's CEO or Vice President engaged in insider trading—the Court concluded that plaintiffs had not alleged an actionable omission.  The Court thus dismissed plaintiffs' Section 10(b) claims in their entirety. 

Because plaintiffs had failed to allege a primary violation under Section 10(b), the Court dismissed plaintiffs' Section 20(a) control liability claims against NQ's CEO and Vice President.  The Court also denied plaintiffs leave to amend, noting that in their first four complaints, plaintiffs "had more than an adequate opportunity to plead an actionable complaint of securities fraud," and finding that the proposed new allegations would not cure the substantial deficiencies identified in the prior complaints.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions