On January 27, 2025, Judge Jesse M. Furman of the United States District Court for the Southern District of New York partially granted a motion to dismiss a putative securities class action asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Sections 11 and 15 of the Securities Act of 1933 (the “Securities Act”) against an e-commerce platform (the “Company”), the underwriter of its IPO, and certain of its officers and directors. In re Gigacloud Tech. Inc. Sec. Litig., 23-cv-10645-JMF (S.D.N.Y. Jan. 27, 2025). Plaintiffs alleged that defendants made material misstatements and omissions regarding the Company's marketplace activities and associated revenue metrics, as well as its use of AI. The Court granted in part defendants' motion to dismiss, holding that plaintiffs failed to sufficiently allege actionable misrepresentations regarding the Company's marketplace activities, but denied the motion as it related to alleged misrepresentations concerning the Company's use of AI.
Plaintiffs, who brought the action on behalf of a putative class of investors that purchased Company shares between August 18, 2022 and May 22, 2024, alleged violations of the Securities Act and the Exchange Act based on purported misleading statements by defendants that allegedly overstated the success of the platform's marketplace. Specifically, plaintiffs alleged that defendants failed to disclose the Company's relationships with “closely connected” companies that comprised a “significant amount” of revenue. Plaintiffs also alleged Securities Act violations on the basis that the offering materials misrepresented the Company's use of AI in its logistics operations.
The Court dismissed plaintiffs' Securities Act and Exchange Act claims based on statements about the Company's marketplace activities, holding that plaintiffs failed to plausibly allege that the statements were false or misleading. The Court held that the disclosure of accurate historical data about the Company's revenue streams, and explanatory statements about the benefits of the marketplace to reseller purchasers, were not rendered misleading by the alleged omission that some of the buyers were allegedly “closely connected” to the company or its employees.
The Court, however, denied defendants' motion to dismiss the Securities Act claims based on statements about the Company's use of AI, holding that plaintiffs plausibly alleged a material misstatement. The Court credited allegations based on confidential former employee statements that supported an inference that the Company did not use AI in its logistics operations as claimed in its offering materials. The Court distinguished defendants' general statements about the strength of their technology, which the Court deemed puffery, and defendants' specific statements about the use of AI, which the Court deemed actionable. The Court further found that defendants could not prevail on their negative causation defense at the pleading stage, including because plaintiffs adequately pleaded that short seller reports contributed new information to the market even if such reports were based on publicly available information.
Finally, the Court denied an individual defendant's motion to dismiss for lack of personal jurisdiction, holding—in what the Court noted appeared to be a matter of first impression—that “for purposes of a Section 11 claim, there is no material difference between a director who signs the registration statement and someone . . . who signs the written consent required by 17 C.F.R. § 230.438 to be submitted with the registration statement.”
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