IN RE GIGACLOUD TECHNOLOGY INC SECURITIES LITIGATION

Background

Lead Plaintiffs Sashi Rajan and Meir Spear brought a proposed class action against GigaCloud Technology Inc., eight of its officers and directors, and Aegis Capital Corp., the underwriter for GigaCloud’s initial public offering. They alleged violations of Sections 11 and 15 of the Securities Act of 1933, Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Securities and Exchange Commission Rule 10b-5.

The claims concerned two groups of statements. First, Plaintiffs alleged that GigaCloud misleadingly described its marketplace revenues and activities because a significant amount of that revenue allegedly came from companies closely connected to GigaCloud or its employees. Second, Plaintiffs alleged that statements in GigaCloud’s offering materials falsely described the company’s use of artificial intelligence in its logistics and warehousing systems.

All Defendants moved under Federal Rule of Civil Procedure 12(b)(6) to dismiss the complaint for failure to state a claim. Zhiwu Chen separately moved under Rule 12(b)(2) to dismiss the claims against him for lack of personal jurisdiction.

Marketplace-Activity Claims

The court granted the Rule 12(b)(6) motion as to the claims based on statements about GigaCloud’s marketplace activities. It held that the reported 1P and Marketplace Gross Merchandise Value revenue figures were accurate historical data because Plaintiffs did not allege that the sales occurred outside GigaCloud’s Marketplace. The court also held that GigaCloud was not required to disclose the identities or relationships of reseller purchasers merely because that information might interest investors.

The court further found that Plaintiffs had not shown how the omitted information made GigaCloud’s explanatory statements about its marketplace revenues misleading. Because Plaintiffs did not plausibly allege actionable misstatements, the court dismissed the related claims under Section 10(b), Rule 10b-5, and Section 11. The court also dismissed the related scheme-liability claims under Rule 10b-5(a) and (c), the Section 20(a) control-person claims, and the Section 15 control-person claims.

Artificial-Intelligence Claims

The court denied the Rule 12(b)(6) motion as to the claims based on statements about GigaCloud’s use of artificial intelligence. It rejected Plaintiffs’ theory to the extent it relied on general statements that GigaCloud’s technology was sophisticated or advanced, characterizing those statements as vague corporate language and non-actionable promotional statements.

The court nevertheless held that Plaintiffs plausibly challenged specific factual statements that GigaCloud used artificial intelligence in its logistics operations. Plaintiffs relied on accounts from former employees, including employees who worked in information-technology development, logistics, supply-chain management, or senior customer-recruiting roles. The court found that the complaint described the witnesses’ positions and responsibilities with enough detail to support the inference that they had relevant knowledge, and that their accounts included specific descriptions of GigaCloud’s allegedly non-AI systems.

The court also rejected Defendants’ argument that the AI claims failed because Plaintiffs had not adequately pleaded loss causation. The court explained that loss causation is not an element that must be pleaded for a Section 11 claim in the circumstances presented, and it found that the short-seller reports could have supplied new information to the market through the investigators’ own work, including conversations with employees and visits to GigaCloud warehouses. The Section 11 claims based on the AI statements therefore survived, as did the related Section 15 claims.

Personal Jurisdiction Over Chen

The court denied Chen’s Rule 12(b)(2) motion. Although Chen did not sign the registration statement and was not yet a director when it became effective, he signed a written consent agreeing to references to his name in the registration statement and accepting his appointment as a director.

The court held that, for purposes of Section 11, a person who consents to being named in a registration statement as a director or incoming director is not materially different from a person who signs the registration statement. By signing the consent, Chen purposefully connected himself to the offering and could reasonably expect litigation concerning the registration statement. The court therefore concluded that it could exercise personal jurisdiction over him.

Disposition

The court’s Rule 12(b)(6) motion was GRANTED in part and DENIED in part. The claims concerning marketplace activities were dismissed, while the claims concerning the alleged AI misstatements that survived the court’s analysis remained pending. Chen’s Rule 12(b)(2) motion was DENIED.

The court also DENIED Plaintiffs’ request for leave to amend the dismissed claims. It found that the defects were substantive, that Plaintiffs had not identified additional facts that would cure them, and that Plaintiffs had already received an opportunity to amend. The court directed Defendants to answer the surviving claims within three weeks unless it ordered otherwise, and it rescheduled the initial pretrial conference for March 26, 2025.