Lavale Burns v. UP Fintech Holding Limited

Background

Lavale Burns sued UP Fintech Holding Limited, Tianhua Wu, and John Fei Zeng on behalf of people and entities who purchased or acquired UP Fintech shares during the alleged class period. UP Fintech provides online brokerage and other financial technology services, including services involving China. Wu was the company’s chief executive officer, and Zeng was its chief financial officer.

Burns alleged that UP Fintech’s annual reports and related certifications made false or misleading statements about the legality and regulatory risks of its Chinese operations. The reports said that the company did not believe it needed a Chinese securities-brokerage license under existing law, while also warning that Chinese regulators might disagree, require licenses or approvals, impose penalties, or otherwise harm the business. Burns also relied on news reports stating that Chinese officials had criticized or warned online brokerages operating without licenses.

Burns asserted claims under Section 10(b) of the Securities Exchange Act and Securities and Exchange Commission Rule 10b-5, which address materially false or misleading statements connected with securities trading. Burns also asserted a control-person claim under Section 20(a), which can impose liability on a person who controlled someone who committed a primary securities-law violation.

Court’s analysis

The court reviewed the amended complaint under Federal Rule of Civil Procedure 12(b)(6), which asks whether the complaint plausibly states a legal claim. Securities-fraud allegations also had to satisfy heightened requirements requiring the alleged statements, omissions, and defendants’ state of mind to be described with particularity.

The court held that Burns did not adequately allege an actionable false statement or omission. First, it found that UP Fintech’s annual reports sufficiently warned investors about the licensing uncertainty, possible regulatory intervention, potential penalties, and possible adverse effects on the business. The court noted that Burns had not identified an explicit law that UP Fintech violated when the earlier disclosures were made or a prior Chinese government finding of wrongdoing that would have made those disclosures false at that time.

Second, the court held that the cited media articles did not show that UP Fintech knew it was violating Chinese law when the challenged disclosures were made. The court found that one official’s statement was not alleged to be legally binding and that other articles did not identify their sources or explain the contents of the reported discussions with company executives.

Third, the court concluded that several challenged statements were opinions about the company’s understanding of Chinese law and its response to an earlier regulatory notice. The court held that Burns had not identified particular facts showing that the opinions were misleading because the company lacked the stated belief or because facts supporting the opinions were untrue. The court also relied on a similar decision involving another online brokerage with comparable disclosures.

Because Burns failed to plead an actionable misstatement or omission, the court did not decide the parties’ arguments about scienter, meaning the required state of mind for securities fraud. The court also held that the claim based on the company’s Sarbanes-Oxley certifications failed because those certifications did not create an independent basis for liability when the underlying statements were not actionable.

The court separately held that the Section 20(a) control-person claim failed because it depended on an underlying securities-law violation, and Burns had not adequately alleged one. The court stated that this claim failed as a matter of law.

Disposition

The court GRANTED UP Fintech’s motion to dismiss. It also stated that the Section 20(a) claim was DISMISSED. The court GRANTED Burns leave to amend the complaint and ordered an amended complaint by April 21, 2025. The order states that the action will be dismissed with prejudice if Burns does not file the amended complaint by that deadline. The court directed the clerk to terminate the motion docket entry.