Hoang v. ContextLogic, Inc.

Background

This consolidated proposed class action alleges violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 against ContextLogic, its officers and directors, and underwriters of its initial public offering. The proposed class includes investors who purchased securities traceable to the registration statement and prospectus for the initial public offering, as well as investors who purchased ContextLogic securities during the stated class period.

The court considered two competing motions for appointment as lead plaintiffs and for approval of lead counsel. Xiaoquan Yang and Alexander De Block jointly filed one motion. Joel Newman and Anand Chetram jointly filed the other. The court had already consolidated the related actions and directed that future filings be made in Hoang.

Legal standard

The Private Securities Litigation Reform Act governs the appointment of a lead plaintiff in private securities class actions. The court must select the class member or members most capable of adequately representing the class. The court applies a three-step process: it confirms that required notice was given, identifies the movant with the largest financial interest who makes an initial showing of typicality and adequacy under Federal Rule of Civil Procedure 23, and gives other plaintiffs an opportunity to rebut that presumptive selection.

The court evaluated financial interest using four factors commonly called the Lax factors: the number of shares purchased, the number of net shares purchased, the total net funds spent, and the approximate losses suffered. The approximate-loss factor generally receives the greatest weight. A lead plaintiff may select counsel, subject to court approval, and the court generally defers to a reasonable choice.

Discussion

The court found that the required notice was published in Business Wire on May 17, 2021, and that the notice included the required information and advised proposed class members that they could seek appointment as lead plaintiff.

The first Lax factor slightly favored Newman and Chetram because they purchased more shares. The other three factors favored Yang and De Block. Yang and De Block purchased more net shares and spent more net funds. The court also concluded that Yang and De Block had the greater approximate losses under both the last-in-first-out method and the adjusted method that excludes losses on shares bought and sold before any corrective disclosure. The court rejected Newman and Chetram’s request to consider only Exchange Act losses and disregard Securities Act losses.

The court found that Yang and De Block made the required initial showing of adequacy and typicality. The record did not show conflicts of interest, and the court was satisfied that they and their counsel would prosecute the action vigorously. Their claims under both securities laws were typical of the proposed class. Newman and Chetram did not present the proof required to rebut the presumption in Yang and De Block’s favor.

The court also found that Yang and De Block made a reasonable choice in selecting Glancy Prongay & Murray LLP and The Rosen Law Firm, P.A. as co-lead counsel.

Disposition

Judge Beth Labson Freeman granted Yang and De Block’s motion for appointment as co-lead plaintiffs and appointed them to that role. The court approved their selection of Glancy Prongay & Murray LLP and The Rosen Law Firm, P.A. as co-lead counsel. The court denied Newman and Chetram’s competing motion. The order did not decide the underlying securities claims.