In re Hebron Technology Co., Ltd. Securities Litigation

Background

Two proposed securities class actions were filed on behalf of people and entities that purchased or acquired Hebron Technology Co., Ltd. securities from April 24 through June 3, 2020. The complaints alleged that Hebron and its officers, Anyuan Sun and Changjuan Liang, made false or misleading statements or failed to disclose that related parties were involved in several acquisitions. The complaints also alleged that Hebron’s disclosure controls for related-party transactions were ineffective. Plaintiffs alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5.

The alleged problems became public after a June 3, 2020 presentation by Grizzly Research described Hebron as an “insider enrichment scheme without economic basis.” Hebron’s share price fell nearly 37% that day and another 18% the next day. Clynes alleged losses of approximately $15,106, while Dahlke alleged a loss of $5,332.

Consolidation

The court granted the unopposed request to consolidate the two actions. The cases involved the same defendants, proposed class period, alleged disclosures and omissions, and legal claims. The consolidated action was ordered to proceed under the name In re Hebron Technology Co., Ltd. Securities Litigation and under docket number 20 Civ. 4420. The original Dahlke case, No. 20 Civ. 4746, was closed because of the consolidation.

Lead Plaintiff

The Private Securities Litigation Reform Act generally favors appointing the proposed plaintiff with the largest financial interest who also meets the relevant class-representation requirements. The court found that both Clynes and Dahlke timely sought appointment, and that both made the preliminary showing of typicality and adequacy required at this stage. Their claims arose from the same alleged conduct, and each had purchased Hebron shares during the proposed class period and sold them at a loss.

The court found that Clynes had the larger financial interest because his alleged loss was nearly three times Dahlke’s and he had purchased substantially more shares. Clynes therefore initially qualified for the statutory presumption favoring the plaintiff with the largest financial interest.

The court nevertheless held that Dahlke rebutted that presumption. Clynes made his first purchase at 10:26 a.m. on June 3, as the Grizzly Research presentation was revealing its allegations about Hebron, and he continued buying shares afterward. The court found non-speculative evidence that Clynes could face a unique defense—that he did not rely on Hebron’s alleged misrepresentations because he bought shares after, or while, the alleged fraud was being revealed. The court did not resolve the factual and legal disputes about the exact timing or significance of the presentation; it held that those issues could distract from the class’s claims and create problems specific to Clynes.

Because Dahlke was the only other lead-plaintiff candidate and satisfied the preliminary Rule 23 requirements, the court appointed him lead plaintiff. The court granted Dahlke’s motion to serve as lead plaintiff and denied Clynes’s motion.

Lead Counsel and Case Management

The court appointed Pomerantz LLP as lead counsel after reviewing the firm’s background and experience in securities class actions. The court directed the parties to propose a schedule for a consolidated amended complaint and defendants’ response. The court also directed them to include briefing dates if defendants planned to respond with a motion to dismiss.

What the Ruling Did Not Decide

This opinion addressed consolidation and leadership of the proposed class action. It did not decide the merits of the securities-fraud allegations, whether defendants violated the securities laws, or whether any alleged defenses would ultimately succeed.