Africa v. Jianpu Technology Inc.

Background

The lawsuit is a proposed class action on behalf of people who purchased Jianpu Technology Inc. securities between May 29, 2018, and February 16, 2021. The complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5. Michael Guttentag initially filed the complaint and published notice of the lawsuit.

Enrique Africa, Xiaoming Zhou, and Yan Qin Li each moved to be appointed lead plaintiff under the Private Securities Litigation Reform Act. Li later filed a notice stating that he did not oppose the competing motions, and the court deemed his motion withdrawn. The remaining dispute was between Africa and Zhou.

Lead-plaintiff analysis

The statute directs the court to presume that the most adequate lead plaintiff is the applicant with the largest financial interest in the relief sought by the class who also satisfies the relevant requirements of Rule 23 of the Federal Rules of Civil Procedure. Courts commonly assess financial interest using four factors: the number of shares purchased, the number of net shares purchased, the total net funds spent, and the approximate losses suffered. The court treated the size of the loss as the most important factor, while recognizing that these factors are imperfect measures of financial interest.

Zhou claimed a loss of $48,944.84, while Africa claimed a loss of $2,307.37. Africa argued that most of Zhou’s claimed loss came from “in-and-out” trades—purchases and sales made during the class period before the alleged misconduct was disclosed. Africa argued that, after those trades were excluded, Zhou’s loss was only $2.61.

The court agreed with Africa that losses from in-and-out trades generally should not be included when determining the largest financial interest. The court also rejected Zhou’s reliance on alleged partial corrective disclosures because the disclosures alleged in the complaint occurred before Zhou first purchased Jianpu securities. Zhou instead relied on an October 21, 2020 reverse stock split, but that event was not alleged in the complaint. The court questioned whether it could consider that event and found Zhou’s theory too undeveloped to be considered at this stage. The court also found that the reverse stock split did not appear to disclose additional information relevant to the alleged fraud.

Rule 23 requirements and ruling

The court found that Africa had the larger financial interest. It also found, on a preliminary showing, that Africa satisfied Rule 23’s typicality and adequacy requirements. The court said Africa’s claims were typical because he alleged losses from the defendants’ conduct during the class period, and that he was adequate because his interests aligned with those of the class and he had retained experienced counsel.

Accordingly, Judge Jesse M. Furman appointed Africa as lead plaintiff and Glancy Prongay & Murray LLP as lead counsel. The court directed lead counsel and the defendant to confer and file a joint letter proposing a schedule for the case within one week. The Clerk of Court was directed to update the docket and terminate ECF Nos. 15 and 18, the docket entries for Africa’s and Zhou’s lead-plaintiff motions.