Africa v. Jianpu Technology Inc.

Background

Enrique Africa, the lead plaintiff in a proposed class action, sued Jianpu Technology Inc. and its executives David Ye and Yilü (Oscar) Chen. The amended complaint alleged that, between May 29, 2018, and February 16, 2021, the defendants made materially false or misleading statements and omissions about Jianpu’s loan, credit-card, and advertising segments. Africa asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5.

Jianpu operated Rong360, an online platform connecting consumers with financial service providers in China. Africa alleged that statements about the loan segment concealed unlawful lending practices and regulatory problems; that statements about the credit-card segment concealed related-party transactions and overstated financial results; and that statements about the advertising segment concealed problems involving Databook Technology Ltd. and its subsidiary, Hangzhou Scorpion Co., Ltd.

The defendants moved to dismiss under Rule 12(b)(6), which permits dismissal when a complaint does not adequately state a legally valid claim. Because the case involved alleged securities fraud, the court also applied heightened pleading requirements under Rule 9(b) and the Private Securities Litigation Reform Act. Those requirements demanded specific facts showing both what statements were allegedly false and a strong inference that each defendant acted with an intent to deceive, manipulate, or defraud.

Court’s Analysis

The court held that Africa’s Section 10(b) and Rule 10b-5 claims failed for at least two independent reasons: the complaint generally did not adequately plead a material misrepresentation or omission, and it did not adequately plead scienter, meaning the required fraudulent state of mind.

Loan segment. The court found that Africa did not show that statements about Jianpu’s improved quality-control, onboarding, and monitoring processes were false when made. Evidence that some providers on Rong360 allegedly offered noncompliant loans did not establish that Jianpu’s descriptions of its compliance processes were untrue. The court also treated several statements about regulation, growth, and working with leading lenders as general corporate optimism, or as forward-looking statements protected by the securities laws’ safe harbor. Statements reporting historical loan applications, revenue, and growth were not actionable merely because Africa alleged that some revenue resulted from improper practices. The court also noted that Jianpu had warned investors that it had limited control over the quality of financial products and services offered through its platform. Africa therefore did not plausibly show a duty to disclose the alleged third-party misconduct.

The court separately found no strong inference of fraudulent intent regarding the loan segment. Africa did not specifically allege that any defendant knew about the unlawful practices of third-party providers. The resignation of a board member after the television report also did not, by itself, support the required inference.

Credit-card segment. Africa alleged that Jianpu failed to disclose related-party transactions and therefore misled investors about the source of the segment’s growth. The court found that the complaint did not identify the people or entities involved, when the transactions occurred, or the amounts involved. It therefore did not adequately plead that the nondisclosure was material. The court also concluded that statements attributing growth to increased card volume and average fees accurately reflected the reported financial results and did not, without more, require disclosure of the related-party transactions. Other statements were general praise, historical descriptions, or protected forward-looking statements.

Jianpu later restated its credit-card revenue downward by RMB 61.1 million for 2018 and RMB 163.7 million for 2019. The court said those restatements might be material misstatements, but held that Africa still failed to plead the required fraudulent intent. General allegations about audit-committee responsibilities, internal-control weaknesses, revenue targets, and a confidential witness did not show that any defendant knew or recklessly disregarded information indicating that the financial statements were false.

Advertising segment. The court said Africa did not allege facts showing that Jianpu’s reported purchase price or valuation of Databook was false when reported. It also held that Jianpu did not have a duty to disclose the government investigation into Hangzhou Scorpion in December 2019. Jianpu had disclosed an impairment related to Databook, which alerted investors to possible financial effects. At that time, the investigation had not yet resulted in formal criminal charges, and the company was not required to accuse itself of wrongdoing or predict the investigation’s outcome. The court also found no strong inference that Jianpu or the individual defendants knew the advertising-segment financial figures were false or had access to nonpublic information about Hangzhou Scorpion’s conduct when those figures were reported.

Remaining claims. Africa’s Section 20(a) control-person claims failed because he had not adequately pleaded a primary Section 10(b) violation. The court also dismissed the scheme-liability claim because the amended complaint alleged misstatements and omissions rather than separate inherently deceptive conduct.

Disposition

The court granted the defendants’ motion to dismiss and dismissed Africa’s claims under the Exchange Act and Rule 10b-5. The court did not state that the dismissal was with or without prejudice. Because Africa had already amended once but had not identified the additional facts he would add, the court nevertheless granted him one final chance to amend. Any second amended complaint had to be filed within thirty days of the September 28, 2022 Opinion and Order. Judge Jesse M. Furman directed the Clerk of Court to terminate the defendants’ motion at ECF No. 47.