Saye v. NIO Inc.

Background

The opinion addressed two related securities-fraud class actions: the action brought by Teddy J. Saye and the action brought by Taras Ceglia Bohonok. Both actions named NIO Inc., its chief executive officer Bin Li, and its chief financial officer Wei Feng. The complaints asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act and Securities and Exchange Commission Rule 10b-5. They alleged that NIO and the individual defendants misled investors about NIO’s revenue, including through alleged transactions involving Wuhan Weineng Battery Asset Co.

The Bohonok complaint was described as virtually identical to the Saye complaint, except that it proposed an earlier beginning date for the class period. Seven plaintiffs or plaintiff groups moved to consolidate the actions, be appointed lead plaintiff, and obtain approval of their selected lead counsel. Four movants—Prakash Sambath, Gary Darland, Arthur White, and Juan Herreramoro Gomez—later acknowledged that they did not have the largest financial interest and withdrew from consideration. NIO did not take a position on the merits of the motions.

Consolidation

Under Federal Rule of Civil Procedure 42(a), courts may combine separate actions that share common questions of law or fact. The court found that the two actions involved identical legal and factual questions and that all seven movants supported consolidation. The motions to consolidate were GRANTED.

Lead Plaintiff Analysis

The Private Securities Litigation Reform Act requires the court to select the class member or members most capable of adequately representing the class. The court first determined that the published notice satisfied the statute and that all lead-plaintiff motions were timely.

The remaining candidates were Ira Zohn, Michael Lyon, the Sordo-Siddiqui Group consisting of Javier Rodriguez Sordo and Dr. Mohammad Siddiqui, Sordo individually, and Siddiqui individually. Zohn claimed the largest loss before the court applied its analysis of recoverable losses. The court held that losses incurred before the alleged misconduct was publicly revealed generally could not be linked to the alleged fraud. It rejected Zohn’s argument that earlier price declines showed that information about the alleged misconduct had leaked into the market, finding that argument speculative and conclusory. After considering only losses incurred after the alleged misconduct was publicly revealed, the court found that Zohn and Lyon had smaller losses than Sordo and Siddiqui.

The court rejected the Sordo-Siddiqui Group as a combined plaintiff group because Sordo and Siddiqui had not known each other before the litigation and had been introduced by their lawyers. The court found insufficient evidence that they would work together cohesively and independently of counsel. It nevertheless considered Sordo and Siddiqui separately.

Sordo had the largest financial loss under the court’s analysis, but the court found that he did not satisfy the typicality requirement of Federal Rule of Civil Procedure 23 because he traded exclusively in NIO call options. The court explained that options trading could create factual issues and defenses that differed from those affecting class members who purchased NIO stock.

The court found that Siddiqui satisfied the requirements considered at this stage under Rule 23. Siddiqui had purchased NIO common stock during the relevant period, giving him claims arising from the same conduct as the other class members. The court also relied on his significant financial losses and more than 20 years of investing experience in finding that he could fairly and adequately protect the class’s interests. Siddiqui’s motion for appointment as lead plaintiff was GRANTED. The remaining motions for appointment as lead plaintiff were DENIED.

Lead Counsel

The Private Securities Litigation Reform Act allows the most adequate plaintiff, subject to court approval, to select class counsel. Siddiqui selected Bernstein Liebhard LLP. After reviewing Siddiqui’s filings and the firm’s résumé, the court found that Bernstein Liebhard was experienced in securities litigation and capable of representing the class effectively. Siddiqui’s motion for approval of Bernstein Liebhard as lead counsel was GRANTED. The remaining movants’ requests for approval of lead counsel were DENIED.

Disposition

Judge Vernon S. Broderick GRANTED the motions to consolidate. He GRANTED Dr. Mohammad Siddiqui’s motion for appointment as lead plaintiff and approval of Bernstein Liebhard as lead counsel, and DENIED the remaining motions for appointment as lead plaintiff and approval of lead counsel. The parties were directed to file a proposed schedule for a consolidated or amended complaint, and any response, within seven days.