Lian v. Tuya Inc.

Background

The complaint alleges that Tuya, Inc., nine of its executives, and the underwriters for Tuya’s March 2021 initial public offering violated the Securities Act of 1933. The alleged violations involved materially false or misleading statements and omissions in a registration statement for American Depository Shares.

The case was filed as a proposed class action. After notice was published, three timely motions sought appointment as lead plaintiff: Jeronimo Ortiz with Levi & Korsinsky, LLP as lead counsel; Mi Yuanshan with Pomerantz LLP as lead counsel; and Kyle Nelson and Jiyi Qiu with Robbins Geller Rudman & Dowd LLP and Glancy Prongay & Murray LLP as lead counsel. Ortiz later filed a notice of non-opposition to the other two motions. The court therefore analyzed the Nelson and Qiu Motion and the Yuanshan Motion.

Legal standard

The Private Securities Litigation Reform Act requires the court to appoint the proposed class member or group of members most capable of adequately representing the class as lead plaintiff. The statute creates a presumption in favor of the applicant or group that timely moved, has the largest financial interest in the relief sought, and satisfies the relevant requirements of Federal Rule of Civil Procedure 23.

The court evaluated financial interest using four factors: the gross number of shares purchased, the net number of shares purchased, the net funds spent, and the net loss suffered. The court treated net loss as the most important factor. It also considered whether the proposed representatives’ claims were typical of the class and whether they would fairly and adequately protect the class’s interests.

Financial-interest comparison

The court held that the PSLRA permits a group of people to serve as lead plaintiff and does not require a group to make a greater showing of financial interest merely because it is a group. It therefore aggregated Nelson’s and Qiu’s financial interests.

According to the motions, Yuanshan purchased and retained 91,000 Tuya ADSs at a total cost of $519,750 and suffered a loss of $354,900. Nelson and Qiu spent $635,117.71 on 56,560 shares, sold 31,560 shares during the class period for $173,976.80, had a net expenditure of $461,140.91, and suffered a total net loss of $417,387.56.

Yuanshan had the larger gross and net number of purchased shares and spent more net funds. Nelson and Qiu, however, had a nearly 15 percent larger net loss. The court concluded that Nelson and Qiu’s greater loss outweighed Yuanshan’s advantages on the other financial factors, giving Nelson and Qiu the largest financial interest.

Rule 23 requirements and adequacy

The court found that Nelson and Qiu satisfied the relevant Rule 23 requirements. Their claims were typical because, like the other proposed class members, they alleged that they purchased Tuya ADSs in or traceable to the IPO, were affected by the alleged false or misleading statements and omissions, and suffered damages.

The court also found that the proposed counsel were experienced plaintiffs’ firms with active securities practices. Nelson and Qiu’s alleged losses of more than $400,000 gave them sufficient interest to pursue the case vigorously. The court found no conflict between their interests and those of other proposed class members, who all sought to maximize recovery for the alleged misrepresentations.

The court considered several factors relevant to whether a lead-plaintiff group could function adequately, including the members’ relationship before the litigation, their involvement in the case, their cooperation plans, their sophistication, and whether they selected counsel rather than being assembled by counsel. The lack of evidence of a pre-litigation relationship weighed against adequacy, and the lack of information about who selected counsel was neutral or weighed against adequacy. But Nelson and Qiu had attended a joint meeting, described a plan for regular communication and oversight of counsel, and collectively had thirty-five years of investing and business experience. Overall, the court found that they made the required initial showing of adequacy.

The court rejected Yuanshan’s argument that Nelson and Qiu were an improper attorney-assembled group. Because the presumption in favor of Nelson and Qiu was not rebutted, the court concluded that they were the most adequate plaintiffs.

Disposition

The court granted the Nelson and Qiu Motion and denied the Ortiz Motion and the Yuanshan Motion. It appointed Nelson and Qiu as lead plaintiffs and approved their selection of Robbins Geller Rudman & Dowd LLP and Glancy Prongay & Murray LLP as lead counsel.

The court directed the defendants to confer with the lead plaintiffs about a proposed schedule for any amended complaint and the defendants’ responses. It also directed the parties to submit a status update by January 6, 2023, and directed the Clerk of Court to close the motions at Docket Numbers 23, 27, and 30. The order addressed lead-plaintiff and lead-counsel selection, not the merits of the alleged securities violations.