Pomerantz Appointed Lead Counsel in BlueCity Holdings Securities Litigation
On October 12, 2021, Justice Andrew Borrok of the Supreme Court of the State of New York appointed Pomerantz LLP as Lead Counsel on behalf of the class in Lorenzo, Michael James vs. BlueCity Holdings Limited, No. 652894/2021 (N.Y. Sup Ct.), a securities action brought on behalf of defrauded investors concerning alleged misstatements and misrepresentations made by BlueCity Holdings Limited (“BlueCity” or the Company”) in the Offering Documents for its July 2020 IPO.
BlueCity is an online platform for the LGBTQ community, operating primarily in China, India, Korea, Thailand and Vietnam. The Company operates a mobile application, Blued, together with other products and services, including social and entertainment, online health consulting and online pharmacy, and assisted reproductive technology services.
Allegations against BlueCity include that: (i) the Company had overstated its business and financial prospects; (ii) BlueCity was ill-equipped to absorb the costs of becoming a publicly traded company, including cost related to its IPO and growth; and (iii) as a result of all the foregoing, the Company had misrepresented its capability for sustainable growth.
On July 8, 2020, BlueCity conducted its IPO pursuant to the Offering Documents, issuing 5.3 million shares of the Company’s ADSs to the public at the Offering price of $16.00 per ADS for approximate proceeds of $78.86 million to the Company before expenses and after applicable underwriting discounts and commissions.
The truth began to emerge on December 2, 2020, when BlueCity announced its third quarter 2020 financial results in which it revealed that the Company’s cost of revenues had increased 41.3% year-over-year, selling and marketing expenses had increased 86.3% year-over-year, technology and development expenses had increased 49.5% year-over-year, and general and administrative expenses had increased 4349% year-over-year. BlueCity attributed these sharply increased costs to the growth of revenue-sharing costs, expenses related to the Company’s IPO, and increased advertising and promotion expenses and staff costs.
On this news, BlueCity’s ADS price fell $3.30 per ADS, or 22.8%, to close at $11.15 per ADS on December 2, 2020.
Then, on March 23, 2021, BlueCity announced its fourth quarter 2020 financial results, revealing revenue of $42.7 million, missing consensus estimates by $3.92 million. The Company also reported that the Company’s cost of revenues had increased 29% year-over-year, selling and marketing expenses increased 56.7% year-over-year, technology and development expenses increased 9% year-over-year, and general and administrative expenses had increased 345.5% year-over-year. BlueCity attributed these increased costs to the growth of revenue-sharing costs and live streaming services, increased advertising and promotion expenses and staff costs, increased staff cost in technology and development personnel, share-based compensation expenses, and increased professional fees and staff cost.
On this news, BlueCity’s ADS price fell $3.25 per ADS, or 26.7%, to close at $8.92 per ADS on March 24, 2021.