Pomerantz Defeats Motion to Dismiss in Jiayin Group Securities Class Action
On February 16, 2022, Judge Andrew Borrok of the Supreme Court of the State of New York, County of New York denied defendants’ motions to dismiss the Amended Complaint in Todd France v. Jiayin Group Inc. et al., No. 654398/2020 (Sup Ct, NY County). This securities class action was brought against Jiayin Group Inc. (“Jiayin” under the Securities Act of 1933 (“1933 Act”). Judge Borrok has recently been assigned all 1933 Act cases in New York County, making this victory particularly significant.
When Jiayin had its Initial Public Offering on May 10, 2019 (the “IPO”), it was a peer-to-peer (“P2P”) lending company. It went public after many P2P companies had already folded due to increased regulations from Chinese authorities – specifically, Circular 175, a new Chinese regulation which tightened restrictions on P2P lenders. Jiayin, however, assured the investing public that it was in a great long-term position to continue business as usual. Except that, just a month after the IPO, the company disclosed it was changing its business model as a result of its agreement to transfer all of its equity interest in Shanghai Caiyin Asset Management – an affiliated entity which provided Jiayin with P2P loan origination services – to a third party. Less than a year and a half later, it was a completely different company operationally, not a P2P lender at all. This transition was not due to any superseding regulation or action by the Chinese authorities – it was entirely due to regulations in place at the time of the IPO.
The Amended Complaint alleged the documents defendants presented to the public at the time of the IPO were false and misleading because they did not provide sufficient disclosures about the financial hit Jiayin was taking as it complied with current Chinese regulations, the risks that Jiayin would not be allowed to continue as a P2P marketplace, or the decision defendants had already made to transform the business. In the face of these well-pled allegations, defendants argued that they had fully disclosed the truth as it existed at the time of the IPO and any changes to Jiayin’s business were made were post-IPO. However, during oral arguments, Pomerantz Of Counsel Cara David swiftly rebutted this argument, noting that, it was not a “plausible inference” that mere weeks after receiving a significant amount of money from the public offering, an executive work up and said “uh-oh, we may be in some trouble here” and made a sudden decision to completely change the business. Rather, as alleged in the Amended Complaint, Ms. David argued that change was planned prior to the IPO and simply not disclosed.
The Court rightfully sided with shareholders, who were wronged by defendants’ “bait-and-switch.” Judge Borrok found the timing of the business action itself was sufficient to allege it was pre-planned, stating:: “That the government did not take action against the Company and that there were no other intervening events between when the IPO occurred and when the Company almost immediately following such IPO announced the beginning of its metamorphose is prima facie evidence that this was pre-planned at the time of the IPO.”