On Tuesday, 360 DigiTech Inc. refuted allegations that it violated anti-fraud provisions of the federal securities laws. According to Tuesday’s motion to dismiss, the complaint improperly seeks to hold the company and its leaders accountable “for failing to predict that its existing data privacy practices, previously lauded by Chinese regulators during the Class Period, would later be deemed non-compliant with new regulations.”
The filing explains that the defendant is a “leading Chinese financial technology platform that connects individual borrowers with financial institutions, primarily through its core product, the 360 Jietiao mobile application.”
As previously reported, a shareholder took issue with alleged misrepresentations made by the company in the Summer of 2021, purportedly misstating the company’s compliance with Chinese privacy law. The company’s value on an American stock exchange reportedly dove more than 21% after Chinese regulators said that 360 Jietiao was collecting users’ personal data without their consent and temporarily removed it from app stores.
This week’s motion comes two months after the shareholder plaintiff filed his amended complaint. Before delving into the substance of their arguments, the defendants explained the Chinese regulatory backdrop against which the case is set and the challenge of complying with ambiguous laws and fast-changing goal posts.
Digitech then made three arguments as to why the Southern District of New York court should dismiss the lead plaintiff’s case. First, the defendants contended that the plaintiff states no actionable misrepresentation or omission.
DigiTech defended that it “disclosed the regulatory risks affecting its business, including that it could be subject to adverse regulatory action if its existing measures were deemed non-compliant with new data privacy regulations.” The company added that the plaintiff pleaded no allegations that it violated any then-existing regulations during the Apr. 30, 2020 to July 8, 2021 class period.
Second, the defendants said that the plaintiffs fell short of pleading the requisite intent or scienter, pointing to a lack of particularized facts that any defendant knew their statements were false when made. Its inability to plead motive leaves the plaintiff with threadbare allegations that courts routinely reject, DigiTech argued.
Lastly, DigiTech contended that the plaintiff does not sufficiently plead loss causation because he did not prove that the drop in stock price was attributable to its alleged misrepresentations. “Plaintiff’s failure to plead any facts to disaggregate his alleged losses from an industry-wide event triggering stock drops among numerous Chinese companies is fatal to his claim,” the motion said.
Labaton Sucharow LLP is lead counsel for the plaintiff and proposed class and Skadden, Arps, Slate, Meagher & Flom LLP represents DigiTech.
