I. Background 2 A. QTT 2 B. Parties 2 C. Claims 3 II. Discussion 4 A. 1934 Exchange Act Claims 4 1. Motion to Dismiss 4 2. Standard of Review 5 a. Count I: Section 10(b) Claims Under the 1934 Exchange Act 5 i. Misstatements or Omissions of Material Fact 5 a) QTT’s Strategy of Rapidly Growing Revenues Through Intentional Placement of Illegal Advertisements 6 b) QTT’s Failure to Disclose Knowledge of Illicit Advertising as a Key Driver of Revenue Growth 8 c) QTT’s Statements Regarding Screening of Illegal Advertisements 9 d) QTT’s Failure to Disclose Related-Party Transactions 11 1) Dianguan 12 2) Mengtui, Fangce, and Shihui Miao 13 e) QTT’s Inflation of Revenue for U.S. Filings 13 f) QTT’s Failure to Disclose Contingent Liabilities 14 b. Count II: Section 20(a) Claims Under the 1934 Exchange Act 15 B. 1933 Securities Act Claims 15 1. Standard of Review 16 a. Count III: Section 11 Claims 17 i. Standing 17 ii. Analysis 18 b. Count IV: Section 12(a)(2) Claim 19 c. Count V: Section 15 Claim 19 III. Conclusion 19 OPINION & ORDER Lead Plaintiff James Pappas brought this securities class action against defendant Qutoutiao Inc. (“QTT”), a Chinese news-aggregation app, its directors and officers, and its corporate underwriters. In his Consolidated Amended Class Action Complaint (“the Complaint”) Lead Plaintiff alleges claims under the Securities Act of 1933 and the Securities Exchange Act of 1934 relating to QTT’s initial public offering (“IPO”) and secondary public offering (“SPO”). QTT and one of its directors, Oliver Yucheng Chen, have moved for dismissal of the Complaint pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim (“the QTT Motion”). Underwriter Defendants similarly moved for dismissal, joining the arguments set forth in the QTT Motion and asserting additional grounds. For the reasons set forth below, the Court grants both motions. I. BACKGROUND A. QTT QTT operates mobile platforms that distribute and share entertainment content in China. The QTT app aggregates articles and videos from content providers and presents customized feeds to app users. QTT generates the majority of its revenue through advertising. (Compl.
58, 61.) On September 14, 2018, QTT announced its IPO of 12,000,000 American Depositary Shares (“ADS”) at a price of $7 per share. In connection with the IPO, QTT filed with the Securities and Exchange Commission (“SEC”) its third and final amendment to its previously filed — but not yet effective — registration statement on Form F-1 that took effect on September 13. On September 14, QTT filed its prospectus on Form 424B4 (“IPO Prospectus,” and together with the IPO Registration Statement, the “IPO Offering Documents”). The IPO closed on September 18, 2018. (Compl. 62.) On March 29, 2019, QTT announced an SPO of 10,000,000 QTT ADSs at a price of $10 per share. In connection with the SPO, QTT filed with the SEC its only amendment to the previously filed — but not yet effective — registration statement on Form F-1 that took effect on April 2. On April 3, QTT filed its prospectus on Form 424B4 (the “SPO Prospectus”). The SPO closed on April 5, 2019. (Compl. 64.) QTT reported third quarter 2020 financials on December 16, 2020 that allegedly triggered a significant share price decline. (Compl. 90.) Consequently, Lead Plaintiff argues that the relevant class period for this action is between September 14, 2018 and December 16, 2020. (Id. 1.) B. Parties Lead Plaintiff purchased QTT securities during the class period and alleges that he suffered damages arising from federal securities law violations. (Compl. 22.) The Complaint names four classes of defendants. The first is QTT itself. The Complaint then lists four Insider Defendants: Eric Tan (“Tan”), the co-founder of QTT and the Company’s Chief Executive Officer (“CEO”) since May 20, 2019; Lei Li, the co-founder of QTT and director and CEO of the Company until May 2019; Jingbo Wang, a director and QTT’s Chief Financial Officer (“CFO”) until January 22, 2020; and Xiaolu Zhu, the Company’s CFO since January 22, 2020 (collectively, “the Insider Defendants”). (Id.
