LYU v. Min Feng et al., Defendants. (2020)

Order, Supreme Court, New York County (Jennifer G. Schecter, J.), entered on or about April 22, 2020, which, insofar as appealed from as limited by the briefs, denied defendants' motion to dismiss the complaint alleging violations of sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (15 USC §§ 77k;  77l[a][2];  77o) in its entirety except to the extent of dismissing the section 12(a)(2) claim as against Ruhnn Holding Limited, unanimously reversed, on the law, without costs, and the motion granted.  The Clerk is directed to enter judgment dismissing the complaint.

Given defendants' disclosure that defendant Ruhnn was shifting to a “platform” model for its online sales and away from the self-owned, “full service” model, the omission of data from the period immediately preceding the issuance of the final prospectus showing that there had already been a reduction in the full service segment of the company did not “significantly alter[ ] the ‘total mix’ of information made available” to a reasonable investor (DeMaria v. Andersen, 318 F.3d 170, 180 [2d Cir.2003] [some internal quotation marks omitted] ).

As the full service sector's revenue was not closely related to either the number of stores or the number of online influencers serving the segment, the focus on these metrics was “myopic”;  disclosure would not have given a more accurate picture of the status of the business (see Stadnick v. Vivint Solar, Inc., 861 F.3d 31, 38 [2d Cir.2017] ).

Absent a violation of section 11 or 12, the claims against the individuals (under section 15) must also be dismissed.

The complaint fails to state a cause of action for violation of either item 303 or item 305 of Regulation S–K (see 17 CFR 229.303(a)(3)(ii);  229.105), as the offering material disclosed both the shift to the platform model and the risks associated with that shift.