Case 1:20-cv-00577-GHW Document 61 Filed 09/13/22 Page 1 of 52
`USDC SDNY
`DOCUMENT
`ELECTRONICALLY FILED
`DOC #: ________________
`DATE FILED: 9/13/2022
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`-against-
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` 1:20-cv-577-GHW
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`MEMORANDUM OPINION
`AND ORDER
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
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`PABLO GRECO, GALESSI HOLDING CORP.,
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`and JUAN PABLO DI BENEDETTO, individually
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`and on behalf of all others similarly situated,
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`Lead Plaintiffs, :
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`X
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`QUDIAN INC., MIN LUO, and CARL YEUNG,
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`Defendants.
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`GREGORY H. WOODS, United States District Judge:
`Defendant Qudian, Inc. is a leading provider of micro-loans to consumers in China. In June
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`2019, Qudian raised its guidance for its total non-GAAP net income for the year from 3.5 billion
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`renminbi to 4.5 billion renminbi. Qudian attributed the increase to its strong early results and
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`confidence in its ability to grow through the second half of the year. Not long after Qudian raised
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`its guidance, the company’s performance plummeted. By the time the smoke settled, Qudian missed
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`not only its increased guidance, but its initial guidance as well—Qudian’s non-GAAP net income for
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`2019 was 3.4 billion renminbi.
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`The lead plaintiffs in this action, Juan Pablo di Benedetto, Galessi Holding Corp., and Pablo
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`Greco (together, “Lead Plaintiffs”), brought this securities class action on behalf of themselves and
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`other similarly situated investors who purchased or otherwise acquired Qudian securities between
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`December 13, 2018 and January 15, 2020 (the “Class Period”). Lead Plaintiffs allege that
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`Defendants made a number of false and misleading statements and omissions, including by
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`misrepresenting that Qudian’s business was compliant with China’s regulations, and by
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`misrepresenting that Qudian was experiencing significant growth while remaining conservative in its
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`lending practices. Lead Plaintiffs allege that Defendants violated Section 10(b) of the Securities
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`Case 1:20-cv-00577-GHW Document 61 Filed 09/13/22 Page 2 of 52
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`Exchange Act of 1934 and Rule 10b-5, and that Min Luo and Carl Yeung violated Section 20(a) of
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`the Exchange Act.
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`For the reasons that follow, Lead Plaintiffs have not plausibly alleged that Defendants made
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`materially false or misleading statements with a wrongful state of mind. Therefore, Defendants’
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`motion to dismiss the amended complaint is GRANTED.
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`I. BACKGROUND
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`A. Facts1
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`1. Qudian
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`Qudian was founded in 2014 and is “a leading provider of online small consumer credit
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`products in China.” Am. Compl., Dkt. No. 44, ¶¶ 24, 28. Almost all of Qudian’s transactions are
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`conducted through mobile phones—potential borrowers apply for small amounts of credit on their
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`phones and receive approval within seconds. Id. ¶ 28. Qudian’s average loan size is less than $300
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`and has a duration of less than a year. Id. Qudian states that it “target[s] the large and growing
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`number of creditworthy borrowers in China who we believe are of emerging prime credit quality but
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`have limited credit history and access to traditional consumer credit from banks or other lenders.”
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`Id. ¶ 33. Over 80% of Qudian’s active borrowers are between 18 and 35 years old. Id. Qudian was
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`a private company until October 18, 2017, when the company went public with an initial public
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`offering that listed Qudian’s American Depositary Shares (“ADS”) on the New York Stock
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`Exchange. Id. ¶ 29. Luo is the founder of Qudian and serves as the CEO and chairman of Qudian’s
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`board of directors. Id. ¶ 24. Yeung was Qudian’s CFO. Id. ¶ 25.
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`1 Unless otherwise noted, the facts are drawn from the amended complaint, Dkt. No. 44, and are accepted as true for the
`purposes of this motion to dismiss. See, e.g., Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002). But “[t]he
`tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.”
`Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
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`2
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`2. Core Loan Book
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`Lead Plaintiffs refer to Qudian’s consumer lending business as its “core loan book.”
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`Qudian’s core loan book consists of “on-balance sheet” and “off-balance sheet” transactions. Id.
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`¶ 58. On-balance sheet transactions are loans funded either directly by Qudian or by Qudian’s
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`institutional funding partners. Id. Off-balance sheet transactions are loans that Qudian facilitates
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`between borrowers and third parties. Id. ¶ 59. Under this service, Qudian refers qualified credit
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`applications to banks along with Qudian’s assessment of the potential borrower’s credit profile and
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`suggested credit limits. Id. The banks then independently review the credit application and approve
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`or deny the loan. Id. If the loan is approved, the banks directly fund the loan to the borrower. Id.
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`Qudian receives a facilitation fee for each loan and guarantees the full loan amount in the event of a
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`default. Id. In 2018, Qudian’s core loan book funded approximately $8.4 billion worth of loans. Id.
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`¶ 58. 64% of the transactions were on-balance sheet and the remainder were off-balance sheet. Id.
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`3. Regulatory Issues with the Core Loan Book
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`China imposes strict regulations on the online consumer lending industry. Id. ¶ 61. On
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`December 1, 2017, China’s Office of the Leading Group for Specific Rectification against Online
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`Finance Risks and the Office of the Leading Group for Specific Rectification against P2P Online
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`Lending Risks jointly issued the Circular on Regulating and Rectifying Cash Loan Business, which is
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`known as Circular 141. Id. In its 2018 Annual Report, Qudian explained that Circular 141
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`“provides restrictions on banks’ collaboration with third parties in cash loan business,” including
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`that “[a] bank may not outsource its core business functions, such as credit assessment and risk
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`management, to third parties” and that “[a] bank participating in loan facilitation transactions may
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`not accept credit enhancement services from a third party which has not obtained any license or
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`approval to provide guarantees, including credit enhancement service in the form of a commitment
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`to assume default risks.” Id. ¶ 62.
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`Lead Plaintiffs allege that Qudian’s off-balance sheet transactions, as well as on-balance
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`sheet loans that were funded by other financial institutions, violate Chinese regulations, including
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`Circular 141. Id. ¶ 66. Lead Plaintiffs allege that “it was common for Qudian to violate Circular
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`141’s prohibition on having financial institutions outsource their credit assessments to Qudian,”
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`because “many of the banks that Qudian did business with were actually outsourcing the credit
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`assessment function to Qudian” rather than conducting their own independent credit assessments.
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`Id. ¶ 69. Despite allegedly violating Circular 141, Qudian “repeatedly assured investors . . . that
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`Qudian was compliant with online lending regulations.” Id. ¶ 78.
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`In addition to Circular 141, Qudian was subject to strict licensing regulations. At the end of
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`2018, Qudian had two online microlending licenses. Id. ¶ 72. The licenses were associated with two
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`of Qudian’s subsidiaries: Fuzhou Gaoxin District Qufenqi Microlending Co. Ltd. and Ganzhou
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`Happy Life Online Microlending Co. Ltd. Id. Lead Plaintiffs allege that, in May 2019, China’s
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`government “downgraded the scope of business that Qufenqi Microlending could engage in so that
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`its lending license was narrowed from not having any geographic restriction to being just a regional
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`microlending license. This severely restricted Qudian to making microloans within the limits of
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`Ganzhou district and surrounding counties.” Id. Consequently, Lead Plaintiffs allege, the number
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`of loans that Qudian was able to fund with its own capital was narrowed. Id. ¶ 73. Lead Plaintiffs
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`allege that the restriction impacted Qudian’s core loan book—both the number of on-balance sheet
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`transactions and Qudian’s financing income from those transactions declined in 2019. Id. ¶ 74.
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`Lead Plaintiffs contend that, as a result of these regulatory issues, Qudian’s financial partners
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`became reluctant to provide Qudian funding and some partners ended their partnership completely.
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`Id. ¶ 76–77. Qudian became concerned about the viability of the core loan book. Id. ¶ 75. These
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`concerns, among other reasons, pushed Qudian to try to generate income through other methods.
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`Id. ¶ 75–77. However, Qudian failed numerous times to grow its business outside of its core loan
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`book, including through a relationship with Ant Financial, an auto-financing business, and several e-
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`Case 1:20-cv-00577-GHW Document 61 Filed 09/13/22 Page 5 of 52
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`commerce projects, among others. See id. ¶ 36–52. By November 2018, Qudian’s share price had
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`fallen by 82% from its IPO as a result of these failed projects. Id. ¶ 52.
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`4. Open Platform
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`In the third quarter of 2018, Qudian developed a new loan-referral business called Open
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`Platform. Id. ¶¶ 2, 82. Through Open Platform, Qudian refers borrowers to other financial
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`institutions which then make loans directly to the borrowers. Id. ¶ 2. The primary difference
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`between Open Platform and the off-balance sheet loans that Qudian facilitated through its core loan
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`book is that Qudian does not guarantee the loans made through Open Platform. Id. ¶ 103. In its
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`2018 Annual Report, Qudian explained that Open Platform:
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`[O]ffers our large user base with more choices to satisfy their financial needs, while
`incurring no material cost of operations and no credit risk for us. For users that do
`not meet our credit requirements, we provide recommendations of financial products
`that are offered by financial service providers that participate on our platform. The
`relevant financial service providers perform independent credit assessment of users
`and make the ultimate credit decisions. We typically charge such financial service
`providers for lead generation on a cost-per-click basis. On the other hand, for users
`with better credit profiles that are applying for large loan amounts that exceed the limit
`permitted under our policy, we refer their applications to our institutional funding
`partners. We do not bear credit risk and receive commissions from our institutional
`funding partners for such referrals.
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`Id. ¶ 82. Qudian portrayed Open Platform as the next source of growth for Qudian after its other
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`failed attempts to expand beyond the core loan book. Id. ¶ 84. Qudian told investors that Open
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`Platform would allow Qudian to profit off its tens of millions of registered users that were not
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`taking out loans. Id.
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`The reality, Lead Plaintiffs allege, was vastly different. Although Defendants stated that
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`Open Platform was created as a new business opportunity, Lead Plaintiffs assert that Qudian
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`“developed Open Platform to address its serious regulatory concerns with its core loan business.”
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`Id. ¶ 85. “Qudian’s reason for shifting to Open Platform was actually that it was more compliant
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`with China’s strict online lending regulations, not that it presented a promising new avenue of
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`growth separate from the core loan book. But rather than explaining the Company’s true reason for
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`its shift to Open Platform, Defendants described Open Platform as a great new business
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`opportunity that would provide Qudian with its long-sought-after next leg of rapid growth alongside
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`continued growth in its core loan book.” Id. ¶ 92. Lead Plaintiffs allege that Qudian’s ultimate goal
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`was to “shift their entire business to Open Platform.” Id. ¶ 192.
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`Further, Lead Plaintiffs allege that Defendants misrepresented how Open Platform
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`compared to the core loan book. Rather than being a new product, Lead Plaintiffs assert that Open
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`Platform “was very similar to Qudian’s pre-existing off-balance sheet loan facilitation business,
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`which also facilitated loans directly between Qudian’s users and third-party” and that therefore
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`Open Platform did not provide an avenue for growth separate from the core loan book. Id. ¶ 92.
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`Moreover, Lead Plaintiffs assert that Open Platform was in direct competition with the core loan
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`book. Id. ¶ 85. Because Qudian did not guarantee the risk of default in Open Platform, Qudian’s
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`partners demanded that Qudian refer only its highest-quality and most-credit-worthy borrowers. Id.
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`¶ 104. “Rather than accessing Qudian’s tens of millions of inactive users, Open Platform was
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`actually limited to the much smaller set of the highest-quality borrowers from Qudian’s core loan
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`book.” Id. ¶ 85. Consequently, Lead Plaintiffs maintain that Qudian’s best borrowers shifted from
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`the core loan book to Open Platform. Id. ¶ 104.
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`5. Credit Trial Program
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`In the third quarter of 2018, Qudian began lowering its credit standards in the core loan
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`book through its Credit Trial Program. Id. ¶¶ 108–10. The Credit Trial Program “entailed Qudian
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`making loans in its core business to riskier borrowers that were not approved under Qudian’s
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`traditional risk assessment.” Id. ¶ 108. Lead Plaintiffs allege that the Credit Trial Program was
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`created to compensate for the fact that Qudian had diverted its highest-quality borrowers from the
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`core loan book to Open Platform. Id. ¶ 4. The Credit Trial Program allowed “Qudian to portray its
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`core loan book as continuing to grow alongside Open Platform,” when in reality, “Qudian was
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`populating its legacy business with much riskier loans that would have a much higher rate of
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`6
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`default.” Id. ¶ 108. Qudian did not disclose the Credit Trial Program until August 16, 2019. Id.
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`¶ 110. After the third quarter of 2019, Qudian revealed that it had stopped the Credit Trial
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`Program, but that twenty percent of the loans in the core loan book were part of the Credit Trial
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`Program. Id. ¶ 116.
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`6. Qudian’s 2019 Financial Guidance
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`On December 13, 2018, Qudian issued a press release announcing its financial guidance for
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`2019. Id. ¶ 198. In the press release, Qudian announced that it expected that its non-GAAP net
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`income in 2019 would exceed 3.5 billion renminbi. Id. ¶ 54. Qudian’s stock price rose twenty
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`percent by the close of trading on December 13, 2018. Id.
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`Qudian subsequently updated its 2019 Financial Guidance multiple times throughout the
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`Class Period. On June 21, 2019, Qudian issued a press release announcing that it was raising its
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`income guidance for 2019 from 3.5 billion renminbi to greater than 4.5 billion renminbi. Id. ¶¶ 260–
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`61. Shortly after releasing its updated guidance, Qudian began to suffer poor performance. On
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`November 18, 2019, Qudian issued a press release announcing its financial results for the third
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`quarter of 2019. Id. ¶ 299. In the press release, Qudian reduced its financial guidance for 2019 from
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`4.5 billion renminbi to 4.0 billion renminbi. Id. ¶ 144. Compared to the previous quarter, revenue in
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`the core loan book dropped from 1.6 billion renminbi to 1.4 billion renminbi, and new active
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`borrowers decreased from 1.1 million to less than 700,000. Id. ¶¶ 145, 147. In addition, Qudian
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`recorded over 1 billion renminbi in expenses related to credit costs in the quarter and the
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`delinquency rate of loans in the core loan book rose by more than four percent. Id. ¶¶ 148–50.
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`As a result of Qudian’s poor results and updated guidance, Qudian’s share price began to fall
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`rapidly. Id. ¶¶ 329, 334. By November 21, 2019, Qudian’s share price had fallen over 45% below
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`the price on November 15, 2019. Id. ¶ 335. In an attempt to assuage investor concerns, Qudian
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`held an emergency “Business Update Call” on November 25, 2019. Id. ¶ 157. On the call, Yeung
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`stated, “[w]e are perplexed, first of all, on how the market reacted. We think it’s unreasonable . . . .”
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`Id. Yeung also reinforced Qudian’s new financial guidance for 2019, which he described as
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`“conservative.” Id. ¶ 309–10.
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`Less than two months later, on January 16, 2020, Qudian abandoned its 2019 financial
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`guidance. Id. ¶ 17. In a press release, Qudian explained “that the Company withdraws its fiscal 2019
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`guidance and will not issue guidance in the near term due to uncertainty related to the recent
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`regulatory and operating environment.” Id. ¶ 159. The market reacted strongly—Qudian’s stock
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`price fell 24.8% by the close of trading on January 21, 2020. Id. ¶ 351.
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`Qudian announced its results for 2019 on March 18, 2020. Id. ¶ 160. Qudian had fallen
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`short of its guidance—its non-GAAP net income for 2019 was 3.4 billion renminbi. Id. ¶ 161.
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`Qudian’s fourth quarter results were particularly bad. The company earned only approximately 157
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`million renminbi in the quarter, down from 1.1 billion in the third quarter. Id. ¶ 160. Qudian
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`acknowledged that “[i]f you look at our fourth quarter number, if we single out the open platform
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`business, we are actually experiencing a loss for our loan book business.” Id. ¶ 162. On the same
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`day, the company announced that Yeung was resigning from his position as CFO effective
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`immediately. Id. ¶ 164.
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`B. Procedural History
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`Stephen Bellingham, an investor who purchased Qudian’s ADS during the Class Period,
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`initiated this action on January 22, 2020 against Qudian, Luo, and Yeung. Dkt. No. 1. On April 7,
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`2020, the parties stipulated to appoint Juan Pablo di Benedetto, Galessi Holding Corp., and Pablo
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`Greco as lead plaintiffs in this action. Dkt. No. 34. Lead Plaintiffs filed an amended complaint on
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`June 17, 2020. Dkt. No. 44.
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`The amended complaint asserts two claims for relief. First, the amended complaint alleges
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`violations of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), (“Section
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`10(b)”) and rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5 (“Rule 10b-5”). Am. Compl.
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`¶¶ 382–92. Second, the amended complaint alleges control person liability against Luo and Yeung
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`under section 20(a) of the Exchange Act, 15 U.S.C. § 78t, (“Section 20(a)”) for the same violations
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`alleged in the first cause of action. Am. Compl. ¶¶ 393–400.
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`On September 4, 2020, Defendants moved to dismiss the amended complaint, on the basis
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`that Lead Plaintiffs had failed to state a claim. Mot. to Dismiss Pls.’ Am. Compl., Dkt. No. 54; see
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`also Defs.’ Mem. of Law in Support of Their Mot. to Dismiss the Am. Compl. (“Mem.”), Dkt. No.
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`55; Kreissman Decl., Dkt. No. 56. Lead Plaintiffs opposed Defendants’ motion on October 2,
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`2020. Pls.’ Mem. in Opp’n to Defs’ Mot. to Dismiss (“Opp’n”), Dkt. No. 57. Defendants replied
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`on October 16, 2020. Defs.’ Reply Mem. of Law in Supp. of Their Mot. to Dismiss (“Reply”), Dkt.
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`No. 58. On March 10, 2022, Lead Plaintiffs submitted a notice of supplemental authority, notifying
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`the Court of the February 16, 2022 opinion in the case France v. Jiayin Grp. Inc., 161 N.Y.S. 3d 755
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`(N.Y. Sup. Ct. 2022). Dkt. No. 59. Defendants responded on March 17, 2022. Dkt. No. 60.
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`II. LEGAL STANDARD
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`A complaint must contain “a short and plain statement of the claim showing that the pleader
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`is entitled to relief.” Fed. R. Civ. P. 8(a)(2). If a complaint fails to meet this pleading standard, a
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`defendant may move to dismiss it for “failure to state a claim upon which relief can be granted.”
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`Fed. R. Civ. P. 12(b)(6). “To survive a motion to dismiss, a complaint must contain sufficient
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`factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v.
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`Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A
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`claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the
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`reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550
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`U.S. at 556). It is not enough for a plaintiff to allege facts consistent with liability; the complaint
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`must “nudge[]” claims “across the line from conceivable to plausible.” Twombly, 550 U.S. at 570.
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`“To survive dismissal, the plaintiff must provide the grounds upon which his claim rests through
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`factual allegations sufficient ‘to raise a right to relief above the speculative level.’” ATSI Commc’ns,
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`Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) (quoting Twombly, 550 U.S. at 555).
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`Determining whether a complaint states a plausible claim is a “context-specific task that
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`requires the reviewing court to draw on its judicial experience and common sense.” Iqbal, 556 U.S.
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`at 679. The court must accept all facts alleged in the complaint as true and draw all reasonable
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`inferences in the plaintiff’s favor. Burch v. Pioneer Credit Recovery, Inc., 551 F.3d 122, 124 (2d Cir. 2008)
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`(per curiam). However,
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`“[t]hreadbare recitals of the elements of a cause of action, supported by mere
`conclusory statements, do not suffice.” A complaint must therefore contain more
`than “naked assertion[s] devoid of further factual enhancement.” Pleadings that
`contain “no more than conclusions . . . are not entitled to the assumption of truth”
`otherwise applicable to complaints in the context of motions to dismiss.
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`DeJesus v. HF Mgmt. Servs., LLC, 726 F.3d 85, 87–88 (2d Cir. 2013) (second alteration in original)
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`(internal quotation marks and citations omitted) (quoting Iqbal, 556 U.S. at 678–79). Thus, a
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`complaint that offers “labels and conclusions” or “naked assertion[s]” without “further factual
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`enhancement” will not survive a motion to dismiss. Iqbal, 556 U.S. at 678 (alteration in original)
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`(citing Twombly, 550 U.S. at 555, 557).
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`Securities fraud claims are also subject to the heightened pleading requirements of Federal
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`Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act (the “PSLRA”). Rule
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`9(b) requires that “in alleging fraud or mistake, a party must state with particularity the
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`circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). To satisfy this requirement, the
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`complaint must “(1) specify the statements that the plaintiff contends were fraudulent, (2) identify
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`the speaker, (3) state where and when the statements were made, and (4) explain why the statements
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`were fraudulent.” ATSI, 493 F.3d at 99. “Allegations that are conclusory or unsupported by factual
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`assertions are insufficient.” Id. Under the PSLRA, plaintiffs must also specify “each statement
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`alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an
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`allegation regarding the statement or omission is made on information and belief, the complaint
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`shall state with particularity all facts on which that belief is formed.” 15 U.S.C. § 78u-4(b)(1).
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`Plaintiffs must therefore “do more than say that the statements . . . were false and misleading; they
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`must demonstrate with specificity why and how that is so.” Rombach v. Chang, 355 F.3d 164, 174 (2d
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`Cir. 2004).
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`On a motion to dismiss, a court must generally “limit itself to the facts stated in the
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`complaint.” Field Day, LLC v. Cnty. of Suffolk, 463 F.3d 167, 192 (2d Cir. 2006) (quoting Hayden v.
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`Cnty. of Nassau, 180 F.3d 42, 54 (2d Cir. 1999)). In that context, “[a] court’s task is to assess the legal
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`feasibility of the complaint; it is not to assess the weight of the evidence that might be offered on
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`either side.” Lynch v. City of New York, 952 F.3d 67, 75 (2d Cir. 2020). “The purpose of Rule
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`12(b)(6) is to test, in a streamlined fashion, the formal sufficiency of the plaintiff’s statement of a
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`claim for relief without resolving a contest regarding its substantive merits. The Rule thus assesses
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`the legal feasibility of the complaint, but does not weigh the evidence that might be offered to
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`support it.” Glob. Network Commc’ns, Inc. v. City of New York, 458 F.3d 150, 155 (2d Cir. 2006)
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`(emphasis in original).
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`In ruling on a motion to dismiss, a court “may consider any written instrument attached to
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`the complaint, statements or documents incorporated into the complaint by reference, legally
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`required public disclosure documents filed with the SEC, and documents possessed by or known to
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`the plaintiff and upon which it relied in bringing the suit.” ATSI, 493 F.3d at 98 (citing Rothman v.
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`Gregor, 220 F.3d 81, 88 (2d Cir. 2000)). As the Second Circuit recently reaffirmed in Lynch, “[i]t is
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`well established that a pleading is deemed to include any ‘written instrument’ that is attached to it as
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`‘an exhibit,’ or is incorporated in it by reference.” Lynch, 952 F.3d at 79 (citations omitted). Courts
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`may also consider “matters of which judicial notice may be taken.” Goel v. Bunge, Ltd., 820 F.3d 554,
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`559 (2d Cir. 2016) (quoting Concord Assocs., L.P. v. Entm’t Props. Tr., 817 F.3d 46, 51 n.2 (2d Cir.
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`2016)).
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`A court can also consider documents that are “integral to” the complaint. Lynch, 952 F.3d at
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`79. In order for a document to meet this exception to the general principle that a court may not
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`consider documents outside of the pleadings without converting the motion to one for summary
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`Case 1:20-cv-00577-GHW Document 61 Filed 09/13/22 Page 12 of 52
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`judgment, the complaint must rely heavily upon its terms and effects. See DiFolco v. MSNBC Cable
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`LLC, 622 F.3d 104, 111 (2d Cir. 2010) (“Where a document is not incorporated by reference, the
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`court may nevertheless consider it where the complaint relies heavily upon its terms and effect,
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`thereby rendering the document integral to the complaint.”) (internal quotation marks omitted)).
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`“However, even if a document is integral to the complaint, it must be clear on the record that no
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`dispute exists regarding the authenticity or accuracy of the document.” Id. (internal quotation
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`marks omitted) (quoting Faulkner v. Beer, 463 F.3d 130, 134 (2d Cir. 2006)). “It must also be clear
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`that there exist no material disputed issues of fact regarding the relevance of the document.” Id.
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`(quoting Faulkner, 463 F.3d at 134). “In most instances where this exception is recognized, the
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`incorporated material is a contract or other legal document containing obligations upon which the
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`plaintiff’s complaint stands or falls, but which for some reason—usually because the document, read
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`in its entirety, would undermine the legitimacy of the plaintiff’s claim—was not attached to the
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`complaint.” Glob. Network Commc’ns, Inc., 458 F.3d at 157. The Second Circuit has “recognized the
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`applicability of this exception where the documents consisted of emails that were part of a
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`negotiation exchange that the plaintiff identified as the basis for its good faith and fair dealing claim,
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`or consisted of contracts referenced in the complaint which were essential to the claims.” United
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`States ex rel. Foreman v. AECOM, 19 F.4th 85, 108–09 (2d Cir. 2021) (citations omitted) (first citing L-
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`7 Designs, Inc. v. Old Navy, LLC, 647 F.3d 419, 422 (2d Cir. 2011); and then citing Chambers v. Time
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`Warner, Inc., 282 F.3d 147, 153 n.4 (2d Cir. 2002)).
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`“Where a district court considers material outside of the pleadings that is not attached to the
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`complaint, incorporated by reference, or integral to the complaint, the district court, to decide the
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`issue on the merits, must convert the motion into one for summary judgment.” Id. at 106. “This
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`requirement ‘deters trial courts from engaging in factfinding when ruling on a motion to dismiss and
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`ensures that when a trial judge considers evidence [outside] the complaint, a plaintiff will have an
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`opportunity to contest defendant’s relied-upon evidence by submitting material that controverts it.’”
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`Case 1:20-cv-00577-GHW Document 61 Filed 09/13/22 Page 13 of 52
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`Id. at 107–08 (alteration in original) (quoting Glob. Network Commc’ns, Inc., 458 F.3d at 155). “A
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`district court therefore ‘errs when it consider[s] affidavits and exhibits submitted by defendants, or
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`relies on factual allegations contained in legal briefs or memoranda in ruling on a 12(b)(6) motion to
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`dismiss.’” Id. at 108 (alteration in original) (quoting Friedl v. City of New York, 210 F.3d 79, 83–84 (2d
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`Cir. 2000)).
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`Here, Defendants attached 28 articles regarding regulatory developments in China to their
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`motion to dismiss. See Mem. at 6 n.3, Kreissman Decl., Ex. G. None of the articles were attached
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`to the complaint, incorporated by reference in the complaint, or integral to the complaint.
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`Defendants also attached five SEC filings from two of Qudian’s competitors to their motion to
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`dismiss. See Mem. at 34 n.22; Kreissman Decl., Ex. Q. Although the Court can consider legally
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`required public disclosure documents filed with the SEC, the Court can consider them “‘only to
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`determine what the documents stated,’ and ‘not to prove the truth of their contents.’” Roth v. Jennings, 489
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`F.3d 499, 509 (2d Cir. 2007) (quoting Kramer v. Time Warner Inc., 937 F.2d 767, 774 (2d Cir. 1991)).
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`Defendants solely rely on the SEC filings for the truth of their contents. See Mem. at 34–35 (relying
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`on the documents to show that two of Qudian’s competitors “experienced downturns in their loan
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`book volume that paralleled Qudian’s”). Accordingly, the Court has not considered these materials
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`in deciding this motion.
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`III. DISCUSSION
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`A. Section 10(b) and Rule 10b-5 Liability
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`Lead Plaintiffs have not plausibly alleged that Defendants’ statements violated federal
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`securities laws. Under Section 10(b) and Rule 10b-5, it is unlawful to “make any untrue statement of
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`a material fact or to omit to state a material fact necessary in order to make the statements made, in
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`the light of the circumstances under which they were made, not misleading[.]” 17 C.F.R. § 240.10b-
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`5(b); see also 15 U.S.C. § 78j(b). To survive a defendant’s motion to dismiss a Section 10(b) claim, a
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`plaintiff must plausibly plead “(1) a material misrepresentation (or omission); (2) scienter, i.e., a
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`Case 1:20-cv-00577-GHW Document 61 Filed 09/13/22 Page 14 of 52
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`wrongful state of mind; (3) a connection with the purchase or sale of a security; (4) reliance;
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`(5) economic loss; and (6) loss causation.” Kleinman v. Elan Corp., plc, 706 F.3d 145, 152 (2d Cir.
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`2013) (alterations omitted) (quoting Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 341–42 (2005)).
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`Defendants challenge the first and second elements.
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`1. False or Misleading Statements or Omissions
`a. Legal Standard
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`“A statement is misleading if a reasonable investor would have received a false impression
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`from the statement.” Freudenberg v. E*Trade Fin. Corp., 712 F. Supp. 2d 171, 180 (S.D.N.Y. 2010).
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`When a company does not have an obligation to speak but does so anyway, it assumes “a duty to be
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`both accurate and complete.” Caiola v. Citibank, N.A., 295 F.3d 312, 331 (2d Cir. 2002); see also In re
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`Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347, 366 (2d Cir. 2010) (explaining that once a
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`corporation makes “a disclosure about a particular topic, whether voluntary or required, the
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`representation must be complete and accurate” (internal quotation marks omitted)). And “literally
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`true statements” are actionable if they “create a materially misleading impression.” SEC v. Gabelli,
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`653 F.3d 49, 57 (2d Cir. 2011), rev’d and remanded on other grounds, 568 U.S. 442 (2013). “The literal
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`truth of an isolated statement is insufficient; the proper inquiry requires an examination of
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`defendants’ representations, taken together and in context.” Morgan Stanley Info. Fund, 592 F.3d at
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`366 (internal quotation marks omitted). Accordingly, plaintiffs “may not cherry pick certain public
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`statements for [their] complaint and divorce them from the universe of disclosed infor