HENRY v. FUTU HOLDINGS LIMITED et al

Filing 45

OPINION. Signed by Judge Brian R. Martinotti on 9/25/2024. (dam)

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
JENNIFER HENRY, Individually and on
Behalf of All Others Similarly Situated,
Plaintiff,

Case No. 2:23-cv-03222 (BRM) (CLW)
OPINION

v.
FUTU HOLDINGS LIMITED, et al.,
Defendants.
MARTINOTTI, DISTRICT JUDGE

Before the Court is a Motion to Dismiss pursuant to Federal Rules of Civil Procedure 8(a),
9(b), and 12(b)(6) filed by Defendant Futu Holdings Limited (“Futu”) (ECF No. 37) and joined by
Individual Defendants Arthur Yu Chen (“Chen”) and Leaf Hua Li (“Li”) (collectively,
“Defendants”) (ECF Nos. 41, 44). Lead Plaintiffs 1 Treasurer of the State of North Carolina—on
behalf of the North Carolina Retirement Systems, the North Carolina Department of State
Treasurer, and the North Carolina Supplemental Retirement Board of Trustees, on behalf of the
North Carolina Supplemental Retirement Plans (“North Carolina Funds”)—and the Indiana Public
Retirement System (“Indiana PRS”), individually and on behalf of all other persons similarly
situated (collectively, “Plaintiffs”) filed an Opposition (ECF No. 39), and Defendants filed a Reply
(ECF No. 42). Having reviewed the submissions filed in connection with Defendants’ Motion and
having declined to hold oral argument pursuant to Federal Rule of Civil Procedure 78(b), for the
1

On November 16, 2023, the Court issued an Order appointing lead plaintiffs and approving lead
counsel and liaison counsel, pursuant to the Private Securities Litigation Reform Act of 1995
(“PSLRA”) and 15 U.S.C. §78u-4 (1997). (ECF No. 30.)

reasons set forth below and for good cause having been shown, Defendants’ Motions to Dismiss
(ECF Nos. 37, 41, and 44) are GRANTED.
I.

BACKGROUND
A. Factual Background
For the purpose of this Motion to Dismiss, the Court accepts the factual allegations in the

Amended Complaint as true and draws all inferences in the light most favorable to Plaintiffs. See
Phillips v. Cnty. of Allegheny, 515 F.3d 224, 228 (3d Cir. 2008). The Court may also consider any
“document integral to or explicitly relied upon in the complaint.” In re Burlington Coat Factory
Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997) (quoting Shaw v. Digit. Equip. Corp., 82 F.3d 1194,
1220 (1st Cir. 1996)). 2
This action is a putative class action arising out of alleged violations of the federal
securities laws—specifically Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the
“Exchange Act”) and Rule 10b-5 promulgated thereunder. (See generally ECF No. 36 (Am.
Compl.).) Futu is a technology company that offers a fully digitalized securities brokerage platform
to investors, which is either called either Futubull or Moomoo, depending on the market. (Id.

2

The factual background is taken from the allegations in the Amended Complaint (ECF No. 36),
as well as the exhibits Defendants submitted in support of their Motion (see ECF Nos. 37-3 through
37-27). The Court considers these exhibits in deciding Defendants’ Motion because Plaintiffs’
claims rely on these documents (see ECF No. 36) and because Plaintiffs do not appear to object to
the Court considering these documents (see ECF No. 39). Courts can consider any “document
integral to or explicitly relied upon in the complaint.” In re Burlington, 114 F.3d at 1426 (citation
omitted). A district court may also consider any “undisputedly authentic document that a defendant
attaches as an exhibit to a motion to dismiss if the plaintiff’s claims are based on the document.”
Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993)
(citations omitted). See also Aliano v. Twp. of Maplewood, Civ. A. No. 22-05598, 2023 WL
4398493, at *3 (D.N.J. July 7, 2023) (“Documents attached by a defendant to a motion to dismiss
are considered part of the pleadings if they are referred to in the plaintiff’s complaint and are
central to the claim.” (citing Cooper v. Samsung Elecs. Am., Inc., 374 F. App’x 250, 253 n.3 (3d
Cir. 2010))).
2

¶¶ 2, 16.) Futu’s American Depositary Shares (“ADS”) are listed on NASDAQ under ticker
symbol FUTU. (Id. ¶ 16.) Futu is incorporated in the Cayman Islands and has its principal place
of business in Hong Kong. (Id.) Li is the founder and Chief Executive Officer (“CEO”) of Futu
and served as Futu’s Board of Directors Chairman during the Class Period. (Id. ¶ 17.) Chen is
Futu’s Chief Financial Officer (“CFO”). (Id. ¶ 18.) Plaintiffs are putative class members consisting
of all persons, excluding Defendants and their families, directors, officers, and affiliates, who
purchased or otherwise acquired Futu ADS between April 27, 2020 and May 16, 2023 (the “Class
Period”) and who suffered damages as a result of Defendants’ alleged conduct. (Id. ¶¶ 1, 94.) The
North Carolina Funds and Indiana PRS are entities who purchased Futu ADS at allegedly
artificially inflated prices during the Class Period and suffered damages as a result. (Id. ¶¶ 16−17.)
“[T]hrough its proprietary digital platforms, Futubull and Moomoo, Futu provides a full
range of brokerage services, including ‘trade execution and margin financing which allow [its]
clients to trade securities, such as stocks, warrants, options and exchange-traded funds, or ETFs,
across different markets.’” (Id. ¶ 21 (second alteration in original).) Futu provided online
brokerage services in the Peoples Republic of China (“PRC” or “China”), and during the Class
Period, China and Hong Kong were the two primary markets for Futu’s brokerage services. (Id.
¶¶ 2, 4, 22.) Plaintiffs allege Defendants—through its SEC filings, press releases, and on earnings
calls—falsely assured investors that Futu’s securities brokerage operations in China complied with
applicable Chinese securities laws and regulations, when in fact Futu was illegally operating in
China without the required brokerage firm license. (See generally ECF No. 36.)
The Chinese government prohibits securities brokerage companies from operating in China
without a license. (Id. ¶ 23.) On December 29, 1998, the National People’s Congress (the “NPC”)
in China issued the first version of China’s Securities Law (the “PRC Securities Law”), “which

3

established comprehensive regulatory rules for the issuance and trading of securities” and became
effective July 1, 1999. (Id.) Among other things, the PRC Securities Law “required that brokerage
firms apply for and obtain licenses from the PRC State Council in order to operate in China[.]”
(Id. ¶ 3; see also id. ¶ 23.) For example, Article 117 of the PRC Securities Law 3 provides: “The
establishment of a securities company must be examined and approved by the State Council’s
securities regulatory body. Without the approval of this institution, no one is allowed to engage in
securities business.” (Id.) Similarly, Article 118 similarly states in relevant part: “No entity or
individual shall conduct securities business in the name of a securities company without the
approval of the securities regulatory authority under the State Council.” (Id. ¶ 28.) Article 131
likewise provides: “Securities companies shall submit application for the scope of business
allowed to the State Council securities regulatory body for approval in accordance with the
provisions specified in the preceding two articles” and “shall not operate securities or other types
of business beyond the approved scope of business.” (Id. ¶ 23.) Additionally, Article 160 states in
relevant part: “Without examination and approval, no one shall provide services for securities
transactions and other related activities.” (Id. ¶ 29.)
Article 119 describes the process for how securities companies can obtain the required
license. (Id. ¶ 23.) Article 202 of the PRC Securities Law describes the consequences for
companies who violate this licensing requirement, stating in relevant part: “Where . . . an entity or
individual establishes a securities company without authorization, illegally engages in securities
businesses, or conducts securities business activities in the name of a securities company without

3

Plaintiffs provided the Court with a certified English translation of the PRC Securities Law from
its original form in Chinese, attached as an exhibit to the Amended Complaint. (See ECF No.
36-3.) Articles 117 and 131 were not included in the translation. (See id.) Nevertheless, for
purposes of this Motion, the Court uses Plaintiffs’ translation.
4

approval, the entity or individual shall be ordered to take corrective measures” and that “[a]
securities company established without authorization shall be banned by the securities regulatory
authority under the State Council.” (Id. ¶ 30). Subsequent revisions to these regulations in the PRC
Securities Law likewise describe this licensing requirement. (Id. ¶ 25.)
On March 1, 2020, prior to the beginning of the Class Period, the NPC enacted an
amendment to the PRC Securities Law, Article 2, which “clarified that the reach of the law
extended to ‘securities issuance and trading activities outside the territory of [China]’ that ‘disrupt
the order of the market within the territory of [China].’” (Id. ¶ 4.) Specifically, Article 2 states in
relevant part:
This Law shall apply to the issuance and transaction of stocks,
corporate bonds, depository receipts and other securities lawfully
recognized by the State Council within the territory of the People’s
Republic of China. Where there are no such provisions in this Law,
the provisions of the Company Law of the People’s Republic of
China and other laws and administrative regulations shall apply. . . .
Where the issuance and transactions of securities outside the
territory of the People’s Republic China have disrupted the market
order within the territory of the People’s Republic of China and
damaged the legitimate rights and interests of investors within the
territory, such activities shall be handled and investigated for legal
responsibility in accordance with the relevant provisions of this
Law.
(ECF No. 36-3 at 4.)
Plaintiffs allege that despite the PRC Securities Laws’ “clear language,” Defendants falsely
and misleadingly reassured investors that it “was operating in China legally.” (ECF No. 36 ¶ 37.)
Plaintiffs further allege Defendants did not take any steps to obtain the required brokerage license
despite a series of four “clear warnings” that Futu was illegally operating in China. (Id. ¶ 5.) First,
in October 2021, Chinese regulators began focusing on securities brokerages operating illegally in

5

China without the required license. (Id. ¶ 5.) On October 14, 2021, People’s Daily 4 reported, in an
article entitled, “Financial Observer: The Personal Information Protection Law is About to be
Implemented. Where Will Cross-border Internet Securities Companies Go From Here?”, 5 that “it
had learned from the China Securities Regulatory Commission (‘CSRC’)—which is the Chinese
equivalent to the SEC in the United States—that ‘no domestic or foreign institutions have been
approved to provide services for domestic investors to participate in overseas securities
transactions.’” (Id. ¶¶ 5, 33 & n.4.) The article stated that “according to the CSRC, ‘except for the
Qualified Domestic Institutional Investors (QDII) and the “Shanghai-Hong Kong Stock Connect”
mechanism, no domestic or foreign institutions have been approved to provide services for
domestic investors to participate in overseas securities transactions.’” (Id. ¶ 33.) Investors and
analysts understood this to mean “Futu faced impending regulatory action due to its failure to
obtain a securities business license in China.” (Id.) Upon this news, the price of Futu’s ADS closed
down 12.4% on October 14, 2021 and “continued to fall on October 15, 2021, closing down
another $10.08 per share, or 13.7%.” (Id. ¶ 74.) Both October 14, 2021 and October 15, 2021 “had
abnormally high trading volumes of over seven times the median volume during the Class Period.”
(Id.)
Second, on October 24, 2021, ten days after the People’s Daily article came out, China’s
head of the financial stability department of the People’s Bank of China (“PBOC”) Tianqi Sun

4

According to Plaintiffs, People’s Daily is “the official newspaper of the Central Committee of
the Chinese Communist Party,” “has a circulation of over 3 million,” and “is widely considered
the official voice of the central government of China.” (ECF No. 36 ¶ 5 & n.2.)

5

The Court was not provided with a certified translated copy of this article. To the extent Plaintiff
quotes from it, the Court accepts it as accurate unless otherwise stated.
6

(“Sun”) spoke 6 in Shanghai at the Bund Summit where he stated in part: “Cross-border online
brokerages are driving in China without a driver’s license. They’re conducting illegal financial
activities,” and that “[o]verseas institutions with only overseas licenses conducting business in
mainland China is illegal financial activity.” (Id. ¶ 34.) Sun did not mention Futu by name in his
speech but did specifically reference Futu’s recent share price drops. (Id.) On October 28, 2021,
various news media outlets reported on Sun’s speech and indicated Futu was one of the companies
operating illegally in China and who were implicated in Sun’s speech. (Id. ¶¶ 5, 34.) On that same
day, a Jeffries analyst noted, “‘Futu’s share price has dropped by more than 20% premarket,’ and
identified Sun’s statements as the cause for the drop” but also echoed Defendants’ statements
regarding “‘uncertainties’ in the law, saying ‘we still need to wait for more guidelines from the
regulators to address these concerns’ about Futu’s business model.” (Id. ¶ 79.)
Third, on December 17, 2021, Reuters published an article reporting that Futu would be
banned from operating in China in “the coming months.” (Id. ¶ 35.) The article stated “Futu [is]
registered with the Securities and Futures Commission in Hong Kong but that permit does not
extend to the mainland. No mainland licence [sic] exists for online brokerages specializing in
cross-border trades, the sources said.” (Id. ¶ 35 (alterations in original).) The article also stated
Futu “had been communicating with Chinese authorities but had not received any formal orders
along the lines of those suggested by Reuters reporting” and that Futu “was operating normally.” 7
(Id.)
Fourth, approximately one year later, on December 30, 2022, both Reuters and The Wall

6

The Court was not provided with a copy of this speech. To the extent Plaintiff quotes from it, the
Court accepts it as accurate unless otherwise stated.
7

The Amended Complaint does not explicitly allege a specific share price drop of Futu ADS
following the publication of this article on December 17, 2021.
7

Street Journal reported that the CSRC had found Futu’s securities operations in China to be
unlawful, stating Futu’s business in China “doesn’t comply with the country’s laws and
regulations,” and had banned Futu from opening any new investor accounts in China. (Id. ¶ 36.)
Upon this news, the price of Futu’s ADS closed down 31% on December 30, 2022, “with a trading
volume of over eight times the median volume” and “continued to fall on the next trading day,
January 3, 2023, falling $2.81, or 6.9%, on a trading volume over three times the median volume.”
(Id. ¶ 81.)
“Through [these] four increasingly targeted revelations, investors eventually came to learn
that Futu was, in fact, violating Chinese law, and would ultimately suffer the severest of
consequences—the complete removal of Futu’s app in . . . China, and a complete ban from
acquiring any new users in that market.” (Id. ¶ 9.) With each of these four revelations, Futu’s ADS
price “fell dramatically, inflicting substantial harm on Plaintiffs and other investors in Futu ADS.”
(Id.) On May 16, 2023, news media outlets reported “the Chinese government would be removing
Futu’s app from stores in China because Futu had been illegally operating a securities brokerage
business in China without a license.” (Id. ¶ 43.) On this news, Futu’s ADS declined 4.4%. (Id.
¶ 85.)
B. Defendants’ Alleged Misrepresentations and Omissions
Plaintiffs allege Defendants made a series of false and misleading statements and omitted
material facts necessary to make the statements made not false or misleading, which can effectively
be grouped into three categories: (1) statements regarding Futu’s purported compliance with the
PRC Securities Law (the “Purported Compliance Statements”); (2) statements regarding Futu’s
self-proclaimed focus on regulatory compliance (the “Regulatory Focus Statements”); and (3)
statements downplaying the impact of the PRC Securities Law on Futu’s business in China (the

8

“Downplayed Legal Impact Statements”) (collectively, the “Challenged Statements”). (See
generally ECF No. 36.)
i. The Purported Compliance Statements
Plaintiffs allege “Defendants falsely and misleadingly told investors that Futu was in
compliance with the applicable regulations in the PRC Securities Law . . . while simultaneously
asserting, also falsely or misleadingly, that those regulations were uncertain and that they did not
believe Futu even engaged in securities brokerage business in China.” (Id. ¶ 45.) Defendants stated
Futu was in compliance with the applicable regulations, even though the PRC Securities Law
contained “uncertainties” related to securities brokerage businesses, and also represented in Futu’s
public filings that certain law firms Futu had retained determined “Futu was ‘in compliance with
the applicable PRC laws and regulations related to securities brokerage business in China.’” (Id.
¶ 7.)
Futu’s public SEC filings during the Class Period disclosed the risk regarding
“uncertainties” regarding the PRC Securities Law and related regulations but stated Futu was in
compliance with those laws and further stated Futu’s counsel had determined Futu was in
compliance with the relevant Chinese laws and regulations. (Id. ¶ 38.) For example, on April 27,
2020, Futu filed with the SEC its Annual Report on SEC Form 20-F for fiscal year ending
December 31, 2019 (the “2019 Annual Report”), which stated in relevant part:
We do not hold any license or permit for providing securities
brokerage business in China. Although we do not believe we
engage in securities brokerage business in China, there remain
uncertainties to the interpretation and implementation of relevant
PRC laws and regulations.
Pursuant to the relevant PRC laws and regulations, no entity or
individual shall engage in securities business without the approval
of the securities regulatory authority of the State Council. . . . We do
not hold any license or permit in relation to providing securities
brokerage business in China. . . . However, we do not believe the
9

business we are conducting now through our subsidiaries or
consolidated affiliated entities in China is securities brokerage
business in China. In the past, we received inquiries relating to our
business from certain regulatory authorities in China. We have since
then taken measures to modify and enhance our business and
platform to be in compliance with the applicable PRC laws and
regulations related to securities brokerage business in China.
However, we cannot assure you that the measures we have taken or
will take in the future will be effective or fully satisfy the relevant
regulatory authorities’ requirements. Based on the opinion of our
PRC counsel, CM Law Firm, we are in compliance with the
applicable PRC laws and regulations related to securities
brokerage business in China after such modifications in all
material aspects. However, there remain some uncertainties as to
how the current and any future PRC laws and regulations will be
interpreted or implemented in the context of operating securities
related business in China.
We cannot assure you that our current operation model, such as
redirecting users and clients to open accounts and make transactions
outside China, will not be deemed as operating securities brokerage
business in China, which may subject us to further inquiries or
rectifications. If certain of our activities in China were deemed by
relevant regulators as provision of securities brokerage services,
investment consulting services and stock options brokerage business
in China, we will be required to obtain relevant licenses or permits
from relevant regulatory bodies, including the CSRC, and failure of
obtaining such licenses or permits may subject us to regulatory
actions and penalties, including fines, suspension of parts or all of
our operations in the PRC, and temporary suspension or removal of
our websites and mobile application in China. In such cases, our
business, financial condition, results of operations and prospects
may be materially and adversely affected.
PRC laws and regulations are evolving, and there are
uncertainties relating to the regulation of different aspects of the
services we provide through our platforms in China. We cannot
assure you that we will not be found in violation of any future laws
and regulations or any of the laws and regulations currently in effect
due to changes in or discrepancies with respect to the relevant
authorities’ interpretation of these laws and regulations. In addition,
we may be required to obtain additional license or approvals, and
we cannot assure you that we will be able to timely obtain or
maintain all the required licenses or approvals or make all the
necessary filings in the future.
(Id. ¶ 46; see also ECF No. 37-3.) Chen and Li each signed Futu’s 2019 Annual Report and

10

affirmed “based on my knowledge, this report does not contain an untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading[.]” (ECF No. 36 ¶ 47.)
Futu’s 2020 Annual Report (for fiscal year ending December 31, 2020) and 2021 Annual Report
(for fiscal year ending December 31, 2021) contained nearly identical language, and Chen and Li
provided substantially similar certifications and statements in those reports. (Id. ¶ 48; see also ECF
Nos. 37-14, 37-15.)
Then, Futu’s 2022 Annual Report (for fiscal year ending December 31, 2022) stated in
relevant part:
As announced by the CSRC on December 30, 2022, the CSRC has
initiated inquiries on us regarding our cross-border operations in
Mainland China, including the provision of cross-border securities
services for domestic investors. As of the date of this annual report,
we have limited information to accurately predict if any
disciplinary action or punishment will be taken against us and/or
our responsible officers after the conclusion of such inquiries, and
if so, the nature and extent of any such action. Although we have
been and continue to take rectification measures on our business
to be in compliance with laws and regulations and to meet the
requirements from the CSRC during the inquiries, we cannot
assure or predict whether the CSRC is satisfied with our rectification
measures and whether the CSRC would impose further regulatory
actions and penalties on us, including fines, suspension of parts or
all of our operations or activities in Mainland China, or suspension
or removal of our websites, desktop devices and mobile applications
in China[.] . . .
We do not hold any license or permit for providing securities
brokerage services in Mainland China. . . . We have taken and may
continue to take rectification measures based on our
communication with or the requirements from the CSRC. If the
CSRC is not satisfied with our rectification measures or the CSRC
imposes other further regulatory actions or penalties on us, our
business and results of operations may be materially and adversely
affected. . . .
PRC laws and regulations are evolving, and there are
uncertainties relating to the regulation of different aspects of the
services we provide through our platforms in China. We cannot
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assure you that we will not be found in violation of any future laws
and regulations or any of the laws and regulations currently in effect
due to changes in or discrepancies with respect to the relevant
authorities’ interpretation of these laws and regulations. In addition,
we may be required to obtain additional license or approvals, and
we cannot assure you that we will be able to timely obtain or
maintain all the required licenses or approvals or make all the
necessary filings in the future.
(ECF No. 36 ¶ 50; see also ECF No. 37-4.) Chen and Li likewise signed this report and affirmed
it did not contain untrue statements of material facts or omit any material facts necessary to make
the statements contained therein not misleading. (ECF No. 36 ¶ 51.)
Defendants also reassured investors that Futu was in compliance with the PRC Securities
Law on Futu’s earnings calls. (Id. ¶ 39.) For example, on the November 24, 2021 earnings call,
one analyst asked Chen about the impact on Futu of China’s regulations regarding online brokers’
offshore trading, and Chen responded, “In terms of the China regulations, I think we are not in the
best position to prejudge what the regulator will do. I think so far, the impact to our client
acquisitions in the Great China areas is manageable,” and “I think the worst is already behind us.
. . . But we think the overall speaking, the situation is still within our control.” (Id. ¶ 39; ECF No.
37-9 at 7.) Similarly, in response to an analyst’s question during an earnings call on March 28,
2023, Chen stated Futu had “full cooperation with the regulators.” (ECF No. 36 ¶¶ 40, 56.)
ii. The Regulatory Focus Statements
Plaintiffs allege Defendants falsely and misleadingly told investors “that Futu
‘monitor[ed]’ and ‘embrac[ed]’ the relevant regulations in the PRC Securities Law, was ‘actively
and transparently’ communicating with Chinese regulators about those regulations, and would
‘timely disclos[e]’ to investors any developments regarding the regulations that ‘may have a
material adverse impact on the Company’s business operation.’” (Id. ¶ 53 (alterations in original).)
For example, in an earnings call on November 24, 2021, Defendants stated Futu was focused on
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complying with the relevant provisions of the PRC Securities Law, and, in particular, “when an
analyst expressed that there were ‘some concerns about legality of offshore trading by online
brokers,’ and asked whether ‘management can shed some light on the impact of the government
regulation,’” Li (through translation) responded in relevant part:
Yes. We are business as usual here at Futu, and our business model
is nothing new. . . . And we have always been embracing the
regulations and have a very high set of standards for operational
compliance, and we are actively and transparently communicating
with the regulators, and we anticipate and welcome more guidance
from the regulators to both us and the industry as a whole. And if
there are new regulatory guidance is coming out, I think we’ll abide
by these regulations as soon as possible. And as a listed company,
we’ll timely update any new information available to us.
(Id. ¶ 54.) A few weeks later, on December 17, 2021, Futu issued a press release titled “Futu
Responds to Media Report,” which stated in relevant part:
[Futu], a leading tech-driven online brokerage and wealth
management platform, today responds to the media speculations
regarding potential PRC regulatory policies that may have a material
adverse impact on the Company’s business operation. As a Nasdaqlisted company, Futu is committed to timely disclosing recent
developments that may have a material adverse impact on the
Company’s
business
operation,
including
regulatory
developments.
Futu always maintains active communication with different
competent PRC regulatory authorities in its ordinary course of
business. To date, the Company has not received (nor is it aware
of) any notice, guidance or order from any PRC regulatory
authorities which is expected to have a material adverse impact on
its business operation or financial conditions. In terms of serving
the PRC clients, Futu has been abiding by the same rules and
regulations and adopting the similar industry practices and business
models as other brokers who hold the same type of licenses in Hong
Kong. No further innovations or breakthroughs have been made by
Futu with respect to the business model. There is no such “internet
broker-dealer” category or definition under relevant legal
framework and nowadays almost all broker-dealers are using
internet (through App and/or website) to serve their clients. Futu
will keep monitoring regulatory developments and continue to

13

fully cooperate with relevant regulatory authorities.
During the recent period, the Company noticed that some
individuals and institutions have been spreading false or fake
information about Futu on social media with the purpose of
profiting from short-selling. We have gathered relevant
information and further reported to relevant regulators. We also
reserve our right to take legal action. . . .
(Id. ¶ 55.)
More than a year later, during an earnings call on March 28, 2023, Chen responded to an
analyst’s question regarding the impact on Futu of the CSRC’s December 2022 announcement
regarding tightening offshore brokers and stated in relevant part:
[R]egarding the CSRC’s news at the end of last year, I think we –
number one, we fully accept the regulator’s point of view, and we
have a full cooperation with the regulators. On a net-to-net basis,
we do think it will be healthy for the industry’s long-term growth.
And also, if you follow you, there are some clarities from the CSRC
spokesperson in the middle of February, mentioning how to deal
with the existing clients. They ask for orderly deal with the existing
clients. It will be an industry-wide situation. So we will take a very
constructive manners to cooperate with the regulators in this regard.
(Id. ¶ 56.)
iii. The Downplayed Legal Impact Statements
Plaintiffs also allege “Defendants misleadingly downplayed the adverse impact that the
applicable PRC Securities Law had on Futu’s ability to do business in China . . . falsely assuring
investors that Futu’s growth prospects in that market remained ‘very strong.’” (Id. ¶ 58.) For
example, during an earnings call on November 19, 2020, an analyst asked “[s]o what will be our
strategy in the future to acquire the mainland China users, which seems to be – have a larger user
base that we could explore into?” (Id. ¶ 59.) Chen responded: “And with regards to our mainland
[China] client acquisition, I think we use different client acquisition strategies because of the
number of constraints. . . . So we have different client acquisition strategies for mainland, and we

14

think the growth prospects in mainland [China] are very strong.” (Id.) Similarly, during an earnings
call on November 24, 2021, in response to an analyst’s question regarding “concerns about legality
of offshore trading by online brokers” and whether “management can shed some light on the
impact of the government regulation[,]” Chen responded in relevant part:
In terms of the China regulations, I think we are not in the best
position to prejudge what the regulator will do. I think so far, the
impact to our client acquisitions in the Great China areas is
manageable. I can share a little bit more color, which I think may be
helpful for analysts and also the investors to gauge how the negative
impact on the recent headline use because of that, what's the
implication to our client acquisitions across board. Definitely, we
see certain asset outflows among clients in the Great China areas,
amid the concerns over media report.
Overall speaking, we think the impact is still very short term and
manageable from mid – from the mid-October to mid-November,
the net asset outflows accounts for less than 2% of our total client
assets. . . . In my personal thought, I think the worst is already behind
us. Of course, the market volatility alongside with seasonality effect
in Q4, together with this headline news, definitely enhanced attrition
rate for existing paying clients and also create some challenges for
new client acquisition across the board in the near term. But we think
the overall speaking, the situation is still within our control.
(Id. ¶ 60; ECF No. 37-9 at 7.) Likewise, during an earnings call on March 28, 2023, in response to
an analyst’s question regarding the impact on Futu’s business operations following the “CSRC
announcement on tightening of the offshore brokers” in December 2022, Chen responded in
relevant part:
Let me answer your question. First of all, I’ll give you some general
color about our client’s movement following the end of last year’s
news flow. We do witness some our Hong Kong clients because of
the – there are some sentiment concerns, there are some client
outflows in – particularly in the first half of January. But I think the
overall amount is quite manageable. Roughly, I think the net
outflow at the time accounts for roughly 1% to 2% of our total client
assets, which, compared with the situation we faced and at the end
of 2021, we think the situation was manageable. . . . Secondly,
regarding the CSRC’s news at the end of last year, I think we -15

number one, we fully accept the regulator’s point of view, and we
have a full cooperation with the regulators. On a net-to-net basis, we
do think it will be healthy for the industry’s long-term growth. And
also, if you follow you, there are some clarities from the CSRC
spokesperson in the middle of February, mentioning how to deal
with the existing clients. They ask for orderly deal with the existing
clients. It will be an industry-wide situation. So we will take a very
constructive manners to cooperate with the regulators in this regard.
(ECF No. 36 ¶ 61; ECF No. 37-12 at 10.)
C. Procedural History
On June 12, 2023, Plaintiffs filed a Class Action Complaint against Defendants for alleged
violations of the federal securities laws. (ECF No. 1.) On January 16, 2024, Plaintiffs filed an
Amended Class Action Complaint (“Amended Complaint”) asserting the following two causes of
action: (1) “Violations of Section 10(b) of the Exchange Act and Rule 10b-5(a)-(c) Promulgated
Thereunder Against All Defendants” (Count I), and (2) “Violations of Section 20(a) of the
Exchange Act Against All Defendants” (Count II). (ECF No. 36.) On February 29, 2024,
Defendants filed a Motion to Dismiss the Amended Complaint pursuant to Federal Rules of Civil
Procedure 8(a), 9(b), and 12(b)(6). (ECF No. 37.) On April 15, 2024, Plaintiffs filed an Opposition
(ECF No. 39), and on May 15, 2024, Defendants filed a Reply (ECF No. 42). Also on May 15,
2024, Chen filed a Notice of Joinder to Futu’s pending Motion to Dismiss. 8 (ECF No. 41.) On
August 28, 2024, Li filed a Notice of Joinder to Futu and Li’s pending Motion to Dismiss. 9 (ECF

Chen notes he “had not been properly served in this action” at the time the Motion to Dismiss
was filed. (ECF No. 41 at 2 n.1.) Chen further states that although Plaintiffs filed a proof of service
on April 9, 2024, he “maintains that this service attempt was invalid because it did not comply
with the requirements of the Hague Convention.” (Id.) However, he “agreed to voluntarily appear”
but asserts he “reserves all rights and defense[s], other than with respect to service of process.”
(Id.)
8

Li notes he “had not been properly served in this action” at the time the Motion to Dismiss was
filed. (ECF No. 44 at 2 n.1.) Li further states he “notified counsel that attempted service in this
matter was made[,]” and “[w]ithout conceding whether the service attempt complied with the
9

16

No. 44.)
II.

LEGAL STANDARD
A. Rule 12(b)(6)
In deciding a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), a

district court is “required to accept as true all factual allegations in the complaint and draw all
inferences from the facts alleged in the light most favorable to [the non-moving party].” Phillips,
515 F.3d at 228. “[A] complaint attacked by a Rule 12(b)(6) motion to dismiss does not need
detailed factual allegations.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citations
omitted). However, “a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’
requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of
action will not do.” Id. at 555 (alteration in original) (quoting Papasan v. Allain, 478 U.S. 265,
286 (1986)). A court is “not bound to accept as true a legal conclusion couched as a factual
allegation.” Papasan, 478 U.S. at 286. Instead, assuming the factual allegations in the complaint
are true, those “[f]actual allegations must be enough to raise a right to relief above the speculative
level[.]” Twombly, 550 U.S. at 555 (citations omitted).
“To survive a motion to dismiss, a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009) (quoting Twombly, 550 U.S. at 570). “A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Id. at 678 (citing Twombly, 550 U.S. at 556). This
“plausibility standard” requires the complaint to allege “more than a sheer possibility that a

requirements of the Hague Convention, [he] has agreed to voluntarily appear.” (Id.) However, he
“reserves all rights and defenses, other than with respect to service of process.” (Id.)
17

defendant has acted unlawfully,” but it “is not akin to a ‘probability requirement.’” Id. (citing
Twombly, 550 U.S. at 556). “[D]etailed factual allegations” are not required, but “more than an
unadorned, the-defendant-unlawfully-harmed-me accusation” must be pleaded; it must include
“factual enhancement” and not just conclusory statements or a recitation of the elements of a cause
of action. See id. (citations omitted). In assessing plausibility, the court may not consider any
“[f]actual claims and assertions raised by a defendant[.]” Doe v. Princeton Univ., 30 F.4th 335,
345 (3d Cir. 2022).
“Determining whether a complaint states a plausible claim for relief [is] . . . a contextspecific task that requires the reviewing court to draw on its judicial experience and common
sense.” Iqbal, 556 U.S. at 679. “[W]here the well-pleaded facts do not permit the court to infer
more than the mere possibility of misconduct, the complaint has alleged—but it has not
‘show[n]’—‘that the pleader is entitled to relief.’” Id. (second alteration in original) (quoting Fed.
R. Civ. P. 8(a)(2)). Indeed, after Iqbal, conclusory or “bare-bones” allegations will no longer
survive a motion to dismiss: “[t]hreadbare recitals of the elements of a cause of action, supported
by mere conclusory statements, do not suffice.” Id. at 678 (citing Twombly, 550 U.S. at 555). To
prevent dismissal, all civil complaints must set out “sufficient factual matter” to show that the
claim is facially plausible, “allow[ing] the court to draw the reasonable inference that the defendant
is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556, 570). The Supreme
Court’s ruling in Iqbal emphasizes that plaintiffs must show that the allegations of their complaints
are plausible. See id. at 670.
While courts generally may not consider anything beyond the four corners of the complaint
on a motion to dismiss pursuant to Rule 12(b)(6), the Third Circuit has held that “a court may
consider certain narrowly defined types of material without converting the motion to dismiss [to

18

one for summary judgment pursuant to Rule 56].” See In re Rockefeller Ctr. Props. Sec. Litig., 184
F.3d 280, 287 (3d Cir. 1999). Specifically, courts may consider any “document integral to or
explicitly relied upon in the complaint.” In re Burlington, 114 F.3d at 1426 (quoting Shaw, 82 F.3d
at 1220). However, “[w]hen the truth of facts in an ‘integral’ document are contested by the wellpleaded facts of a complaint, the facts in the complaint must prevail.” Princeton Univ., 30 F.4th at
342.
B. Heightened Pleading Standard
“[F]aced with a Rule 12(b)(6) motion to dismiss a § 10(b) action, courts must, as with any
motion to dismiss for failure to plead a claim on which relief can be granted, accept all factual
allegations in the complaint as true.” Institutional Invs. Grp. v. Avaya, Inc., 564 F.3d 242, 252 (3d
Cir. 2009) (alteration in original) (quoting Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S. 308,
322 (2007)). Courts must also “consider the complaint in its entirety, as well as . . . documents
incorporated into the complaint by reference, and matters of which a court may take judicial
notice.” Id. (quoting Tellabs, 551 U.S. at 322). However, because this is a securities fraud case,
plaintiffs must satisfy the heightened pleading rules codified in the Private Securities Litigation
Reform Act of 1995 (“PSLRA”). Id. The PSLRA replaced Federal Rule of Civil Procedure 9(b)
(“Rule 9(b)”) “as the applicable pleading standard in private securities class actions.” Rahman v.
Kid Brands, Inc., 736 F.3d 237, 242 n.3 (3d Cir. 2013) (citing Avaya, 564 F.3d at 253).
“Nonetheless, ‘Rule 9(b)’s particularity requirement is comparable to and effectively subsumed
by the requirements of [15 U.S.C. § 78u–4(b)(1) of] the PSLRA.’” Id. (alteration in original)
(quoting Avaya, 564 F.3d at 253).
Pursuant to Rule 9(b), when alleging fraud, “a party must state with particularity the
circumstances constituting fraud or mistake, although ‘intent, knowledge, and other conditions of

19

a person's mind may be alleged generally.’” In re Lipitor Antitrust Litig., 868 F.3d 231, 249 (3d
Cir. 2017) (quoting Fed. R. Civ. P. 9(b)); see also United States ex rel. Moore & Co., P.A. v.
Majestic Blue Fisheries, LLC, 812 F.3d 294, 307 (3d Cir. 2016) (holding that a “plaintiff alleging
fraud must . . . support its allegations with all of the essential factual background that would
accompany the first paragraph of any newspaper story—that is, the who, what, when, where and
how of the events at issue” (citation omitted)). Accordingly, “a party must plead [its] claim with
enough particularity to place defendants on notice of the ‘precise misconduct with which they are
charged.’” United States ex rel. Petras v. Simparel, Inc., 857 F.3d 497, 502 (3d Cir. 2017) (citation
omitted).
Likewise, “[u]nder the PSLRA’s heightened pleading instructions, any private securities
complaint alleging that the defendant made a false or misleading statement must: (1) ‘specify each
statement alleged to have been misleading [and] the reason or reasons why the statement is
misleading’”; and (2) “state with particularity facts giving rise to a strong inference that the
defendant acted with the required state of mind.” Tellabs, 551 U.S. at 321 (alteration in original)
(quoting 15 U.S.C. §§ 78u-4(b)(1), (b)(2)). Therefore, the PSLRA “requires that a complaint ‘state
with particularity both the facts constituting the alleged violation, and the facts evidencing scienter,
i.e., the defendant’s intention “to deceive, manipulate, or defraud.”’” Rahman, 736 F.3d at 241–
42 (quoting Tellabs, 551 U.S. at 313).
“To plead falsity, Rule 9(b) and the PSLRA each demand specificity.” Warren Police &
Fire Ret. Sys. v. Prudential Fin., Inc., 70 F.4th 668, 680 (3d Cir. 2023). “Rule 9(b) requires that a
fraud plaintiff “state with particularity the circumstances constituting fraud[,]” i.e., “the time,
place, and contents of the false representations or omissions, as well as the identity of the person
making the statement and the basis for the statement’s falsity.” Id. “Like Rule 9(b), the PSLRA

20

requires the pleadings to identify ‘each statement alleged to have been misleading’ and to specify
‘the reason or reasons why the statement is misleading.’” Id. (quoting 15 U.S.C. § 78u-4(b)(1)).
“And if allegations of falsity are based on information and belief, instead of on ‘evidentiary
support,’ the PSLRA requires the complaint to plead, with particularity, facts ‘sufficient to support
a reasonable belief as to the misleading nature of the statement or omission’ before the allegations
can be accepted as true.” Id. (citations omitted). To satisfy this particularity requirement, the
plaintiff must plead “facts giving rise to a strong inference that the defendant acted with the
required state of mind.” 15 U.S.C. § 78u-4(b)(2)(A). “A complaint will survive . . . only if a
reasonable person would deem the inference of scienter cogent and at least as compelling as any
opposing inference one could draw from the facts alleged.” Tellabs, 551 U.S. at 324. “Upon a
motion by any defendant, a claim for securities fraud under § 10(b) and Rule 10b-5 that lacks
particularized allegations of falsity must be dismissed.” Warren Police, 70 F.4th at 681.
“Although the pleading standards in Rule 9(b) and the PSLRA can be generally reconciled
harmoniously for allegations of falsity, the PSLRA’s requirements for allegations of scienter
control over the more lenient standard in Rule 9(b) for mental-state allegations.” Id. at 681 n.1
(citing Avaya, 564 F.3d at 253 (“The PSLRA’s requirement for pleading scienter . . . marks a sharp
break with Rule 9(b).”)); Tellabs, 551 U.S. at 323–24); compare Fed. R. Civ. P. 9(b) (permitting
“[m]alice, intent, knowledge, and other conditions of a person’s mind [to] be alleged generally”),
with 15 U.S.C. § 78u-4(b)(2)(A) (requiring a particularized statement of the “facts giving rise to a
strong inference that the defendant acted with the required state of mind”).
C. PSLRA Safe Harbor
The PSLRA’s safe harbor provision “immunizes from liability any forward-looking
statement, provided that: the statement is identified as such and accompanied by meaningful

21

cautionary language; or is immaterial; or the plaintiff fails to show the statement was made with
actual knowledge of its falsehood.” Avaya, 564 F.3d at 254 (citing 15 U.S.C. § 78u-5(c)).
The term “forward-looking statement” is broadly defined in the
statute to include statements “containing a projection of revenues,
income (including income loss), earnings (including earnings loss)
per share, capital expenditures, dividends, capital structure, or other
financial items”; statements of “the plans and objectives of
management for future operations, including plans or objectives
relating to the products or services of the issuer”; or statements of
“future economic performance, including any such statement
contained in a discussion and analysis of financial condition by the
management or in the results of operations included pursuant to the
rules and regulations of the Commission.” 15 U.S.C. § 78u-5
(i)(1)(A)-(C). Further, forward-looking statements include “any
statement of the assumptions underlying or relating to any statement
described” in the definition. § 78u-5(i)(1)(D).
Id. at 255. Mixed present and future statements are entitled to the safe harbor only as to the portion
of the statement that refers to the future. Id. (citations omitted). Additionally, to be protected under
the PSLRA safe harbor, the forward-looking statements must be accompanied by “extensive and
specific” cautionary language. Id. at 256 (quoting GSC Partners CDO Fund v. Washington, 368
F.3d 228, 243 n.3 (3d Cir. 2004)). “[A] vague or blanket (boilerplate) disclaimer which merely
warns the reader that the investment has risks will ordinarily be inadequate to prevent
misinformation. To suffice, the cautionary statements must be substantive and tailored to the
specific future projections, estimates or opinions in the prospectus which the plaintiffs challenge.”
Id. (quoting Semerenko v. Cendant Corp., 223 F.3d 165, 182 (3d Cir. 2000)).
III.

DECISION
The Court first addresses whether Plaintiffs have sufficiently alleged Section 10(b) and

Rule 10b-5 violations against the Defendants and then addresses whether Plaintiffs have
sufficiently alleged a Section 20(a) violation against the Individual Defendants.

22

A. Defendants’ Motion to Dismiss Plaintiffs’ Section 10(b) and 10b-5 Claims
(Count I of the Amended Complaint)
Defendants argue Plaintiffs’ Amended Complaint should be dismissed for failure to state
a claim under Section 10(b) of the Exchange Act. (See generally ECF Nos. 37-1, 42.) Specifically,
Defendants contend: (1) Plaintiffs fail to plead any material misrepresentation or omission; (2)
Plaintiffs fail to plead any facts supporting the requisite inference of scienter; (3) Plaintiffs fail to
plead loss causation; and (4) Plaintiffs fail to plead scheme liability. (ECF No. 37-1 at 17−40; ECF
No. 42 at 4−15.) Defendants also submit that because Plaintiffs have not sufficiently pled a Section
10(b) claim, their Section 20(a) claim against the Individual Defendants also fails. (Id. at 15 n.13.)
In opposition, Plaintiffs argue Defendants’ Motion should be denied because: (1) they
adequately alleged actionable misstatements and omissions—namely, that Defendants made false
and misleading statements about (a) Futu’s purported compliance with the PRC Securities Law,
(b) Futu’s purported focus on regulatory compliance, and (c) downplaying the impact of the PRC
Securities Law on Futu’s business; (2) they allege a strong inference of scienter; (3) they
adequately allege loss causation; (4) they plead a scheme claim; and (5) they plead a Section 20(a)
claim. (ECF No. 39.)
i. Alleged Material Misrepresentations or Omissions
Defendants argue Plaintiffs have failed to plead any material misrepresentation or omission
because Plaintiffs “fail to plead any illegal conduct with particularity”; Futu disclosed the relevant
risks and information; “Futu had no duty to disclose uncharged, unadjudicated wrongdoing;” and
certain challenged statements are not false or misleading and/or are nonactionable opinions. (ECF
No. 37-1 at 18−31.) Defendants also contend the disclosures in their annual reports “cited to the
relevant parts of the [PRC] Securities Law, explained their implications, and reiterated that
securities businesses operating in China are ‘subject to the approval of the securities regulatory
23

authority of the State Council.’” (Id. at 19.) Defendants also assert that each of Futu’s annual
reports during the Class Period explicitly disclosed in bold italicized text: “We [referring to Futu]
do not hold any license or permit for providing securities brokerage business in China.” (Id.;
see also ECF No. 33-3 (Futu’s 2019 Annual Report); ECF No. 33-4 (Futu’s 2022 Annual Report);
ECF No. 33-14 (Futu’s 2020 Annual Report); ECF No. 33-15 (Futu’s 2021 Annual Report).)
Defendants state the disclosed risk of the possibility that Futu’s business model could be deemed
as unlawfully operating a brokerage business in China given the then-uncertainties surrounding
the PRC Securities Law and regulations and how they would be applied to Futu “is precisely what
slowly materialized.” (ECF No. 37-1 at 3.) Additionally, Defendants submit that “Futu’s
disclosures did not become false or misleading in hindsight just because PRC authorities’ view of
Futu’s business model later changed” and, in any event, “Futu expressly warned of that risk and
provided investors with all material facts to assess the risk themselves.” (Id. at 4.) Defendants also
argue Futu “had no duty to preemptively accuse itself of violating PRC law” and Plaintiffs do not
allege, let alone with the requisite particularity, any other facts showing Futu had a duty to disclose
or which rendered its disclosures misleading. (Id.) Further, Defendants state to the extent Plaintiffs
are challenging Futu’s opinion regarding its legal compliance or forward-looking growth
expectations, those statements are legally inactionable. (Id. at 4, 29−31.) Therefore, Defendants
submit the Amended Complaint “should be dismissed because none of the four purported
corrective disclosures revealed any prior misrepresentation or the materialization of a concealed
risk.” (Id. at 39.)
In opposition, Plaintiffs argue they have sufficiently alleged material misrepresentations or
omissions because “[t]hroughout the Class Period, Defendants falsely reassured investors that Futu
complied with the PRC Securities Law, and that the applicable regulations were ‘uncertain’” when

24

in fact the PRC Securities Law required foreign securities companies to obtain brokerage licenses,
which requisite license Futu did not have and never obtained. (ECF No. 39 at 10−12.) Specifically,
Plaintiffs contend Defendants falsely claimed in Futu’s 2019, 2020, and 2021 Annual Reports that
“Futu did not ‘engage[] in securities brokerage business in China,’ and therefore did not need a
Chinese brokerage license” and also “that Futu was ‘in compliance with the applicable PRC laws
and regulations related to securities brokerage business in China.’” (Id. (citing ECF No. 36 ¶¶
46−48).) Plaintiffs assert that despite public declarations (including the October 14, 2021 People’s
Daily article, Sun’s October 28, 2021 speech, and the December 17, 2021 Reuters article)
indicating Futu’s operations in China were illegal, Defendants continued to maintain Futu was
compliant with the applicable Chinese securities laws. (Id. at 12.) Plaintiffs also state Defendants’
statement in its 2022 Annual Report that Futu was taking “rectification measures” to comply with
the Chinese securities laws was false “because the only possible ‘rectification measure’ was to
apply for the required Chinese brokerage license, which Defendants still did not do.” (Id. at 12.)
Additionally, Plaintiffs argue Defendants never disclosed the PRC Securities Law explicitly
required a license to operate in China but rather falsely stated in its disclosures that the license was
not required. (Id. at 15.)
In reply, Defendants argue, among other things: (1) Plaintiffs’ opposition hinges on their
mischaracterization of Article 2 of the 2020 amendment to the PRC Securities Law, which
Plaintiffs assert made clear that Futu was “explicitly required” to obtain a license, but Defendants
state this amendment as “Article 2 has nothing to do with the licensing requirement[,]” nor does it
state the PRC Securities Law applies to online brokerage companies like Futu; (2) Plaintiffs have
not identified any “unequivocal official pronouncement prohibiting” Futu’s alleged misconduct,
and at no point did regulators claim Futu violated the 2020 amendment to the PRC Securities Law;
25

(3) Plaintiffs’ reliance on unnamed sources in Wall Street Journal and Reuters articles can only be
used to satisfy the PSLRA’s pleading requirements where “the complaint otherwise fully describes
the foundation or basis of the confidential witness’s knowledge, including the position(s) held, the
proximity to the offending conduct, and the relevant time frame,” which the articles here do not
satisfy; (4) “Futu had no duty to disclose uncharged, unadjudicated wrongdoing” and (5)
Defendants’ statements about Futu’s growth prospects in China and the impact of market rumors
regarding increased regulation “are nonactionable opinions and puffery” and “[c]ritically,
Plaintiffs have still not pointed to a single report or other information to support the suggestion
that Futu ‘subjectively disbelieved’ its opinion or otherwise ‘lacked a reasonable basis for their
expressed belief’ in 2020 that growth prospects in [] China were ‘very strong.’” (ECF No. 42 at
6−12 (citations omitted).)
“The private right of action under Section 10(b) and Rule 10b–5 . . . creates liability for
false or misleading statements or omissions of material fact that affect trading on the secondary
market.” In re Burlington, 114 F.3d at 1417. To state a claim for securities fraud pursuant to
Section 10(b) of the Exchange Act, “plaintiffs must allege (1) a material misrepresentation or
omission, (2) scienter, (3) a connection between the misrepresentation or omission and the
purchase or sale of a security, (4) reliance upon the misrepresentation or omission, (5) economic
loss, and (6) loss causation.” Edinburgh Council v. Pfizer, Inc., 754 F.3d 159, 167 (3d Cir. 2014)
(citations omitted). “To prevail on a § 10(b) claim, a plaintiff must show that the defendant made
a misleading statement or omission as to a material fact.” Howard v. Arconic Inc., 395 F. Supp. 3d
516, 537 (W.D. Pa. 2019) (citing Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 38 (2011)).
“[A] fact or omission is material only if ‘there is a substantial likelihood that it would have been
viewed by the reasonable investor as having significantly altered the “total mix” of information’

26

available to the investor.” In re NAHC, Inc. Sec. Litig., 306 F.3d 1314, 1330 (3d Cir. 2002) (quoting
Levinson, 485 U.S. at 231–32). “[W]hen a stock is traded in an efficient market, the materiality of
disclosed information may be measured post hoc by looking to the movement, in the period
immediately following disclosure, of the price of the firm’s stock.” Oran v. Stafford, 226 F.3d 275,
282 (3d Cir. 2000). “Because in an efficient market ‘the concept of materiality translates into
information that alters the price of the firm’s stock,’ if a company’s disclosure of information has
no effect on stock prices, ‘it follows that the information disclosed . . . was immaterial as a matter
of law.’” Id. (quoting Burlington, 114 F.3d at 1425). However, “vague and general statements of
optimism ‘constitute no more than “puffery” and are understood by reasonable investors as such.’”
In re Advanta Corp. Sec. Litig., 180 F.3d 525, 538 (3d Cir. 1999) (quoting Burlington Coat
Factory, 114 F.3d at 1428 n.14)). “A statement is considered puffery only when it is immaterial.”
Enzymotec, 2015 WL 8784065, at *14. An opinion “is misleading if it: (i) was not sincerely
believed when made; (ii) contains an expressly embedded, untrue factual assertion; or (iii)
reasonably implies untrue facts and omits appropriate qualifying language.” City of Warren Police
& Fire Ret. Sys. v. Prudential Fin., Inc., 70 F.4th 668, 686 (3d Cir. 2023).
Likewise, to state a claim for securities fraud under Rule 10b–5, a plaintiff “must ‘allege
defendants made a misstatement or an omission of material fact with scienter in connection with
the purchase or the sale of a security upon which plaintiffs reasonably relied and plaintiff’s [sic]
reliance was the proximate cause of their injury.’” Avaya, 564 F.3d at 251 (quoting Winer Family
Tr. v. Queen, 503 F.3d 319, 326 (3d Cir. 2007)). However, “Section 10(b) and Rule 10b–5 ‘do not
create an affirmative duty to disclose any and all material information.’” Edinburgh Council, 754
F.3d at 174 (quoting Matrixx Initiatives, 563 U.S. at 44). “Disclosure is required . . . only when
necessary ‘to make . . . statements made, in the light of the circumstances under which they were

27

made, not misleading.’” Id. (alterations in original) (quoting Matrixx Initiatives, 563 U.S. at 44).
“Silence, absent a duty to disclose, is not misleading under Rule 10b–5.” Id. (quoting Basic Inc. v.
Levinson, 485 U.S. 224, 239 n.17 (1988)).
To satisfy the heightened pleading standard in a securities-fraud case, “media sources must
be sufficiently detailed to indicate [] their reliability and be based on an independent investigative
effort.” In re Mylan N.V. Sec. Litig., Civ. A. No. 20-00955, 2023 WL 3539371, at *6 (W.D. Pa.
May 18, 2023) (alteration in original) (quoting In re Loewen Grp. Inc. Sec. Litig., Civ. A. No.
98-06740, 2004 WL 1853137, at *6 (E.D. Pa. Aug. 18, 2004)); see In re Optionable Sec. Litig.,
577 F. Supp. 2d 681, 690 (S.D.N.Y. 2008) (“[N]ewspaper articles should be credited only to the
extent that other factual allegations would be—if they are sufficiently particular and detailed to
indicate their reliability. Conclusory allegations of wrongdoing are no more sufficient if they come
from a newspaper article than from plaintiff's counsel.” (citation and internal quotation marks
omitted)). Generally, when considering confidential witness allegations, it is proper to “evaluat[e]
the ‘detail provided by the confidential sources, the sources’ basis of knowledge, the reliability of
the sources, the corroborative nature of other facts alleged, including from other sources, the
coherence and plausibility of the allegations, and similar indicia.’” Avaya, 564 F.3d at 263 (quoting
Cal. Pub. Emps.’ Ret. Sys. v. Chubb Corp., 394 F.3d 126, 147 (3d Cir. 2004)).
1. The Alleged False and Misleading Purported Compliance
Statements
Here, with respect to the Purported Compliance Statements, the Court finds Plaintiffs have
not adequately alleged that the Purported Compliance Statements were material misstatements or
omissions because Plaintiffs have not alleged with sufficient particularity how Defendants’
statements—regarding their then-current beliefs that they were in compliance with the PRC
Securities Law and related regulations and that they did not need a brokerage license in China—
28

were false or otherwise misleading at the time they were made. Plaintiffs do not allege any internal
and/or contradictory information undercutting Futu’s belief that it was compliant with the PRC
Securities law or did not need a license at the time the Purported Compliance Statements were
made, which belief was supported by advice of Futu’s legal counsel. Plaintiffs also have not
adequately alleged facts showing this opinion “(i) was not sincerely believed when made; (ii)
contains an expressly embedded, untrue factual assertion; or (iii) reasonably implies untrue facts
and omits appropriate qualifying language.” City of Warren Police, 70 F.4th at 686.
Plaintiffs argue Defendants “never disclosed that [the] PRC Securities Law explicitly
required the license to operate in China” (ECF No. 39 at 15), but do not point to anything showing
Defendant had the duty to disclose this. Additionally, as Defendants note, Article 2 of the 2020
amendment to the PRC Securities Law does not explicitly state a license is required; indeed, it
does not relate to licensing more generally but rather states in relevant part, “Where the issuance
and transactions of securities outside the territory of [China] have disrupted the market order. . .
and damaged the legitimate rights and interests of investors within the territory, such activities
shall be handled and investigated for legal responsibility in accordance with the relevant provisions
of this Law.” (ECF No. 37-3 at 4.) Plaintiffs have not alleged any facts supporting that Futu
disrupted the market order or damaged the rights and interests of investors in China, nor do they
allege that the CSRC (or anyone else) ever even stated Futu violated this amendment. Indeed, the
Amended Complaint itself notes Futu stated in its December 17, 2021 press release that “[t]o date,
[Futu] has not received (nor is it aware of) any notice, guidance or order from any PRC
regulatory authorities which is expected to have a material adverse impact on its business
operation or financial conditions.” (ECF No. 36 ¶ 55.) Plaintiffs also do not allege nonconclusory facts showing the PRC Securities Law “explicitly required” Futu to obtain a license.

29

In other words, Plaintiffs have not sufficiently alleged facts showing Futu gave investors
unqualified false assurances that it was in compliance with the PRC Securities Law or that a license
was not required for Futu (as compared to any other similar businesses). Rather, the allegations
support that Defendants (1) disclosed the pertinent regulations, i.e., the PRC Securities Law and
related Chinese regulations; (2) explicitly disclosed the fact that Futu did not hold a brokerage
license for providing securities brokerage business in China; (3) disclosed Futu’s belief that it did
not need such a license, which belief was supported by legal advice from its counsel stating it did
not need such a license; (4) despite this belief, disclosed the uncertainties surrounding the PRC
Securities Law and related regulations; and (5) disclosed the risks that the Chinese regulatory
authorities could find Futu non-compliant with the Chinese securities laws and the potential
consequences if that were to happen. Indeed, as the Amended Complaint alleges, Defendants
explicitly disclosed in its 2019, 2020, and 2021 Annual Reports: “We do not hold any license or
permit for providing securities brokerage business in China” and “Although we do not believe
we engage in securities brokerage business in China, there remain uncertainties to the
interpretation and implementation of relevant PRC laws and regulations.” (See ECF No. 37-3
at 13; ECF No. 37-14 at 17; ECF No. 37-15 at 22.) Defendants likewise disclosed in its 2022
Annual Report: “We do not hold any license or permit for providing securities brokerage
business in China” and “We have taken and may continue to take rectification measures based on
our communication with or the requirements from the CSRC[,]” but “[i]f the CSRC is not satisfied
with our rectification measures or the CSRC imposes other further regulatory actions or
penalties on us, our business and results of operations may be materially and adversely
affected.” (ECF No. 37-4 at 29.) Defendants also repeatedly cautioned: “We cannot assure you
that our current operational model . . . will not be deemed as operating securities brokerage

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business in China” and disclosed the potential consequences “including fines, suspension of parts
or all of our operations in the PRC, and temporary suspension or removal of our websites and
mobile application in China” if the relevant regulators deemed Futu’s activities as the “provision
of securities brokerage services, investment consulting services and stock options brokerage
business in China[.]” (ECF No. 37-3 at 13; ECF No. 37-14 at 17; ECF No. 37-15 at 22.)
Additionally, while Plaintiff alleges Futu’s statement in its 2022 Annual Report that it was taking
“rectification measures” to comply with the Chinese securities laws was false, this allegation relies
on an assumption that the only rectification measure for Futu was to apply for and obtain the
required Chinese brokerage license, which may not necessarily have been the case, depending on
additional facts not pled in the FAC.
2. The Alleged False and Misleading Regulatory Focus
Statements
With respect to the Regulatory Focus Statements, the Court likewise finds Plaintiffs have
not adequately alleged that these were material misstatements or omissions because they have not
alleged with sufficient particularity how Defendants’ statements about monitoring regulatory
developments and cooperating with, and maintaining active communications with, PRC regulatory
authorities were false. For example, Plaintiffs have not alleged that Defendants did not cooperate
or regularly communicate with PRC regulatory authorities or that Defendants did not monitor
regulatory developments. Plaintiffs have not otherwise alleged with particularity how these
statements were false or misleading.
3. The Alleged Downplayed Legal Impact Statements
With respect to the Downplayed Legal Impact Statements, the Court similarly finds
Plaintiffs have not adequately alleged that these were material misstatements or omissions because
they have not alleged with sufficient particularity how Defendants’ statements about the potential
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legal impact of the PRC Securities Law and related regulations on Futu’s business operations in
China were false or otherwise misleading at the time they were made. While Plaintiffs highlight
certain statements Defendants made including “we think the growth prospects in mainland [China]
are very strong,” and the situation is “manageable” and “within our control,” these selected
statements, when read in context and absent other facts not currently present in the FAC, do not
appear to be false or misleading at the time they were made. For example, Plaintiffs do not allege
that Defendants’ growth prospects in China were not strong at the time that statement was made;
rather, they appear to be relying on the assumption that this statement must not have been true
because Futu was allegedly operating illegally as a securities brokerage in China without the
required license. However, this is not sufficient to meet the particularity standard for securities
fraud as it relates to these statements.
Accordingly, the Court finds the Amended Complaint fails to satisfy the heightened
pleading requirements of Rule 9(b) and the PSLRA because, even accepting the Amended
Complaint’s factual allegations as true, it does not sufficiently allege with the requisite
particularity a material misrepresentation or omission by Defendants. The Amended Complaint
does not allege sufficient facts showing how Defendants’ Purported Compliance Statements,
Regulatory Focus Statements, and Downplayed Legal Impact Statements were false at the time
they were made, as opposed to in hindsight or otherwise. “To be actionable, a statement or
omission must have been misleading at the time it was made; liability cannot be imposed on the
basis of subsequent events.” Keystone Assocs. LLC v. Barclays Bank PLC, Civ. A. No. 19-00796,
2020 WL 109008, at *3 (D. Del. Jan. 9, 2020) (quoting In re NAHC, Inc. Sec. Litig, 306 F.3d 1314,
1330 (3d Cir. 2002)). Further, Plaintiffs’ claim is essentially that Defendants misled investors to
believe Futu was in compliance with the applicable PRC Securities Law and related regulations in

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when in fact it was allegedly illegally operating a securities business in China without a license,
and Defendants simultaneously stated they did not believe Futu was engaged in securities
brokerage business in China and therefore did not need a license, based on advice from Futu’s
legal counsel. But despite Futu’s beliefs, the Amended Complaint also alleges Futu explicitly
disclosed that uncertainties remained regarding how the Chinese securities laws and regulations
would be interpreted or applied as to Futu and disclosed the associated risks that Futu could be
deemed to be in non-compliance with those laws and the consequences that would result if that
occurred. See In re Amarin Corp. PLC Sec. Litig., Civ. A. No. 21-02071, 2022 WL 2128560, at
*3 (3d Cir. June 14, 2022) (affirming dismissal of a securities litigation complaint, agreeing with
the district court that the complaint failed to adequately allege a materially false or misleading
statement where the alleged statements were statements of opinion and did not lack a reasonable
basis; and further finding plaintiffs’ theory of omission liability unpersuasive given the defendants’
contemporaneous disclosures, noting “the defendants ‘warned of the exact risk [the] [p]laintiffs
argue they failed to disclose’” in their annual SEC filings (alterations in original)); cf. Rubinstein
v. Credit Suisse Grp. AG, 457 F. Supp. 3d 289, 296 (S.D.N.Y. 2020) (“A Section 11 [of the
Securities Act of 1933] claim fails as a matter of law when a registration statement ‘warns of the
exact risk that later materialized.’” (quoting In re ProShares Tr. Sec. Litig., 728 F.3d 96, 102 (2d
Cir. 2013))).
Additionally, Plaintiffs have not adequately alleged that Defendants had any duty to
disclose uncharged, unadjudicated wrongdoing or any duty to generally disclose the PRC
Securities Law’s license requirement. See Menaldi v. Och-Ziff Cap. Mgmt. Grp. LLC, 164 F. Supp.
3d 568, 580 (S.D.N.Y. 2016) (“Corporations do not, as a general matter, have a duty ‘to disclose
uncharged, unadjudicated wrongdoing.’” (quoting Pontiac Policemen’s & Firemen’s Ret. Sys. v.

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UBS AG, 752 F.3d 173, 184 (2d Cir. 2014))).
Therefore, Defendants’ Motion to Dismiss Count I of the Amended Complaint is
GRANTED. Because the Court finds the Amended Complaint does not sufficiently allege with
particularity a material misrepresentation or omission made by Defendants, it concludes that
further analysis of the Amended Complaint is unnecessary at this time. See Osio v. DeMane, Civ.
A. No. 05-02283, 2006 WL 2129460, at *12 (D.N.J. June 20, 2006) (noting “the Court need not
address the remaining elements of a claim under § 10(b) or Rule 10b-5” because plaintiffs did not
sufficiently plead an omission of material fact).
B. Defendants’ Motion to Dismiss Plaintiffs’ Section 20(a) Claim Against the
Individual Defendants (Count II of the FAC)
Section 20(a) provides:
Every person who, directly or indirectly, controls any person liable
under any provision of this chapter or of any rule or regulation
thereunder shall also be liable jointly and severally with and to the
same extent as such controlled person to any person to whom such
controlled person is liable . . . unless the controlling person acted in
good faith and did not directly or indirectly induce the act or acts
constituting the violation or cause of action.
15 U.S.C. § 78t(a). Liability under Section 20(a) “is derivative of an underlying violation of
Section 10(b) by the controlled person.” Rahman, 736 F.3d at 247 (quoting Avaya, 564 F.3d at
252). “Thus, for a controlling person to be liable, the person over whom control was exercised
must have committed a primary violation of the securities laws.” In re Intelligroup Sec. Litig., 527
F. Supp. 2d 262, 280 (D.N.J. 2007) (citations omitted).
Here, because the Court found the Amended Complaint fails to state a claim under Section
10(b), and liability under Section 20(a) is derivative of an underlying Section 10(b) violation, the
Court finds the Amended Complaint also fails to state a claim under Section 20(a) against the
Individual Defendants. See Biondolillo v. Roche Holding AG, Civ. A. No. 17-04056, 2019 WL
34

1468140, at *4 (D.N.J. Apr. 3, 2019) (“Because the Second Amended Complaint fails to state a
claim under Section 10(b), it also fails to state a claim under Sections 20(a) and 20A.”).
Therefore, Defendants’ Motion to Dismiss Count II of the Amended Complaint is
GRANTED.
C. Leave to Amend
Defendants request Plaintiffs’ Amended Complaint be dismissed with prejudice. (ECF No.
37-1 at 5, 40.) However, the Federal Rules of Civil Procedure generally require the Court to “freely
give leave [to amend] when justice so requires.” Fed. R. Civ. P. 15. “In the Third Circuit, plaintiffs
whose complaints fail to state a cause of action are entitled to amend their complaint unless doing
so would be inequitable or futile.” Lovallo, 2015 WL 7300492, at *14 (citing Fletcher-Harlee
Corp. v. Pote Concrete Contractors, Inc., 482 F.3d 247, 252 (3d Cir. 2007)).
Here, allowing Plaintiffs to amend would not be futile as they could provide additional
factual content to attempt to cure the deficiencies in the FAC. See Munenzon v. Peter Advisors,
LLC, 553 F. Supp. 3d 187, 210 (D.N.J. 2021); see also United States ex rel. Petratos v. Genentech,
Inc., Civ. A. No. 11-03691, 2014 WL 7331945, at *2 (D.N.J. Dec. 18, 2014) (stating that “within
the Third Circuit, even when a complaint is vulnerable to Rule 12(b)(6) dismissal, the district court
should allow the party a curative amendment, unless the amendment would be futile or
inequitable”).
Therefore, the Court denies Defendants’ request to dismiss the Amended Complaint with
prejudice and grants Plaintiffs leave to file a second amended complaint.
IV.

CONCLUSION
For the reasons set forth above, Defendants’ Motions to Dismiss (ECF Nos. 37, 41, and

44) are GRANTED, and Plaintiffs’ Amended Complaint is DISMISSED WITHOUT

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PREJUDICE. An appropriate Order follows.

Dated: September 25, 2024

/s/ Brian R. Martinotti
HON. BRIAN R. MARTINOTTI
UNITED STATES DISTRICT JUDGE

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