- Company Name
- Momo Inc.
- Stock Symbol
- Class Period
- April 21, 2015 to April 29, 2019
- Motion Deadline
- July 14, 2019
- Southern District of New York
The complaint charges Momo and certain of its officers with violations of the Securities Exchange Act of 1934. Momo operates a mobile-based social and entertainment platform in the People’s Republic of China (“PRC”). The Momo platform includes the Company’s Momo mobile application (or “app”) and various related features, functionalities, tools, and services for Momo’s users, customers, and platform partners. In May 2018, Momo closed its acquisition of Tantan Limited, a social and dating app in China.
The complaint alleges that throughout the Class Period, defendants made materially false and misleading statements regarding the Company’s business, operations and compliance policies. Specifically, defendants failed to disclose that Momo’s compliance procedures and controls were inadequate to prevent illicit financial reporting activity and that Momo’s Tantan mobile app was materially noncompliant with PRC law and/or regulations, which placed the app at an increased risk of being removed from Chinese app stores at the direction of Chinese governmental authorities. As a result of this information being withheld from the market, the price of Momo American Depositary Receipts (“ADRs”) was artificially inflated to a high of more than $50 per ADR.
On June 27, 2018, Spruce Point Capital Management LLC (“Spruce Point”) issued a short-seller report on Momo recommending a “strong sell” opinion on the Company’s shares, citing possible compliance issues with PRC regulations (the “Spruce Point Report”). According to several agencies cited throughout the Spruce Point Report, Momo had a reputation for being a “sex cam” service – i.e., Momo users were using Momo’s services for illicit sexual content. The Spruce Point Report highlighted how these services put Momo at an increased risk of violating the Ministry of Commerce’s and the State Administration of Radio, Film and TV’s new regulations limiting the behavior of live streamers and raising accountability for platforms. The Spruce Point Report also alleged various illicit financial reporting activities by Momo. Following the publication of the Spruce Point Report, the price of Momo ADRs fell $2.48 per share, or more than 5%, to close at $42.86 per share on June 27, 2018. On June 28, 2018, Momo issued a press release denying the allegations in the Spruce Point Report.
Despite its public denial, the Company’s inadequate compliance procedures and controls became evident on April 29, 2019, when Momo issued a press release disclosing that its Tantan mobile app had been removed from certain app stores at the direction of Chinese authorities and stating that the Company planned to “conduct a comprehensive internal review of the content in the Tantan mobile app and undertake other measures necessary to stay in full compliance with all relevant laws and regulations.” On this news, the price of Momo ADRs fell $2.51 per share, or nearly 7%, to close at $34.36 per share on April 29, 2019.