Sogou Inc.

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Case Summary

Company Name
Sogou Inc.
Stock Symbol
Class Period
Purchasers of Sogou American Depositary Shares pursuant and/or traceable to Sogou’s November 9, 2017 initial public offering
Motion Deadline
March 10, 2019
Southern District of New York

The complaint charges Sogou and certain of its officers and/or directors and controlling shareholders with violations of the Securities Act of 1933 in connection with the Company’s initial public offering (“IPO”).  Sogou, an Internet search company, was incorporated in the Cayman Islands in December 2005 by Sohu, Inc. (“Sohu”). Sogou is a subsidiary of Sohu and is based in Beijing, the People’s Republic of China.

In connection with the IPO, Sogou filed a draft Registration Statement with the SEC on August 14, 2017 and a Registration Statement on Form F-1 with the SEC on October 13, 2017, which, after several amendments, was declared effective on November 8, 2017 (the “Registration Statement”).  On November 9, 2017, Sogou filed the Prospectus for the IPO and priced its American Depositary Shares (“ADSs”) at $13 per share, with each ADS representing one Class A Ordinary Share.

The complaint alleges that the Registration Statement issued in connection with the IPO contained materially false and misleading statements and/or failed to disclose adverse information regarding the Company’s business and operations.  Specifically, the Registration Statement misrepresented and/or failed to disclose that: (i) Chinese regulators were investigating Sogou because of an increase in sales of counterfeit goods by Sogou’s merchants and because Sogou’s existing software, advertising procedures, personnel, and audit procedures were insufficient to safeguard against violations of governing Chinese regulations and would need to be updated, enhanced, and strengthened, which would result in increased expenses; (ii) Sogou’s cost of revenues were skyrocketing primarily because of significant increases in Traffic Acquisition Cost, which is a primary driver of Sogou’s cost of revenues, as Sogou was dealing with significant price inflation from increased competition; (iii) Sogou was going to alter its strategy concerning smart hardware and push the Company’s AI capabilities to increase product competitiveness; and (iv) as a consequence of altering its smart hardware strategy, Sogou had already decided to phase out non-AI-enabled hardware products and transition to the use of products integrating AI technologies, which Sogou expected would reduce its hardware revenues in the second half of 2018.  With these misrepresentations and/or omissions in the Registration Statement, Sogou was able to sell more than 50.6 million ADSs in the IPO at $13 per share for gross proceeds of $658 million.

In June and July 2018, Chinese media sources reported that Chinese authorities had ordered Sogou to remove illegal content from its search engine.  On July 30, 2018, Sogou announced its financial and operating results for the second quarter of 2018.  The Company revised downward its guidance for the third quarter of 2018, citing an investigation by Chinese regulatory authorities and the implementation of “remedial measures,” which included a ten-day suspension of part of its advertising business.  Following this announcement, the price of Sogou ADSs fell $0.78, or 7.5%, to close at $9.55 per ADS on July 30, 2018.

On October 25, 2018, Sogou announced disappointing financial and operating results for the third quarter of 2018, reporting revenues that had fallen short of the Company’s guidance by $5.24 million and disclosing lowered guidance for 2019.  Following this news, the price of Sogou ADSs fell $0.25 per ADS, or more than 4%, over the following three trading sessions, to close at $5.50 per ADS on October 30, 2018, nearly 58% below the IPO price of $13 per ADS.

Class Period: Purchasers of Sogou American Depositary Shares pursuant and/or traceable to Sogou’s November 9, 2017 initial public offering -
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