IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
Case No.
CLASS ACTION COMPLAINT FOR
VIOLATIONS OF FEDERAL
SECURITIES LAWS
JURY JURY TRIAL DEMANDED
COMES NOW Lead Plaintiff Jane Doe (“Lead Plaintiff” or “Plaintiff”), bring this federal
securities law class action on behalf of all purchasers of LAC common stock of Love Actually
Company, Inc. (“LAC” or the “Company”), between October 31, 2018 and until the filing date of
this complaint (the “Class Members” and “Class Period” respectively). Lead Plaintiff allegations
against Defendants are based on personal knowledge as to itself and its own acts, and upon belief
as to all other matters, based upon, inter alia, the investigation conducted by and under the
supervision of Lead Plaintiff’s attorneys, which included, among other things, a review of: (1)
LAC’s public filings with the U.S. Securities and Exchange Commission (“SEC”); (2) press
releases, news articles and other public statements issued by or concerning LAC and its industry;
(3) securities analysts reports and investor earnings calls transcripts; (4) analyses of Defendants
trading in LAC; (7) statements from confidential witnesses; and (8) consultation with experts.
Plaintiff believes that substantial evidentiary support will exist for the allegations after a
reasonable opportunity for discovery. Plaintiff hereby alleges as follows:
I. NATURE OF THE ACTION
[——–Please do not review this Chapter———–]
- This is a federal securities class action seeking to recover damages caused by Defendants’
violations of the federal securities laws and to pursue remedies under Sections 10(b) and
JANE DOE,
Plaintiff,
v.
THE LOVE ACTUALLY COMPANY,
INC., ABIGAIL COOK, AARON KANG,
Defendants.
20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5
promulgated thereunder, against the Company and certain of its top officials.
- LAC is a publicly-traded company, headquartered in New York. LAC’s common stock is
traded on the New York Stock Exchange. - LAC operates a dating app called eMatch (“eMatch” or the “App”). eMatch is one of the
most popular in the “Match-Making Industry” and competes against other popular dating
apps such as OKSwipe. eMatch users provide the Company their personal information,
including their name, date of birth, height, bio, and three pictures of themselves, as well as
their credit card information to the Company. - LAC earnings are completely dependent on its user base and derive from one source: the
subscription fee LAC charges from its users, in a sum of 9.99$ a month. As of December 31,
2018, eMatch earned over $200 million in revenue for the fiscal year ending in that date, and
had over 20 million users. - Throughout the Class Period, the Defendants repeatedly made materially false and
misleading statements. Specifically, Defendants made false and/or misleading statements
and/or failed to disclose material information with relation to:
i. LAC cybersecurity: LAC had inadequate security measures and was particularly
vulnerable to cyberattacks aimed to steal user information. Indeed, on October 27, 2019,
hackers attacked the Company and stole all of its user information, including credit
information. Only then the Defendants revealed that the Company “did not have adequate
cybersecurity measures in place”.
ii. LAC’s applications for licenses to operate in China and Brazil (the
“Applications”): Contrary to the Defendants’ statements, the Applications were at a
substantial risk since LAC was unwilling to pay the necessary fees and others’ similar
applications were declined. Indeed, on July 25, 2019, the Applications were declined.
iii. LAC’s user base and software problems: Already in April 2019, LAC suffered from
a decrease in the number of its paying users and the Defendants learned that its free month
campaign (the “Campaign”) had failed, a failure which required modifications of the
Company’s projections. Nevertheless, only on November 23, 2019, the Company
announced for the first time, in the 10-Q report for the third quarter of 2019, that its user
base had significantly decreased by 50% from the prior year and decreased its revenue
projections by 50% respectively.
- As a result of Defendants’ wrongful acts and omissions, Plaintiff and other Class members
have suffered significant losses and damages. - Cook and Kang had a strong financial incentive to engage in their fraudulent scheme and
indeed it gained them substantial profits. Not only that Cook’s and Kang’s compensation
package entitled each of them to receive stock options each calendar, which incentivized
them to increase the stock price, they were also entitled to a bonus of $1 million and
$500,000, respectively, any time LAC’s stock price hit $40.00. - Indeed, throughout the course of the Defendants’ scheme, the Defendants were able to
artificially inflate LAC’s stock price: from 32.84$ at the beginning of the Class Period
(October 30, 2021) the stock price gradually climbed up until hitting the 41$ threshold on
May 17, 2019. Even after the cyberattack on eMatch greatest competitor, OkSwipe,
Defendants continued to fraudulently conceal from the investing public the adverse
information regarding its inadequate cybersecurity measures, thus causing the stock price to
hit again $41.04. In total, Cook and Kang each gained $2M and $1M bonus, respectively.
II. JURISDICTION AND VENUE - Jurisdiction of this Court is founded upon 28 U.S.C. § 1331 because the Complaint asserts
claims The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of the
Exchange Act (15 U.S.C. §§ 78j(b) and 78t(a)); and Rule 10b-5 promulgated thereunder by
the SEC (17 C.F.R. § 240.10b-5); and Section 27 of the Exchange Act. - This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. § 1331
and Section 27 of the Exchange Act. - This Court has personal jurisdiction over Defendants as a result of acts of Defendants
occurring in the State of New York. - Venue is proper in this Judicial District pursuant to Section 27 of the Exchange Act (15
U.S.C. § 78aa) and 28 U.S.C. § 1391(b) in that this is a district wherein one or more
Defendants is found or is an inhabitant or transacts business, or in the district where trading
of the securities took place. Notably, LAC is headquartered in this Judicial District, its
securities are traded in this Judicial District, Defendants conduct business in this Judicial
District, and a significant portion of Defendants’ activities took place within this Judicial
District.
- In connection with the acts alleged in this complaint, Defendants, directly or indirectly, used
the means and instrumentalities of interstate commerce, including, but not limited to, the
mails and interstate telephone communications.
III. PARTIES
- Plaintiff, is a resident of [ENTER ADDRESS]. As set forth in the attached Certification,
Plaintiff and members of the class purchased LAC securities during the Class Period and was
damaged as a result of the false and/or misleading statements and/or material omissions
alleged herein. - Defendant LAC is a Delaware corporation headquartered in New York City, New York.
LAC common stock is traded on the New York Stock Exchange. - LAC is the owner and the operator of eMatch app (“eMatch” or the “App”), one of the most
popular apps in the “Match-Making Industry”. Users can download eMatch to their iPhone or
Android devices through online app stores. Upon installation, each user creates a profile with
his or her personal information, including name, date of birth, height, bio, three pictures of
the user, as well as credit card information. Using a proprietary software algorithm, the App
then “matches” one user to another according to their profile inputs. The app shows to the
user the name and picture of his or her “match”. If both of the “matched” users swipe to the
right for each other, they may communicate with one another. - Defendant Abigail Cook (“Cook”) has served as LAC’s CEO and Chairperson of the Board
from 2015 to her resignation on November 28, 2019. - Defendant Aaron Kang (“Kang”) has served as LAC’s CFO from 2017 to his resignation on
November 28, 2019. - Cook and Kang possessed the power and authority to control the contents of LAC’s SEC
filings, press releases, and other market communications. They were provided with copies of
LAC’s SEC filings and press releases alleged herein to be misleading prior to or shortly after
their issuance and had the ability and opportunity to prevent their issuance or to cause them
to be corrected. Because of their positions with LAC, and their access to material information
available to them but not to the public, Cook and Kang knew that the adverse facts specified
herein had not been disclosed to and were being concealed from the public, and that the
positive representations being made were then materially false and misleading. Cook and
Kang are liable for the false statements and omissions pleaded herein.
IV. CONFIDENTIAL SOURCES
- Confidential Witness 1 (“CW1”) was a former information technology specialist in LAC’s
LA office from 2015 to 2019. - Confidential Witness 2 (“CW2”) is a financial assistant in LAC’s San Francisco office. He
has attended numerous group meetings that Kang and Cook have attended. - Confidential Witness 3 (“CW3”) was a former executive assistant to Kang from 2017-
2019.
V. FACTUAL BACKGROUND
a) Defendants’ False and Misleading Statements and Omissions
October 2018 Analysts Call: Materially False and Misleading Statements and Omissions
regarding the Applications - As of October 30, 2018, the Company had pending applications for licenses to operate in
China and Brazil. Prior to this date, Cook and Kang were informed by LAC’s legal advisors
that because the Company was unwilling to pay significant fees to the government to operate
in those countries, and because similar applications of other companies had been denied, they
were not optimistic about the Applications. - On October 30, 2018, the Company released its Form 10-Q for the third quarter of 2018 (the
“Q-3 10-Q Form”). - The next day, October 31, 2018, the Company held a call with analysts announcing its
quarterly financial results (the “October 31, 2018, Analysts Call”). During this call, Cook
stated, “… We did very well this quarter and are in a position to dramatically increase our
user base––and by extension our revenues––with the launch of our app in new foreign
markets, including China and Brazil, once we get the necessary licenses to operate in
those countries, which I am sure we will get (emphasis added, S.E.).” Kang too added that
“… we are looking to expand our user base abroad…”. - The statements were materially false and misleading when made, and/or omitted material
information. The Defendants knew that the Company’s “position” with respect to the
Applications did not allow it to increase its user base and revenues, let alone to
“dramatically” increase them. In addition, in light of the information regarding the
Applications’ chances, Cook could not have been genuinely “sure” that they will be granted,
and a reasonable investor would not have believed so either. By making this statement Cook
knowingly mislead the investing public. Furthermore, in light of the Defendants’ positive
statements, the Defendants had a duty to disclose the material adverse information regarding
the Applications’ chances to prevent their misleading effect, which they breached. - To clarify: even if the Defendants believed that the negotiations regarding the Applications
were premature at this point, or that the information regarding them was immaterial, once they
chose to make the public statements and projections regarding the Applications, the
Defendants had a duty to disclose the true information about them. Furthermore, even if the
legal advice with respect to the Applications was confidential, the Defendants still had a duty
to disclose the material facts it was based upon. - The Defendants also omitted the material information uncertainties on the material
information associated with the Applications from the Company’s 10-K form with its annual
results for 2018, as required pursuant to Item 303 of SEC Regulation S-K, and in order to
correct the statements from the October 31, 2018, Analysts Call.
March-April 2019: The Defendants Fails to Disclose Material Cybersecurity Related Information - In early 2019, CW1, a former information technology specialist in LAC, sent numerous
complaints to the Company’s CTO, Burt Sazerak (“Sazerak”), regarding LAC’s outdated
technology, including insufficient cybersecurity measures. Similar complaints were frequently
made by CW1 and other employees starting from 2015, to them Sazerak responded that he
would “forward all of this” to Kang. - During January-February 2019, Sazerak conducted an audit of the Company’s cybersecurity
systems. (the “Audit”) Indeed, the audit concluded that the Company’s IT infrastructure
needed to be completely overhauled and was vulnerable to attack. - On March 12, 2019, Sazerak sent Kang an email requesting permission to hire an outside
cybersecurity firm to upgrade the Company’s systems and protect them from attack. Sazerak
told Kang that the systems were so vulnerable, he thought they could be compromised any
day. Kang refused the request, explaining that the Company could not make any additional
expenditures on infrastructure until after the Applications in China and Brazil will be granted.
- Sazerak was so concerned that a breach could happen under his supervision without the
necessary upgrades, that he resigned on April 1, 2019. - As the CEO of and Chairwoman of LAC’s Board, Cook knew, or at least should have known,
about Audit’s conclusion, and the reason for Sazerk’s resignation. This information was
within Cook’s authority and responsibility, and she had access to it. - The information about LAC’s inadequate cybersecurity measures and its vulnerability to
cyberattacks, as well about of Sazerak’s resignation and the reasons for it (which will further
be addressed together as the “Cybersecurity Related Information”) was material to the
reasonable investor. 1 - One cannot underestimate The magnitude of a cyberattack on LAC cannot be underestimated.
LAC’s users provided it personal information, which included not only their names, birthday,
bio, and pictures, but also credit card information and sensitive information about their marital
status, gender identity, and sexual preferences. Accordingly, a cyber-attack on the company
could cause immense, even fatal, damages to LAC, including user loss, reputational damages,
and exposure to consumer lawsuits, as well as to criminal and administrative liability.
According to Sazerak, and as its resignation indicated, such an attack was highly probable and
could have happened “any day”. As one of LAC’s key personnel, the information regarding
Sazerak’s resignation by itself was material to the reasonable investor. 2 - Given the high risk of a cyberattack, and its dramatic potential magnitude, the disclosure of
this information would have significantly altered the ‘total mix’ of the available information
in the view of the reasonable investor. Indeed, the SEC “Commission Statement and Guidance
on Public Company Cybersecurity Disclosures” (the “SEC Guidance”), dated February 26,
2018, clarified the duty to disclose such information. The SEC Guidance explained that –
“Given the frequency, magnitude and cost of cybersecurity incidents, the Commission
believes that it is critical that public companies take all required actions to inform
investors about material cybersecurity risks and incidents in a timely fashion,
1 See e.g., Basic v. Levinson, 485 U.S. 224, 238 (1998); Matrixx Initiatives, Inc. V. Siracusano, 563 U.S. 27 (2011).
2 Indeed, within only several months, in November 2019, hackers broke into LAC’s systems and stole all its user
information, LAC’s stock price to immediately drop over 30% of its value. According to the 8-K form published right
after, the cyberattack caused LAC 50$ million losses, which is approximately 25% of LAC’s revenues for 2019.
including those companies that are subject to material cybersecurity risks but may
not yet have been the target of a cyber-attack.” (p. 4, emphasis added)
- Despite its materiality, the Defendants have not disclosed the Cybersecurity Related
Information, including in a current report on an 8-K or 6-K form. As we will further see, not
only that the Defendants also omitted the Cybersecurity Related Information from the LAC’s
public filings and announcements, they also made false and misleading representations
regarding it.
April 2019: Defendants Fail to Disclose Material Adverse Information Regarding the User Base - As recalled On October 31, 2018, the company held its Analysts Call. During this call, Kang
stated that “… we believe that our new promotional campaign in which we give new users
a free month of service will hook new users and build our brand” (emphasis added).
Unfortunately, the Campaign did not achieve its stated purposes. - On April 1, 2019, the Company had suffered the first decrease in paid users in the Company’s
history (the “Paid Users Decrease”). The Company only had an increase in the total number of
users because of the non-paying members who used the app as part of the free month
Campaign. - On April 5, 2019, a report had been circulated to all senior executives, concluding that the
Campaign was unsuccessful and projections concerning new users would have to be modified
(the “First Campaign Report”). This conclusion was based on the fact that during the previous
three months that the Campaign was in effect, out of nearly 225,000 new users who signed up
for the Campaign, only 9,000 users continued to use the app and pay the monthly fee after the
free month expired. - The information regarding the unusual Paid Users Decrease, as well as about the findings and
conclusions of the First Campaign Report, each separately and both aggregately, was material
to the reasonable investor. The Paid Users Decrease was highly unusual, and since there was a
direct correlation between LAC’s user base and its revenues, it affected its revenue potential.
Together with information about the Campaign’s failure, it also undermined Kang’s
statements on the October 31, 2018, Analysts Call, regarding the Campaign’s ability to hook
new users. The disclosure of this information was necessary to update the investors and it
significantly altered the ‘total mix’ of the available information in the eyes of a reasonable
investor. - As LAC’s CEO and Chairwoman of the board, and as LAC’s CFO, Cook and Kang, knew, or
at least should have known, about the Paid Users Decrease, as well as about the crucial
findings and conclusions of the First Campaign Report. Since LAC’s only source of revenue
was the subscription fees, it was within Cook’s and Kang’s authority and responsibility to be
updated with such material information about the Company’s current and prospected user
base and revenues. - Despite its materiality, the Defendants omitted the information regarding the Paid Users
Decrease and the Campaign’s failure from the Company’s public filings. The Defendants have
not issued a current report on an 8-K or 6-K form with this new information., and, As will be
further detailed herein, Defenadnts have omitted the said formsm from their 10-Q reports for
the first and second quarters of 2019. These omissions created false and misleading
representations to the investing public.
The Defendants’ Materially False and Misleading Statements and/or Omissions in the April 19,
2019, Conference - On April 19, 2019, Cook appeared at the Goldman Sachs Global E-Commerce Conference
(the “April 19, 2019, Conference”). Cook was asked whether she had any concerns about
protecting users’ personal data, and responded: “At eMatch, we recognize that
cybersecurity is very important. I am proud of the steps we have undertaken to improve
our security and make sure we have top notch security.” - This statement was materially false and misleading when made, and/or omitted material
information. LAC has obviously failed to recognize the importance of cybersecurity, as it
refused to undertake the necessary steps to “improve” its cybersecurity and certainly has not
undertaken steps to “make sure” it has “top-notch” security. Furthermore, by making these
positive statements regarding LAC’s cybersecurity – while omitting the Cybersecurity
Related Information about LAC’s vulnerability to cyberattacks – the Defendants created false
and misleading representation to the investing public. - During the April 19, 2019, Conference Cook also stated that: “our app is a huge success.
And we expect 2019 to be our best year ever for new users and revenue.” - This statement was materially false and misleading when made, and/or omitted material
information. Given the unusual Paying Users Decrease and the Campaign’s failure, Cook
could not have genuinely expected 2019 to be the “best year ever for new users and
revenues”, and the reasonable investor would not have expected so either. By making this
statement Cook knowingly mislead the investing public. Furthermore, in light of these
projections and the description of the app as a “huge success”, the Defendants had a duty to
disclose the material adverse information regarding the Paying Users Decrease and the
Campaign’s failure. By omitting it the Defendants created false and misleading
representations to the investing public.
The Defendants’ Materially False and Misleading Statements and/or Omissions in April 30, 2019
- On April 30, 2019, the Company released its 10-Q form with its financial results for the first
quarter of 2019 (the “2019-Q1 10-Q Form”). - The Defendants omitted from the 2019-Q1 10-Q Form the material adverse information
regarding: (a) the risks and uncertainties associated with the Applications; (b) the Paid Users
Decrease and the Campaign’s failure, and (c) the Cybersecurity Related Information, 3
although they were material to the reasonable investor, and despite the Defendants’ duty to
correct their previous false statements with respect to those issues to prevent further false and
misleading representations. [[מידע לאחר הרבעון - Not only that the Defendants omitted the said material information from the 2019-Q1 10-Q,
but they also made false and misleading statements regarding them. - On the same day, April 30, 2019, the Company published a press release (the “April 30,
2019, Press Release”). In the April 30, 2019, Press Release`, Cook was quoted saying: “Once
again, we had great numbers for this quarter and remain optimistic about our future
given our continued negotiations with China and Brazil to distribute our app in those
countries by the end of the year. This will keep us on track to nearly doubling our
revenue to $400M in 2019” (emphasis added). - These statements were materially false and misleading when made, and/or omitted material
information. Unlike in the past, in the first quarter of 2019 the Company suffered from an
unusual decrease in the number of its paying users. It did not have “once again… great
numbers”. Furthermore, considering the adverse information about the Applications, there
was no reasonable basis for Cook’s assertions that the Applications will keep LAC on track
to “nearly doubling our revenue to $400M in 2019”. Similarly, the negotiations with the
3 The Defendants failed to disclose the risks associated with the Cybersecurity Related Information, under the Risk
Factors item as well as the Board Risk Oversight item. They also failed to disclose the impact of the Cybersecurity
Related Information on LAC’s Financial Condition and Results of Operations, Financial Statement.
Chinese and Brazilian authorities could not have genuinely led Cook to be “optimistic”
regarding the Company’s future.
In light of these statements, the Defendants had a duty to disclose the material adverse
information regarding the Applications’. By omitting it the Defendants created false and
misleading representations to the investing public.
- In a conference call with analysts that same day (the “April 30, 2019, Conference Call”)
Cook further stated: “I believe that if all of the stars line up, which I think they are going
to, that our business is going to be transformed as we know it. In my view, our expected
expansion to the China and Brazilian markets, which our research tells us have millions
of single professionals, could double our current user base.” Kang then stated: “Trust me,
we are going to get the necessary approvals to operate in China and Brazil. I believe we
will get approval soon and realize significant economic opportunities” (emphasis added). - These statements too were materially false and misleading when made, and/or omitted
material information. Given the information regarding the Applications’ low chances, Kang
could not have genuinely believed that the Company will “get the necessary approvals”, let
alone “soon”, and “realize significant economic values”. Similarly, Cook could not have
genuinely thought that the Applications would be approved (in Cook’s words, that the “the
stars” would “line up”), or genuinely thought that the “expected expansion” to China and
Brazil “could double” LAC’s user base. Cook and Kang knowingly made these misleading
statements, that contradicted the inference of a reasonable investor. Furthermore, in light of
these statements, the Defendants had a duty to disclose the material adverse information
regarding the Applications’. By omitting it the Defendants created false and misleading
representations to the investing public. - The projections made on April 30, 2019, Press Release and Conference Call were even more
questionable in light of the information regarding the Paying Users Decrease and the
Campaign’s failure, as well as the Cybersecurity Related Information. - The Defendants cannot enjoy “safe harbor” defense with respect to the said projections,
since: (a) the laconic statements on the April 30, 2019, Press Release which identified the
Applications’ denial as one of “numerous” potential risk factors, 4 failed to provide investors
with the relevant material information to assess the Defendants’ the chances and the revenue
potential of the Applications. (b) the user base and revenue projections were material; and (c)
Cook and Kang were well aware of the adverse information regarding the Applications and
knew their statements false and misleading.
- In addition, the identification of cybersecurity breaches as a risk factor that may impact
LAC’s revenues on the April 30, 2019, Press Release, 5 did not “cure” the Defendants’
misstatements and omissions regarding the Cybersecurity Related Information, since it did
not provide the necessary information to assess the probability and the magnitude of a
cyberattack risk, and to make an informed investment decision. Indeed, the SEC Guidance
specifically notes that “Companies should avoid generic cybersecurity-related disclosure and
provide specific information that is useful to investors” (p. 13).
May 1, 2019: Materially False and Misleading Statements and Omissions Regarding the
Communications with the Chinese Authorities - On May 1, 2019, the Chinese government sent the Company a letter stating that it had not
reached an agreement with the Company and “will only do so under the right terms.” The
next day, May 2, 2019, Kang, who had been leading the negotiations, called the Chinese
Commerce Minister’s office. The Minister told Kang he “was not confident that they could
close a deal.” Kang immediately updated Cook’s in the news. - The communications with the Chinese government reinforced the assessment regarding the
application to operate in China and clarified that there are very low chances, if any, it would
be granted (at least as long as it refuses to pay the necessary fees). - in light of the previous representations regarding the Applications, the information about
these communications would have substantially altered the ‘total mix’ of information
available to the reasonable investor. The Defendants had a duty to update the investors about
these subsequent developments and their potential impact. - Nevertheless, the Defendants have not disclosed this material information by issuing a
current report on an 8-K or 6-K form which includes this material information. The
Defendants have also omitted this information from the quarterly 10-Q forms for the second
4 The April 30, 2019, Press Release stated that “[t]he Company’s revenues could be negatively impacted by
numerous factors, including but not limited to, the Company’s failure to receive approvals to operate in certain
countries.”
5 The April 30, 2019, Press Release stated that “[t]he Company’s revenues also could be impacted by any
cybersecurity breaches impacting our networks’ performance or the security of our users’ personal data.”
quarter of 2019. In light of the Defendants’ previous statements, These omissions created
false and material representations to the investing public.
The Defendants’ Materially False and Misleading Statements and Omissions on May 17, 2019,
Conference
- On May 17, 2019, Cook attended the Annual Match-Making Industry conference in Las
Vegas (the “May 17, 2019, Conference”). During a panel of CEOs of online dating
companies, Cook stated: “we see a lot of excitement around match-making apps,
especially for people with busy careers who just don’t have the time to meet people. We are
hoping to see an increase in users as a result of our recent first month free
promotion…” - These statements were materially false and misleading when made, and/or omitted material
information. Given the findings and the conclusions of the First Campaign Report, and the
Decrease in Paid Users, there was no reasonable basis to expect the Campaign will increase
the paid user base, and Cook could not have genuinely hoped so. The reference to the “user
base” (as opposed to the paid user base – which is LAC’s only source of income) was at most
“half true” and thus misleading. In light of the said statements, the Defendants had a duty to
disclose the material information about the Campaign’s failure and the Decrease in Paid
Users. By omitting it the Defendants created false and misleading representations. - Cook and Kang had a strong financial incentive to do deceive the investors. As recalled Cook
and Kang were each entitled to bonuses in a sum of $1 million and $0.5 million respectively,
once the stock price reached 41$. Indeed, on May 17, 2019, the stock price closed at 38.5$,
and the day after that it reached a peak of $41, which entitled them to the bonuses. As we
will now see, this was not enough for Cook and Kang, who each decided to breach their
10b5-1 plans and sell their stock while in possession of non-public information.
May 18, 2019: Cook and Kang Sold Over $5M Worth of LAC Stock, While in Possession of
Material Non-public Information - On May 18, 2019, the Company’s stock opened at an all-time high of $41.00.
- As of this date, Cook and Kang held material information that was not available to the
investing public:
A. Cook and Kang were aware of the Cybersecurity Related information, indicating on
LAC’s inadequate cybersecurity measures and its vulnerability to a cyberattack.
B. Cook and Kang knew the Applications had low chances, considering the estimation of
LAC’s legal advisors and the communication with the Chinese authorities.
C. Cook and Kang knew about the Paying Users Decrease, and that the Campaign’s failure
required to modify the Company’s projections.
- As senior officers of LAC with access to insider information Cook and Kang owed fiduciary
duties to LAC and were prohibited under 17 CFR § 240.10b5-1 et seq — from trading in LAC
stock, with the exception of trading in with accordance to their 10b5-1 plans. - Pursuant to a 10b5-1 plan Cook entered over a year before, Cook was scheduled to sell only
25,000 shares that week, out of a total of 250,000 shares that she owned. Nevertheless, on the
same day, May 18, 2019, Cook contacted her brokers at JPMorgan and ordered them to sell
50,000 LAC shares, that is 20% of her holdings, in a worth $2,075,000, in addition to the
25,000 she was allowed to sell according to her 10b5-1 plan. - Pursuant to Kang own 10b5-1 plan, he was scheduled to sell 10,000 shares on June 30, 2019,
out of shares 100,000 he owned. Despite them, on the same day, May 18, 2019, Kang,
separately, contacted his brokers at Fidelity and ordered them to 50,000 of his shares in LAC,
that is 50% of his holdings, in a worth $2,075,000. - The timing and the amount of these sales by Cook and Kang were unusual and suspicious, and
demonstrate their motive to commit fraud. Only one day before the sales, on the May 17,
2019, Conference, Cook stated that “we are all hoping to see an increase in users…”. Similar
projections to nearly double LAC’s user base and revenues were made on the April 19, 2019,
Conference, and the April 30, 2019, Press Release, and Conference Call. If Cook and Kang
sincerely believed in these statements, why would they sell such a substantial part of their
holdings in LAC? - Cook’s and Kang’s stock sales were prohibited under their 10b5-1 plans, they also deviated
from their previous patterns of investments. Until May 18, 2021, Cook had only sold stock on
November 16 (her birthday) and February 14 (her dog’s birthday), and Kang typically traded
on the last day of every quarter. There is no reasonable explanation for these unusual sales,
except for Cook’s and Kang’s desire to gain from the non-public information they possessed,
at the expense of the public.
Material Misrepresentations and Omissions after the Cyberattack on OKSwipe in June 2019 - On June 27, 2019, hackers broke into the computer network of OKSwipe, LAC’s greatest
competitor, and stole all its customers’ information. - The cyberattack on OKSwipe reinforced vividly illustrated that the risk of a cyberattack on
dating apps such as LAC is concrete and probable, as well as its grave magnitude, 6 and
reinforced the conclusion regarding the materiality of the Cybersecurity Related Information. - Nevertheless, even after this attack, the Defendants continued concealing the Cybersecurity
Related Information from the investing public. They did not disclose this information either
in a current report (in an 8-K or 6-K form), or in the 10-Q report for the second quarter of
2019. - Moreover, on the day, June 27, 2019, the Company published a press release stating that its
customers’ data was protected. This press release quoted Cook as saying: “We want to
assure our users that our cybersecurity measures are second to none. We have all of our
bases covered!” - These statements were materially false and misleading when made, and/or omitted the
material information. As Sazerak’s Audit revealed, the Company’s customers’ data was not
“protected” and far from being “second to none”. 7 In the said circumstances – after the
attack on OKSwipe and in light Cook’s statements, the Defendants had a duty to disclose the
Cyber-Risk Related Information. By omitting it the Defendants created false and misleading
representations to the investing public. - Cook and Kang had a strong incentive to deceive the investors: after the stock price reached
$41 on May 18, 2019, they had an incentive to keep bouncing it above this threshold to earn
more bonuses. The cyberattack on OKSwipe could have led the price stock to a substantial
drop in the stock price. By making the said false and misleading statements, the Defendants
succeeded to prevent that. Indeed, the Company’s stock closed that day at $41.04, which
entitled Cook and Kang to additional bonuses of $1M and $0.5M respectively.
July 25, 2019: The Defendants Find Out the Applications were Denied and the Campaign Failed
Due to Major Software Problems - On July 25, 2019, the Defendants discovered two material and crucial facts, that – as we will
further see – were not disclosed to the investing public.
6 The information about the market reaction to this event can further support this point.
7 [I did not address the fact the messege was aimed to relax the costumers, I think it is better to address this issue
in the response to the reply, in case it will come up. - First, Cook was told that the Applications for licenses to operate in China and Brazil were
denied. As the Company’s CFO, and the leader of the negotiations with the Chinese
authorities, Kang had access to this information, and knew, or at least should have known
about it. Indeed, CW3, who was Kang’s executive assistant, stated that Kang is “a complete
micromanager with his hands in everything,” and as a result, he is typically well-informed.
He stated: “There is no way anything goes down without him knowing the details.” - The information about the denial of the Applications was material to the reasonable investor,
especially in light of the Defendants’ previous statements according to which the
Applications’ high potential to nearly double LAC’s user base and revenues for 2019. The
fact the Applications were denied would have substantially altered the ‘total mix’ of
information about LAC in the eyes of the reasonable investor. Having made representations
regarding the Applications’ high potential, the Defendants had a duty to update the investors
that they were denied. - Second, that day, Cook sent an internal report (the “Second Campaign Report”) which
concluded that the Company was losing many of its new users after the first free month
because the app was experiencing major software problems, including users’ phones shutting
down or freezing once the app launched, matching individuals outside of their geographic
location, and accidentally “unmatching” users, among other “glitches.” - As LAC’s CFO, and as a “micromanager” with “hands on everything’s” (as CW3, Kang’s
executive, assistant stated), Kang, knew, or at least should have known, about crucial
findings and conclusions of the Second Campaign Report. Kang had access to the Second
Campaign Report, and it was within Kang’s authority and responsibility to be updated in
such information as it could affect LAC’s earnings. - The information about the major software problems (the “Software Problems”) was material
to the reasonable investor. It indicated that the Campaign failure was not merely a matter of
ineffective marketing approach, but was rooted in a deeper problem, which could not be
easily recovered. Moreover, this information impacted the Company’s ability to increase its
user base, including in foreign countries disclosure was also required to correct previous
representations in relation to the Campaign, and particularly:
a. The representations regarding the Campaign’s potential to increase the user base in
October 31, 2018, Analysts Call, and on May 17, 2019, Conference;
b. The April 30, 2019, Press Release, which touted the Company’s “high quality
product” and “its highly sophisticated” algorithm which matches users to their
tailored base;
c. The projections to increase the Company’s user base and revenues on the April 19,
2019, Conference, and the April 30, 2019, Press Release.
- The new information about Software Problems that led to the Campaign’s failure would have
substantially altered the ‘total mix’ of information available to investors and impacted their
investors’ decision-making.
Materially False and Misleading Statements and/or Omissions in the 10-Q for the Second Quarter
of 2019 - On July 25, 2019, the Company published its 10-Q form with the financial results for the
second quarter of 2019 (the “2019-Q2 10-Q Form”). The Defendants continued to conceal
the material adverse information that was omitted from the 2019-Q1 10-Q Form, as well as
information about developments that occurred throughout the second quarter of 2019:
A. The Defendants continued omitting the material adverse information they discovered
during the first quarter of 2019, as well as the information about the communications
with the Chinese authorities in May 2019. In addition, despite is materiality, the
Defendants did not disclose the crucial information from July 25, 2019, about the denial
of the Applications, neither in the 2019-Q2 10-K Form or in a current report (8-K or 6-
K form).
B. The Defendants continued omitting the material Cybersecurity Related Information
they discovered during the first quarter of 2019, as well as the information about
Sazerak’s resignation on April 1, 2019, although it became even more critical in light of
the cyberattack on OKSwipe.
C. The Defendants omitted the material information from April 2019 about the Paying
Users Decrease and the Campaign’s failure. In addition, despite is materiality, the
Defendants did not disclose the crucial information from July 25, 2019, regarding the
Software Problems, neither in the 2019-Q2 10-K Form or in a current report (8-K or 6-
K form).
The Defendants’ Materially False and Misleading Statements and/or Omissions on the July 26,
2019, Earnings Call
- On the next day, July 26, 2019, the Company held an earnings call, during which it said that
the number of users was flat for the quarter. Cook also stated: “we remain excited about
our Company’s future and the superior service that our proprietary matching software
offers our customers.” Kang explained that although the number of users for the quarter
was flat, because the “Company has decided to continue its very successful free month
promotion until the end of the year, we project the number of paid users to increase
significantly.” - These statements were materially false and misleading when made, and/or omitted material
information:
A. Kang’s description of the Campaign as “very successful” was clearly false and
misleading. As Kang knew (or at least should have known) both the First and the
Second Campaign Reports concluded that it failed. Consequently, Cook could have
believed that “the number of paid users to increase significantly”, and neither would
a reasonable investor believed so. Cook, who knew well that Kang’s statement about
material facts (significant increase in paid users) were utterly false and misleading, had
a duty to correct his statements and inform the investors that the Campaign has, in fact,
failed.
B. The statement according to which the “number of users was flat” for the third quarter
of 2019, was misleading and at most “half true”, as it omitted the information about the
Paid User Decrease, which was the only figure that impacted LAC’s earnings. In the
said circumstances, and in light of the said statement, the Defendants had a duty to
disclose the material information about the Paid User Decrease. By omitting it the
Defendants created false and misleading representations to the investing public.
C. Moreover, with multiplied Software Problems, and inadequate cybersecurity measures
to protect users’ information, LAC’s software services were far from being “superior”.
In the said circumstances, and in light of the said statement, the Defendants had a duty
to disclose the material Cybersecurity Related Information. By omitting it the
Defendants created false and misleading representations to the investing public.
D. Given that the Applications to operate in China and Brazil were denied only the day
before that, and in light of Cook’s statement that “we remain excited about our
Company’s future…”, the Defendants had a duty to disclose the material information
about the Applications’ denial to prevent further misleading of the investing public,
which the Defendants failed to fulfill.
October 2019: Truth Begins to Emerge as Hackers Steal All User Information from LAC
- On October 27, 2019, the risk of a cyberattack was finally realized. Hackers calling
themselves “Anonymous” hacked the Company’s systems and stole all the Company’s user
information, including users’ credit card information. As a result, the Company’s lost
approximately $50 million (according to LAC’s own estimations in the 8-K form published
that day). - In the 8-K form announcing the cyberattack, Cook admitted the Company “did not have
adequate cybersecurity measures in place” and affirmed, de facto, that the Defendants’
previous statements and omissions (as described above) were false and misleading. - As a result, the Company’s stock price dropped that day by over 30% to a low of $25.00.
November 23, 2019: The Company Updates for the First Time its 2019 Revenue Projections - On November 23, 2019, the Company published its 10-Q report for the third quarter of 2019.
For the first time, the Company announced that its user base had significantly decreased by
50% from the prior year, and adjusted its projections for 2019 revenues from $400 million to
$200 million. As a result, the Company’s stock dropped to $22.25 - However, even at that point, the full scope of the Defendants’ scheme was not revealed.
Although the Defendants modified their revenue projections, they did not disclose the fact
that the Applications were denied or the truth about the indications they had already from
October 2018 and May 2019 about their low chances. - In addition, even after the cyberattack, the Defendants continued to conceal the full and
material Cybersecurity Related Information from April 2019. - The said information did not only impact LAC’s business and operations. Its disclosure
would have revealed that the Defendants’ statements regarding the Applications revenue
potential were false and misleading and would have sent a negative signal to the remaining
stakeholders with respect to LAC’s credibility and internal control measures. The Defendants
have not disclosed the information about the Software Problems, despite its materiality.
ii. Additional Scienter Allegations
- As alleged herein, Defendants acted with scienter in that they knew and/or recklessly
disregarded that the public documents and statements issued or disseminated in the name of
the Company were materially false and misleading; knew that such documents or statements
would be issued or disseminated to the investing public; and knowingly and substantially
participated or acquiesced in the issuance or dissemination of such statements or documents as
primary violations of the federal securities laws. As set forth herein in detail, Defendants, by
virtue of their receipt of information reflecting the true facts regarding LAC, their control
over, and/or receipt and/or modification of LAC’s materially misleading statements and/or
their associations with the Company, participated in the fraudulent scheme alleged herein. The
Defendants knew that their statements and the documents contained in and incorporated by
reference into their SEC filings were materially false and/or misleading. - Moreover, the Defendants possessed substantial motives to mislead the investing public. By
artificially inflating LAS stock price, Cook and Kang each were able to earn a bonus of $2M
and $1M respectively. Furthermore, during the Class Period, Cook and Kang, collectively
sold over 125,000 shares of LAC stock, totaling over $2 million to the unsuspecting investing
public while breaching their 10b-5 plans and in position of material non-public information,
thereby profiting from their failure to disclose the truth to the market. The sales were made
only shortly after the Defendants announced they are expecting to nearly double LAC’s
revenues in 2019, and their timing and alleged amounts was were unusual and suspicious in
light of their previous pattern of sales. - In short, Defendants were well aware of the truth regarding the Applications, LAC’s
inadequate cybersecurity measures, the Paid Users Decrease and the Campaign’s failure,
while making the misleading and/or false representations regarding them.
iii. Loss Causation - During the Class Period, as detailed herein, Defendants made false and misleading statements
and engaged in a scheme to deceive the market and a course of conduct that artificially
inflated the price of LAC common stock and operated as a fraud or deceit on Class Members
by misrepresenting the Company’s business, operations and prospects. Later, as the falsity of
Defendants’ statements began to be revealed to investors, the price of CBS common stock
fell as the artificial inflation dissipated. As a result of their purchases of LAC common stock
during the Class Period, Plaintiff and other Class Members suffered economic loss, i.e.,
damages, under the federal securities laws.
- The market for LAC common stock was open, well developed and efficient at all relevant
times. As shown in Table 1 attached herein, as a result of the materially misleading
statements and failure to disclose the true state of the Company’s business, operations and
prospects, LAC common stock traded at artificially inflated prices. Plaintiff and other Class
Members purchased LAC common stock relying upon the integrity of the market for CBS
common stock and suffered economic loss as a result thereof. - The Defendants’ false or misleading statements had the intended effect and caused LAC
common stock to trade at artificially inflated levels. - The declines in the price of LAC common stock at the end of the Class Period, as shown in
Table 1 attached herein, were the direct result of the nature and extent of Defendants’ prior
false statements and material omissions being revealed to and/or leaking into the market. The
timing and magnitude of the price declines in LAC common stock negate any inference that
the loss suffered by Plaintiff and other Class Members was caused by changed market
conditions, macroeconomic or industry factors, or Company-specific facts unrelated to
Defendants’ fraudulent conduct. - The economic loss Plaintiff and other Class Members suffered was caused by Defendants’
fraudulent scheme to artificially inflate the price of LAC common stock and maintain that
price at artificially inflated levels, as was revealed by the subsequent and significant declines
in the value of LAC stock when Defendants’ earlier misrepresentations and omissions
became publicly available.
iv. Presumption of Reliance - Plaintiff and the Class Members are entitled to a presumption of reliance under the fraud-on-
the-market doctrine because the market for LAC common stock was an efficient market at all
relevant times by virtue of the following factors, among others:
A. LAC stock was listed and actively traded on the NYSE, a highly efficient and
automated market;
B. As a regulated issuer, CBS filed periodic public reports with the SEC and NYSE;
C. LAC stock was liquid and traded with moderate to heavy volume during the Class
Period;
D. LAC regularly communicated with public investors via established market
communication mechanisms, including the regular dissemination of press releases on
major newswire services and other wide-ranging public disclosures, such as
communications with the financial press and other similar reporting services;
E. LAC was regularly covered by industry analysts employed by major brokerage and
other financial institutions, who wrote reports that were distributed to the sales force
and certain customers of their respective brokerage firms. These reports were publicly
available and entered the public marketplace; and
F. Unexpected material news about LAC was rapidly reflected in and incorporated into
the Company’s stock price during the Class Period.
- As a result of the foregoing, the market for LAC common stock promptly incorporated
current information regarding LAC from publicly available sources, and its price reflected
that information. Under these circumstances, Plaintiff and all Class Members are entitled to a
presumption of reliance upon the integrity of the market. - Plaintiff and the Class Members are also entitled to a presumption of reliance under Affiliated
Ute Citizens v. United States, 406 U.S. 128 (1972), as the Defendants omitted material
information during the Class Period in violation of their duty to disclose such information, as
detailed above.
v. No Safe Harbor
- The Defendants’ false and misleading statements during the Class Period detailed herein are
not entitled to any “Safe Harbor” for one or more of the foregoing reasons: - The Defendants’ statements were not forward-looking statements and/or identified as such,
but rather were historical statements or statement of purportedly current fact and conditions
at the time the statements were made. Only in the April 30, 2019, Press Release, 8 the
8 Which provided: Forward-Looking Statements: This press release contains forward-looking statements pursuant to
the safe harbor provisions of the Securities Litigation Reform Act of 1995, which are subject to various risks and
uncertainties.
Defendants included a reference, which was and it too was general and did not identify any
of the specified false and/or misleading statements as forward looking.
- The Defendants’ statements were not accompanied by meaningful cautionary language. The
language of the April 30, 2019, Press Release, was insufficient and was not meaningful as it
failed to identity important fact that could cause actual results to differ materially from those
in the statements of the April 30, 2019, Press Release. - At the time each of the statements mentioned herein were made, the speaker knew it was
false or misleading, as detailed above, and the statement was authorized and/or approved by
an executive officer of LAC who knew it was false. - None of the historic or present tense statements made by Defendants were assumptions
underlying or relating to any plan, projection or statement of future economic performance,
as they were not stated to be such assumptions underlying or relating to any projection or
statement of future economic performance when made; nor were any of the projections or
forecasts made by Defendants expressly related to or stated to be dependent on those historic
or present tense statements when made.
[———-Please review until here———]
I. COUNT I
For Violation of §10(b) of the Exchange Act and Rule 10b-5
Against All Defendants
- Plaintiff repeats and realleges each and every allegation contained above as if fully set forth
herein. - Defendants are liable for making materially false and misleading statements and/or
omissions, knowingly or recklessly. - Defendants’ fraudulent scheme and course of conduct operated as a fraud or deceit on
purchasers of LAC common stock succeeded, as it: (i) deceived the investing public,
including the Plaintiff and other Class members, regarding LAC’s business, operations and
prospects; (ii) artificially inflated and maintained the price of LAC common stock; and (iii)
caused Plaintiff and other Class Members to purchase or otherwise acquire LAC securities at
inflated prices. - C
- During the Class Period, Defendants participated in the preparation of and/or caused to be
disseminated the false or misleading statements specified above, which they knew or recklessly
disregarded were materially false or misleading in that they contained material misrepresentations and
failed to disclose material facts necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading. - During the Class Period, Defendants engaged in a plan, scheme, conspiracy and course of
conduct, pursuant to which they knowingly or recklessly engaged in acts, transactions,
practices and courses of business which operated as a fraud and deceit upon Plaintiff and the
other members of the Class; made various false statements of material facts and omitted to
state material facts necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading; and employed devices, schemes
and artifices to defraud in connection with the purchase and sale of securities. - Pursuant to the above plan, scheme, conspiracy and course of conduct, each of the
Defendants participated directly or indirectly in the preparation and/or issuance of the
quarterly and annual reports, SEC filings, press releases and other statements described
above, including statements made to securities analysts and the media that were designed to
influence the market for LAC securities. Such reports, filings, releases and statements were
materially false and misleading in that they failed to disclose material adverse information
and misrepresented the truth about LAC’s finances and business prospects. - By virtue of their positions at LAC, as CEO and Chairwoman of LAC’s and as its CFO,
Cook and Kang, respectively, had actual knowledge of the materially false and misleading
statements and material omissions alleged herein and intended thereby to deceive Plaintiff
and the other members of the Class, or, in the alternative, Defendants acted with reckless
disregard for the truth in that they failed or refused to ascertain and disclose such facts as
would reveal the materially false and misleading nature of the statements made, although
such facts were readily available to Defendants. Said acts and omissions of Defendants were
committed willfully or with reckless disregard for the truth. In addition, each Defendant
knew or recklessly disregarded that material facts were being misrepresented or omitted as
described above. - Information showing that Defendants acted knowingly or with reckless disregard for the truth
is peculiarly within Defendants’ knowledge and control. As LAC’s CEO and Chairwoman of
the board, and as its CFO, respectively, Cook and Kang had knowledge of the details of
LAC’s internal affairs. - Cook and Kang are liable both directly and indirectly for the wrongs complained of herein.
Because of their positions of control and authority, Cook and Kang were able to and did,
directly or indirectly, control the content of the statements of LAC. As LAC’s CEO and
Chairwoman of the board, and as it CFO, respectively, the Cook and Kang had a duty to
disseminate timely, accurate, and truthful information with respect to LAC’s businesses,
operations, future financial condition and future prospects. - @@@
- As a result of the dissemination of the aforementioned false and misleading reports, releases
and public statements, the market price of LAC securities was artificially inflated throughout
the Class Period. In ignorance of the adverse facts concerning LAC’s business and financial
condition which were concealed by Defendants, Plaintiff and the other members of the Class
purchased or otherwise acquired LAC securities at artificially inflated prices and relied upon
the price of the securities, the integrity of the market for the securities and/or upon statements
disseminated by Defendants, and were damaged thereby. - During the Class Period, LAC’s securities were traded on an active and efficient market.
Plaintiff and the other members of the Class, relying on the materially false and misleading
statements described herein, which the Defendants made, issued or caused to be
disseminated, or relying upon the integrity of the market, purchased or otherwise acquired
shares of LAC securities at prices artificially inflated by Defendants’ wrongful conduct. Had
Plaintiff and the other members of the Class known the truth, they would not have purchased
or otherwise acquired said securities, or would not have purchased or otherwise acquired
them at the inflated prices that were paid. At the time of the purchases and/or acquisitions by
Plaintiff and the Class, the true value of LAC securities was substantially lower than the
prices paid by Plaintiff and the other members of the Class. The market price of LAC
securities declined sharply upon public disclosure of the facts alleged herein to the injury of
Plaintiff and Class members. - By reason of the conduct alleged herein, Defendants knowingly or recklessly, directly or
indirectly, have violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated
thereunder. - As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff and the other
members of the Class suffered damages in connection with their respective purchases,
acquisitions and sales of the Company’s securities during the Class Period, upon the
disclosure that the Company had been disseminating misrepresented financial statements to
the investing public.
II. COUNT II: FOR VIOLATIONS OF SECTION 20(a) OF THE EXCHANGE ACT
AND RULE 10b-5 - Plaintiff repeats and re-alleges each and every allegation contained in the foregoing
paragraphs as if fully set forth herein. - During the Class Period, the Cook and Kang participated in the operation and management of
LAC, and conducted and participated, directly and indirectly, in the conduct of LAC’s
business affairs. Because of their senior positions, they knew the adverse non-public
information about LAC’s misstatement of income and expenses and false financial
statements. - As officers of a publicly owned company, the Cook and Kang had a duty to disseminate
accurate and truthful information with respect to LAC financial condition and results of
operations, and to correct promptly any public statements issued by LAC which had become
materially false or misleading. - Because of their positions of control and authority as senior officers, Cook and Kang each
were able to, and did, control the contents of the various reports, press releases and public
filings which LAC disseminated in the marketplace during the Class Period concerning
LAC’s results of operations. Throughout the Class Period, Cook and Kang exercised their
power and authority to cause LAC to engage in the wrongful acts complained of herein.
Cook and Kang therefore, were “controlling persons” of LAC within the meaning of Section
20(a) of the Exchange Act. In this capacity, they participated in the unlawful conduct alleged
which artificially inflated the market price of LAC securities. - By reason of their senior management positions, Cook and Kang each had the power to direct
the actions of, and exercised the same to cause, LAC to engage in the unlawful acts and
conduct complained of herein. Cook and Kang each exercised control over the general
operations of LAC and possessed the power to control the specific activities which comprise
the primary violations about which Plaintiff and the other members of the Class complain. - By reason of the above conduct, Cook and Kang are liable pursuant to Section 20(a) of the
Exchange Act for the violations committed by LAC.
III. CLASS ACTION ALLEGATIONS - Plaintiff brings this action as a class action pursuant to Federal Rule of Civil Procedure 23(a)
and (b)(3) on behalf of a Class, consisting of all those who purchased or otherwise acquired
LAC securities during the Class Period (the “Class”); and were damaged upon the revelation
of the alleged corrective disclosures. Excluded from the Class are the Defendants. - The members of the Class are so numerous that joinder of all members is impracticable.
Throughout the Class Period, LAC securities were actively traded on the NASDAQ. While
the exact number of Class members is unknown to the Plaintiff at this time and can be
ascertained only through appropriate discovery, Plaintiff believes that there are hundreds or
thousands of members in the proposed Class. Record owners and other members of the Class
may be identified from records maintained by LAC or its transfer agent and may be notified
of the pendency of this action by mail, using the form of notice similar to that customarily
used in securities class actions. - Plaintiff’s claims are typical of the claims of the members of the Class as all members of the
Class are similarly affected by Defendants’ wrongful conduct in violation of federal law that
is complained of herein. - Plaintiff will fairly and adequately protect the interests of the members of the Class and has
retained counsel competent and experienced in class and securities litigation. Plaintiff has no
interests antagonistic to or in conflict with those of the Class. - Common questions of law and fact exist as to all members of the Class and predominate over
any questions solely affecting individual members of the Class. Among the questions of law
and fact common to the Class are:
A. whether the federal securities laws were violated by Defendants’ acts as alleged herein;
B. whether the Defendants made false and misleading statements and/or omissions to the
investing public during the Class Period;
C. whether the Defendants caused LAC to issue false and misleading statements during
the Class Period;
D. whether Defendants acted knowingly or recklessly in issuing false and misleading
statements;
E. whether the Defendants traded their stock using non public information;
F. whether the prices of LAC securities during the Class Period were artificially inflated
because of the Defendants’ conduct complained of herein;
G. whether the members of the Class have sustained damages and, if so, what is the proper
measure of damages.
- A class action is superior to all other available methods for the fair and efficient adjudication
of this controversy since joinder of all members is impracticable. Furthermore, as the
damages suffered by individual Class members may be relatively small, the expense and
burden of individual litigation make it impossible for members of the Class to individually
redress the wrongs done to them. There will be no difficulty in the management of this action
as a class action.
IV. PRAYER FOR RELIEF - WHEREFORE, Plaintiff demands judgment against Defendants as follows:
A. Determining that the instant action may be maintained as a class action under Rule 23
of the Federal Rules of Civil Procedure, and certifying Plaintiff as the Class
representative;
B. Requiring Defendants to pay damages sustained by Plaintiff and the Class by reason of
the acts and transactions alleged herein;
C. Requiring Defendants to pay illegal profits made by them by reason of the acts and
transactions alleged herein;
D. damages sustained by Plaintiff and the Class by reason of the acts and transactions
alleged herein;
E. Awarding Plaintiff and the other members of the Class prejudgment and post-judgment
interest, as well as their reasonable attorneys’ fees, expert fees and other costs; and
F. Awarding such other and further relief as this Court may deem just and proper.
V. JURY TRIAL DEMANDED
- Plaintiff hereby demands a trial by jury.
Dated: March 1, 2020
Respectfully submitted,
ESHKOL LLP
Shir Eshkol
Shir Eshkol (SBN 123456)
590 West End Avenue
New York, NY 10024
Tel: 917-4590995
Email: se2557@columbia.edu
Table 1
Date Event Opening
Price
Closing
Price
Change Change
%
Oct. 31,
2018
Analysts Call: Misstatements regarding the
Applications for licenses to operate in foreign
countries such as China and Brazil; Kang states the
Campaign will “hook new users and build our brand”
[$32.84] $33.29 +$0.45 +1.37%
Apr. 19,
2019
Conference: Misstatements regarding the expected
user base and revenues in 2019 and LAC’s
cybersecurity
$33.40 $33.61 +$0.21 +0.63%
Apr. 30,
2019
Press Release: Misstatements regarding the app’s
quality, the Applications’ chances of success and
$34.21 $36.34 +$2.13 +6.23%
expected revenues in 2019
Conference Call: Misstatements regarding the
Applications’ chances of success
May 17,
2019
Industry Conference
Cook expressed hope the Campaign would increase
the user base
[$36.34] [$38.50] +$2.16 +5.94%
Jun. 27,
2019
Cyberattack on OKSwipe
Press release: Misstatements about LAC’s
cybersecurity measures
[$41.00] $41.04 +$0.04 [+0.10%]
Jul. 26,
2019
Earnings call: Misstatements regarding the user trends
and the Campaign
[$38.40] [TBC] [TBC] [TBC]
Aug. 20,
2019
User complaints; misstatements in social media
regarding the software problems
[$38.40] $36.00 -$2.40 -6.25%
Oct. 27,
2019
Hackers steal all LAC’s user information; Cook
admits there was no adequate cybersecurity
measures
[$36.00] $25.00 -$11.00 -30.56%
Nov. 23,
2019
The 10-Q for the third quarter of 2019 is
published: LAC discloses for the first time that its
user base had significantly decreased and adjusts
its revenue projections
[$25.00] $22.50 -$2.50 -10.00%
Nov. 28,
2019
Cook & Kang resign [$22.50] $20.79 -$1.71 -7.60%
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