SEO

COMPLAINT FOR VIOLATIONS OF FEDERAL SECURITIES LAWS

                                    IN THE UNITED STATES DISTRICT COURT

        FOR THE SOUTHERN DISTRICT OF NEW YORK

 

 

 

Case No.

 

COMPLAINT FOR VIOLATIONS OF FEDERAL SECURITIES LAWS

 

 

JURY TRIAL DEMANDED

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Plaintiff, Jane Doe (“Plaintiff” or “Plaintiff”), brings 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[1] (the “Class Members” and “Class Period” respectively). 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 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:

 

  1. NATURE OF THE ACTION

                                                                                                                   

  1. 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 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder, against the LAC and certain of its top officials.
  2. LAC is a publicly traded company, headquartered in New York. LAC’s common stock is traded on the New York Stock Exchange (“NYSE”).
  3. LAC is the owner and operator of a dating app called eMatch (“eMatch” or the “App”). eMatch is one of the most popular in the “Match-Making Industry” and competes against dating apps such as OKSwipe. To use the app, eMatch users provide to 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.
  4. LAC earnings are 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.
  5. Throughout the Class Period, the Defendants repeatedly made materially false and misleading statements and failed to disclose material information to the investing public, with respect to three aspects of LAC’s business and operations:
    1. LAC’s inadequate cybersecurity measures: In early 2019, LAC’s former CTO, Burt Sazerak (“Sazerak”), conducted an audit of the Company’s cybersecurity systems, which concluded that the Company’s IT infrastructure was particularly vulnerable to a cyberattack. According Sazerak, the Company’s systems could have been compromised “any day”. On April 1, 2019, after Kang denied Sazerak’s request to make the required expenditures for improving LAC’s cybersecurity, Sazerak resigned. Throughout the next months the Defendants concealed this material information from the investing public. They continued doing so even after the systems of LAC’s greatest competitor, OKSwipe, were hacked. Moreover, the Defendants made false and misleading statements, describing LAC’s cybersecurity measures as “second to none”. On October 27, 2019, hackers attacked the Company and stole its user information, including its credit information. Only then, Cook admitted that the Company “did not have adequate cybersecurity measures in place”. As a result, LAC’s stock price lost more than 30% of its value, dropping from $36[2] to $25.
    2. The decline in LAC’s user base due to software problems: On October 31, 2018, during a call with analysts, Kang announced on a new promotional campaign which was aimed to draw more users to LAC’s app. 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.” Unfortunately, these hopes were soon disappointed. In April 2019, a report circulated to senior executives concluded that the Campaign failed and projections concerning new users would have to be modified. The Company also experienced a decrease in the number of its paying users in the first time in its history.

The Defendants, who knew the truth about the Campaign’s failure and the decrease in paid users (or at least recklessly disregarded this information), failed to update the investing public about these material developments in a current report (on an 8-K form) or in their 10-Q report for the second quarter of 2019. They also made false and misleading statements and projections that were incompatible with that information. For example, in a conference held on May 17, 2019, Cook stated that “[w]e are hoping to see an increase in users as a result of our recent month free promotion”, although at that point it was already clear that the Campaign had failed to produce such an increase.

On July 25, 2019, Cook sent an internal report that reaffirmed that Campaign’s failure and concluded that the reason for it was “major software problems”. Again, this material information was not disclosed to the investing public in a current report. Furthermore, on an earnings call held on July 26, 2019, the Company stated that “the number of users was flat for the quarter”. This statement was misleading and “half true”, as it concealed from the public the decrease in paid users, which is the only figure that determines the Company’s revenues. Moreover, Kang who knew, or should have known the truth, stated that 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.” Cook who knew this was clearly false failed to not correct this misrepresentation.

The truth about LAC’s user base and software began to emerge in August 2019, as a growing number of users complained about software issues on LACs Facebook and Twitter pages. The Company then published on its accounts an apology for “recent issues with our software…”. As a result, the price of LAC’s common stock dropped in approximately 6.25% from $38.40[3] to $36. Only on November 23, 2019, when the Company released its 10-Q form for the third quarter of 2019 (the “2019-Q3 10-Q Form”), it disclosed for the first time that there was a decrease in the number of its users, which by then reached to 50% (compared to the previous year), and updated its projections for 2019 revenues from $400 million to $200 million. As a result, the stock price dropped in 10% from $25[4] to $22.5.

  • LAC’s applications for licenses to operate in foreign countries: As of October 30, 2018 (or near this date), the Company had pending applications for licenses to operate in China and Brazil (the “Applications”). The Defendants knew that the Company was unwilling to pay significant fees to the government to operate in those countries, they knew that similar applications of other companies had been denied, and they knew that LAC’s legal advisors were not optimistic about the Applications. However, instead of informing the investing public about these risk factors and their potential consequences, the Defendants misled them to believe that the Applications are going to be approved and yield substantial revenues to the Company. For example, on analysts call held on October 31, 2018 (the “October 31, 2018, Analysts Call”), Cook stated he is “sure” the Company will get the approvals, and via conference call held on April 30, 2019, Kang stated “[t]rust me, we are going to get the necessary approvals”. Furthermore, based on the Applications, the Defendants made public projections to “dramatically increase”, and “nearly doubling” LAC’s user base and revenues in 2019. The Defendants continued concealing the information about the Applications’ chances after receiving negative indications from the Chinese Authorities regarding the pending application in May 2019. Even after the Applications were denied, on July 25, 2019, the Defendants failed to disclose this material information to the investing public. On the 2019-Q3 10-Q Form the Defendants only updated their revenue projections. As recalled, that day, the stock price dropped in 10% from $25[5] to $22.5. However, the fact that the Applications were denied was not disclosed until the time this was written.
  1. Cook and Kang had a strong financial incentive to engage in their fraudulent scheme and indeed it gained them substantial profits. Cook’s and Kang’s compensation package entitled each of them not only to receive stock options each calendar year, but they were also entitled to a bonus of $1 million and $500,000, respectively, any time LAC’s stock price hit $40.00. Indeed, as demonstrated in Table 1 attached herein, throughout the course of the Defendants’ scheme, the Defendants succeeded to artificially inflate LAC’s stock price – from 32.84$ at the beginning of the Class Period (October 30, 2021) to 41$ on May 17, 2019. On June 27, 2019, after the cyberattack on OkSwipe, the 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.
  2. Moreover, on May 18, 2019, Cook and Kang sold, each separately, a substantial part of their holdings in LAC in violation of their 10b-5 plans, and while in position of material non-public information, thereby profiting a total amount of over $5 million from their fraudulent scheme. 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 amount was unusual and suspicious in light of their previous pattern of sales.
  3. As a result of Defendants’ wrongful acts and omissions, the Plaintiff and other Class members have suffered significant losses and damages, which are reflected in LAC’s common stock price drops mentioned above.

 

  1. JURISDICTION AND VENUE

 

  1. Jurisdiction of this Court is founded upon 28 U.S.C. § 1331 because the Complaint asserts claims 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).
  2. 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.
  3. 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). 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.
  4. 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, interstate telephone communications and the facilities of the national securities markets.

 

  • PARTIES

 

  1. Plaintiff, 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.
  2. Defendant LAC is a Delaware corporation headquartered in New York City, New York. LAC common stock is traded on the New York Stock Exchange.
  3. 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.
  4. Defendant Abigail Cook (“Cook”) has served as LAC’s CEO and Chairperson of the Board from 2015 to her resignation on November 28, 2019.
  5. Defendant Aaron Kang (“Kang”) has served as LAC’s CFO from 2017 to his resignation on November 28, 2019.
  6. 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.

 

  1. CONFIDENTIAL SOURCES

 

  1. Confidential Witness 1 (“CW1”) was a former information technology specialist in LAC’s LA office from 2015 to 2019.
  2. Confidential Witness 2 (“CW2”) was a former executive assistant to Kang from 2017- 2019.

 

  1. DEFENDANTS’ FRAUDLENT SCHEME

 

  1. Throughout the Class Period, the Defendants continuously concealed material information and repeatedly made materially false and misleading public statements with respect to three aspects of LAC’s business and operations: the Company’s inadequate cybersecurity measures; the Campaign’s failure and the decline user base due to software problems; and the Applications to operate in China and Brazil. In this chapter we will describe the Defendants’ fraudulent acts and omissions in a chronological order.

 

October 2018 Analysts Call: Materially False and Misleading Statements and Omissions Regarding the Applications

  1. 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.
  2. On October 30, 2018, the Company released its Form 10-Q for the third quarter of 2018 (the “2018-Q3 10-Q Form”). On the October 31, 2018, Analysts Call announcing its quarterly financial results (the “October 31, 2018, Analysts Call”), during which 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).” Kang too added that “… we are looking to expand our user base abroad…”.
  3. These 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 provided by LAC’s legal advisors, Cook could not have been genuinely “sure” that the Applications will be granted, and a reasonable investor would not have believed so either. By making this statement Cook knowingly mislead the investing public.
  4. Furthermore, pursuant to Item 303 of SEC Regulation S-K, the Defendants had a duty to disclose the known uncertainties regarding the Applications in LAC’s 2018-Q3 10-Q Form, as well as in its annual 10-K form for 2018, as these uncertainties could have material effect on their financial statements. Such a disclosure was also required to prevent the misleading effect of the statements made on the October 31, 2018, Analysts Call. The Defendants breached these duties by omitting this material information.

 

March-April 2019: The Defendant Fail to Disclose Material Cybersecurity Related Information

 

  1. 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 and its 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.
  2. 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.
  3. 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, explaining that the Company could not make any additional expenditures on infrastructure until after the Applications will be granted.
  4. Sazerak’s concern that a breach could happen under his supervision was so severe, that he resigned on April 1, 2019.
  5. As the LAC’s CEO of and Chairwoman of the Board, Cook knew, or at least should have known, about the 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.
  6. 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.[6] The magnitude of a cyberattack on LAC cannot be underestimated. LAC’s users provided it personal information, which included not only each user’s name, birthday, bio, and pictures, but also credit card information as well as potential sensitive information about marital status, gender identity, and sexual preferences. Accordingly, a cyber-attack on the company could have caused 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”. Furthermore, as one of LAC’s key personnel, the information regarding Sazerak’s resignation by itself was material to the reasonable investor.
  7. 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, 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)

 

  1. Despite its materiality, the Defendants have not disclosed the Cybersecurity Related Information, including in a current report (8-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, but they also made false and misleading representations regarding it.

 

April 2019: Defendants Fail to Disclose Material Adverse Information Regarding the User Base

  1. As recalled, During the October 31, 2018, Analysts 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 has not achieved its stated purposes.
  2. 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.
  3. 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 for a monthly fee.
  4. The information regarding the Paid Users Decrease, as well as about the findings and the conclusions of the First Campaign Report, was material to the reasonable investor. The Paid Users Decrease was highly unusual and indicated on a potential loss of paying users and revenues. The information about the Campaign’s failure undermined Kang’s statements on the October 31, 2018, Analysts Call. This information, separately and aggregately, significantly altered the ‘total mix’ of the available information in the eyes of a reasonable investor.
  5. 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 unusual 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 that information, which affected the Company’s current and prospected user base and revenues, and each had access to that information.
  6. Despite that, the Defendants omitted the material information regarding the Paid Users Decrease and the Campaign’s failure from the Company’s 10-Q reports for the first and second quarters of 2019 and have not issued a current report on an 8-K form with this information. 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

  1. 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” (emphasis added).
  2. These statements were 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.
  3. During the April 19, 2019, Conference Cook further stated that: “our app is a huge success. And we expect 2019 to be our best year ever for new users and revenue” (emphasis added).
  4. 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, the Defendants had a duty to disclose the material adverse information regarding the Paying Users Decrease and the Campaign’s failure to prevent the misleading effect of the said projections and the description of the app as a “huge success”, a duty which they breached.

 

The Defendants’ Materially False and Misleading Statements and/or Omissions on April 30, 2019

  1. 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”).
  2. 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,[7] although they were material to the reasonable investor, and despite the Defendants’ duty to correct their previous misleading statements with respect to those issues to prevent further false and misleading representations.
  3. 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.
  4. 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).
  5. 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 Paid Users Decrease, and could not have been said to have “great numbers” “once again”. 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 double the revenue for 2019. Similarly, the negotiations regarding the Applications could not have genuinely led Cook to be “optimistic” regarding the Company’s future. Furthermore, the Defendants had a duty to disclose the material adverse information regarding the Applications to prevent the false impression the said statements created. By omitting it the Defendants created false and misleading picture regarding the Applications’ chances and their effect on LAC’s business.
  6. 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).
  7. These statements too were materially false and misleading when made, and/or omitted material information. Given the known uncertainty regarding the Applications, 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. As in the April 30, 2019, Press Release, in this context as well the Defendants had a duty to disclose the adverse information regarding the Applications, which they breached, thus creating false representations.
  8. 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.
  9. 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,[8] failed to provide investors with the relevant material information to assess 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.
  10. In addition, the identification of cybersecurity breaches as a risk factor that may impact LAC’s revenues on the April 30, 2019, Press Release,[9] 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 “[c]ompanies 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

  1. 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, who told Kang he “was not confident that they could close a deal.” Kang immediately updated Cook’s in the news.
  2. The communications with the Chinese government affirmed the view of LAC’s legal advisors and clarified that there are very low chances, if any, that the Chinese government will grant the requested license (at least as long as LAC 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 thus had a duty to update the investors about these subsequent developments and their potential impact.
  3. Nevertheless, the Defendants have not disclosed this material information by issuing a current report on an 8-K form. The Defendants have also omitted this information from the 10-Q form for the second 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

  1. 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…” (emphasis added).
  2. 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.
  3. Cook and Kang had a strong financial incentive to deceive the investors. As recalled Cook and Kang were each entitled to bonuses in a sum of $1 million and $0.5 million respectively, once the stock price reached to 41$. Indeed, as a result of Cook’s false representations and omissions, LAC stock price increased on May 17, 2019, from $36.34[10] to $38.5 and the next day it reached the $41 threshold entitling Cook and Kang to the bonuses.

 

May 18, 2019: Cook and Kang Sold Over $5M Worth of LAC Stock, While in Possession of Material Non-public Information 

  1. On May 18, 2019, the Company’s stock opened at an all-time high of $41.00.
  2. As of this date, Cook and Kang held material information that was not available to the investing public:
    1. Cook and Kang were aware of the Cybersecurity Related information, indicating on LAC’s inadequate cybersecurity measures and its vulnerability to a cyberattack.
    2. Cook and Kang knew about the Paying Users Decrease, and that the Campaign’s failure required to modify the Company’s projections.
    3. Cook and Kang knew facts indicating that the Applications had low chances, especially in light of the communication with the Chinese authorities.
  3. As senior officers with access to insider information Cook and Kang owed fiduciary duties to LAC and were prohibited under Rule 10b-5 of the Exchange Act from trading in LAC stock.
  4. 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.
  5. 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 that, 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.
  6. The unusual and suspicious timing coupled together with the value of these sales demonstrates Cook and Kang’s motive to commit fraud. Cook’s and Kang’s stock sales did not only violate their 10b-5 plans, but also deviated from their previous patterns of investments. Until then, 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. The sales’ timing was even more suspicious since only the previous day, 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, they would not have sold such a substantial part of their holdings in LAC.

 

Material Misrepresentations and Omissions after the Cyberattack on OKSwipe in June 2019

  1. On June 27, 2019, hackers broke into the computer network of OKSwipe, LAC’s greatest competitor, and stole all its customers’ information.
  2. The cyberattack on OKSwipe vividly illustrated that the risk of a cyberattack on dating apps such as eMatch is concrete and probable, as well as its grave magnitude,[11] and reinforced the conclusion regarding the materiality of the Cybersecurity Related Information.
  3. Nevertheless, even after this attack, the Defendants continued concealing the Cybersecurity Related Information from the investing public and did not disclose it on a current report.
  4. 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!” (emphasis added).
  5. These statements were materially false and misleading when made, and/or omitted the material information. As Sazerak’s Audit revealed, the LAC’s customers’ data was not “protected” and far from being “second to none”. In the said circumstances, after the attack on OKSwipe and in light of Cook’s statements, the Defendants had a duty to disclose the Cyber-Risk Related Information, and by omitting it they created false and misleading representations to the investing public.
  6. Again, 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 stock price to drop. 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

  1. On July 25, 2019, the Defendants discovered two material and crucial facts, that were not disclosed to the investing public.
  2. First, Cook was told that the Applications for licenses to operate in China and Brazil were denied.
  3. 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.”
  4. 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.
  5. 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.”
  6. 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.
  7. 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. A disclosure was also required to correct previous representations in relation to the Campaign, and particularly:
    1. The representations regarding the Campaign’s potential to increase the user base in October 31, 2018, Analysts Call, and on May 17, 2019, Conference;
    2. 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;
    3. The projections to increase the Company’s user base and revenues on the April 19, 2019, Conference, and the April 30, 2019, Press Release.
  8. The new information about Software Problems that led to the Campaign’s failure thus would have substantially altered the ‘total mix’ of information available to investors and impacted their decision-making.

 

Materially False and Misleading Statements and/or Omissions in the 10-Q Form for the Second Quarter of 2019

  1. 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:
    1. 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 form).
    2. 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.
    3. 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 form).

 

The Defendants’ Materially False and Misleading Statements and/or Omissions on the July 26, 2019, Earnings Call

  1. 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” (emphasis added). 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” (emphasis added).
  2. These statements were materially false and misleading when made, and/or omitted material information:
    1. 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 not have genuinely 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.
    2. 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, and by omitting it they created false and misleading representations to the investing public.
    3. 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, and by omitting it they created false and misleading representations to the investing public.
    4. 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.

 

The Truth Begins to Emerge: LAC Admits it Has “Software Issues” and Hackers Steal all its Information

  1. On August 20, 2019, after a growing number of users complained about software issues on LACs Facebook and Twitter pages, LAC published on its accounts an apology for “recent issues with our software”.[12] As a result, the price of LAC’s common stock dropped in approximately 6.25% from $38.40[13] to $36.
  2. 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).
  3. In the 8-K form announcing the cyberattack, Cook admitted the Company “did not have adequate cybersecurity measures in place” (emphasis added) 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 2019: The Company Updates for the First Time its 2019 Revenue Projections

  1. On November 23, 2019, the Company published its 2019-Q3 10-Q Form. 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
  2. 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.
  3. In addition, even after the cyberattack, the Defendants continued to conceal the full and material Cybersecurity Related Information from April 2019.
  4. 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.

 

 

 

  1. ADDITIONAL SCIENTER ALLEGATIONS

 

  1. 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.
  2. 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 $5 million to the unsuspecting investing public while in position of material non-public information, and violations of their 10b-5 plans, 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 amount was unusual and suspicious in light of their previous pattern of sales.
  3. 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.

 

  • LOSS CAUSATION

 

  1. During the Class Period, 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 LAC common stock fell as the artificial inflation dissipated, as demonstrated in Table 1 attached herein. 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.
  2. 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 LAC common stock and suffered economic loss as a result thereof.

  1. The Defendants’ false or misleading statements had the intended effect and caused LAC common stock to trade at artificially inflated levels.
  2. The declines in the price of LAC common stock 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.
  3. The economic loss the 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 the truth began to emerge.

 

  • PRESUMPTION OF RELIANCE

 

  1. 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:
    1. LAC stock was listed and actively traded on the NYSE, a highly efficient and automated market;
    2. As a regulated issuer, LAC filed periodic public reports with the SEC and NYSE;
    3. LAC stock was liquid and traded with moderate to heavy volume during the Class Period;
    4. 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;
    5. 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
    6. Unexpected material news about LAC was rapidly reflected in and incorporated into the Company’s stock price during the Class Period.
  2. 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.
  3. 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.

 

  1. NO SAFE HARBOR

 

  1. The Defendants’ false and misleading statements during the Class Period detailed herein are not entitled to any “Safe Harbor” for the foregoing reasons:
  2. 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 the April 30, 2019, Press Release,[14] identified the Applications’ denial as one of “numerous” potential risk factors, and as explained above this statement was inadequate (see section ‎52 above).
  3. 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.
  4. 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.
  5. 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.
  6. COUNT I

For Violation of §10(b) of the Exchange Act and Rule 10b-5

Against All Defendants

 

  1. Plaintiff repeats and realleges each and every allegation contained above as if fully set forth herein.
  2. Defendants are liable for making materially false and misleading statements and/or omissions, knowingly or recklessly.
  3. 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 regarding LAC’s business, operations and prospects, including the Plaintiff and other Class members; (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.
  4. 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.
  5. Defendants violated Section 10(b) of the Exchange Act and Rule 10b-5 in that they:

(a) employed devices, schemes and artifices to defraud;

(b) made untrue statements of material fact or 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; or

(c) engaged in acts, practices and a course of business that operated as a fraud or deceit upon Plaintiff and others similarly situated in connection with their purchases of LAC common stock during the Class Period.

  1. Defendants, individually and together, directly and indirectly, by the use, means or instrumentalities of interstate commerce and/or the mails, engaged and participated in a continuous course of conduct to conceal the truth and/or adverse material information about LAC’s business, operations and prospects as specified herein.
  2. The Defendants had actual knowledge of the misrepresentations and omissions of material fact set forth herein, or recklessly disregarded the true facts that were available to them. Defendants’ misconduct was engaged in knowingly or with reckless disregard for the truth, and for the purpose and effect of concealing adverse information regarding LAC’s business, operations and prospects from the investing public and supporting the artificially inflated price of its common stock.
  3. As a result of Defendants’ dissemination of the materially false or misleading information and failure to disclose material facts, as set forth above, the market price of LAC common stock was artificially inflated during the Class Period. In ignorance of the fact that the market price of the Company’s stock was artificially inflated, and relying directly or indirectly on the false and misleading statements, or upon the integrity of the market in which the Company’s stock traded, and/or on the absence of material adverse information that was known to or recklessly disregarded by Defendants, but not disclosed in LAC’s statements during the Class Period, Plaintiff and the other Class Members acquired LAC common stock during the Class Period at artificially high prices and were ultimately damaged thereby.
  4. At the time of said misrepresentations and omissions, Plaintiff and the Class Members were ignorant of their falsity, and believed them to be true. Had Plaintiff and the Class Members known the truth regarding the lack of appropriate cybersecurity measures, the Applications and the Software Problems, which Defendants did not disclose, they would not have purchased their LAC common stock, or, if they had purchased LAC stock during the Class Period, would not have done so at the artificially inflated prices they paid.
  5. In addition to the duties of full disclosure imposed on Defendants as a result of their affirmative false and misleading statements to the investing public, Defendants had a duty to promptly disseminate truthful information with respect to LAC’s operations and performance that would be material to investors in compliance with the integrated disclosure provisions of the SEC so that the market price of the Company’s common stock would be based on truthful, complete and accurate information. SEC Regulations S-X (17 C.F.R. §210.01, et seq.) and S-K (17 C.F.R. §229.10, et seq.
  6. As a direct and proximate result of the Defendants’ scheme, Plaintiff and the Class Members suffered damages in connection with their Class Period purchases of LAC common stock.
  7. COUNT II

                                         For Violation of §20(a) of the Exchange Act

                                                            Against All Defendants

 

  1. Plaintiff repeats and re-alleges each and every allegation contained in the foregoing paragraphs as if fully set forth herein.
  2. Cook and Kang acted as controlling persons of LAC within the meaning of §20(a) of the Exchange Act. By reason of their positions with the Company, and their ownership of LAC stock, Cook and Kang had the power and authority to cause LAC to engage in the wrongful conduct complained of herein. LAC controlled Cook and Kang and all of its employees.
  3. By reason of such conduct, Defendants are liable pursuant to Section 20(a) of the Exchange Act.

 

  • CLASS ACTION ALLEGATIONS

 

  1. 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.
  2. 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 NYSE. 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.
  3. 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.
  4. 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.
  5. 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 Clas Among the questions of law and fact common to the Class are:
    1. whether the federal securities laws were violated by Defendants’ acts as alleged herein;
    2. whether the Defendants made false and misleading statements and/or omissions to the investing public during the Class Period;
    3. whether the Defendants caused LAC to issue false and misleading statements during the Class Period;
    4. whether Defendants acted knowingly or recklessly in issuing false and misleading statements;
    5. whether the Defendants traded their stock using non-public information;
    6. whether the prices of LAC securities during the Class Period were artificially inflated because of the Defendants’ conduct complained of herein;
    7. whether the members of the Class have sustained damages and, if so, what is the proper measure of damages.
  6. 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.

 

  • PRAYER FOR RELIEF

 

  1. WHEREFORE, Plaintiff demands judgment against Defendants as follows:
    1. Determining and certifying that this action is a proper class action, designating Plaintiff as Lead Plaintiff and certifying Plaintiff as a Class representative and Plaintiff’s counsel as Lead Counsel pursuant to Rule 23 of the Federal Rules of Civil Procedure;
    2. Requiring Defendants, jointly and severally, to pay damages sustained by Plaintiff and the Class Members as a result of the Defendants’ wrongdoing, in an amount to be proven at trial, including pre-judgments and post judgment interest thereon;
    3. Awarding Plaintiff and the Class Members their reasonable attorneys’ fees, costs and expenses incurred in this action (including counsel fees and expert fees); and
    4. Requiring Defendants to pay illegal profits made by them by reason of the acts and transactions alleged herein;
    5. Awarding such other and further relief as this Court may deem just and proper.

 

  • JURY TRIAL DEMANDED

 

  1. 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[15]

Date Event Opening

Price

Closing

Price

Change Change

     %

Oct. 31, 2018 Analysts Call: Misstatements regarding the Applications; Kang states the Campaign will “hook new users and build our brand” $32.84[16] $33.29 +$0.45 +1.37%
Apr. 19, 2019 Conference: Misstatements regarding 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 expected revenues in 2019

 

Conference Call: Misstatements regarding the Applications’ chances of success

$34.21 $36.34 +$2.13 +6.23%
May 17, 2019 Industry Conference

Cook expressed hope the Campaign would increase the user base

$36.34[17] $38.50 +$2.16 +5.94%
Jun. 27, 2019 Cyberattack on OKSwipe

Press release: Misstatements about LAC’s cybersecurity measures

$41.00[18] $41.04 +$0.04 +0.10%
Jul. 26, 2019 Earnings call: Misstatements regarding the user trends and the Campaign $38.40[19] [N/A] [N/A] [N/A]
Aug. 20, 2019 LAC posts an apology for software issues $38.40[20] $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[21] $25.00 -$11.00 -30.56%
Nov. 23, 2019 The 2019-Q3 10-Q Form is published: LAC discloses for the first time that its user base had significantly decreased and adjusts its revenue projections $25.00[22] $22.50 -$2.50 -10.00%
Nov. 28, 2019 Cook & Kang resign $22.50[23] $20.79 -$1.71 -7.60%

 

[1] I decided to use the filing date since even on November 23, 2019, the complete truth about LAC was not revealed to the investors yet, see sections ‎91-‎93.

[2] Closing price as of August 20, 2019, I assumed it remained the opening price at the event day has remained the same.

[3] Closing price as of July 25, 2019, I assumed it remained the opening price at the event day has remained the same.

[4] Closing price as of October 27, 2019, I assumed it remained the opening price at the event day has remained the same.

[5] Closing price as of October 27, 2019, I assumed it remained the opening price at the event day has remained the same.

[6] See e.g., Basic v. Levinson, 485 U.S. 224, 238 (1998); Matrixx Initiatives, Inc. V. Siracusano, 563 U.S. 27 (2011).

[7] 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.

[8] 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.”

[9] 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.”

[10] Closing price as of April 30, 2019, I assumed it remained the same on May 17, 2019.

[11] The information about the market reaction to this event can further support this point.

[12] The apology stated “We apologize for the recent issues with our software that have effected some of our users. We are actively taking measures to improve our performance to nsure that these problems are remedied.”

[13] Closing price as of July 25, 2019, I assumed it remained the opening price at the event day has remained the same.

[14] 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.

[15] Since not all the relevant prices were listed on the fact sheet, I relied on the available price as of the closest day.

[16] Closing price as of October 30, 2018.

[17] Closing price as of April 30, 2019.

[18] Opening price as of May 18, 2019.

[19] Closing price as of July 25, 2019.

[20] Closing price as of July 25, 2019.

[21] Closing price as of August 20, 2019.

[22] Closing price as of October 27, 2019.

[23] Closing price as of November 23, 2019.

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