Tuesday, May 19, 2015

Yahoo Did Not Misrepresent Its Stake in Alibaba and Alipay

By Rodney F. Tonkovic, J.D.

In an unpublished opinion, a Ninth Circuit panel has affirmed the dismissal of fraud claims against Yahoo!, Inc. for alleged misrepresentations concerning the valuation of the company’s holdings in Alibaba and Alipay. The district court held that Yahoo had no duty to disclose the allegedly omitted information at the time the statements were made. The panel found that the complaint failed to identify any actionable misrepresentation or omission (In re Yahoo! Inc. Securities Litigation, May 15, 2015, per curiam).

Background. According to the complaint, Yahoo and three of its executives made materially false and misleading statements regarding Yahoo's investment in Alibaba, a Chinese e-commerce company, and its payment platform, Alipay. As a result of new Chinese regulations adopted in 2010, Alibaba restructured its holdings resulting in the termination of Yahoo's ownership and control interest in Alipay. The investors alleged that Yahoo continued to speak as if it still had an ownership interest in Alipay that added significant value to the overall investment. When the restructuring was disclosed, Yahoo's stock price declined. The complaint alleged that Yahoo failed to disclose information about the restructuring, and while it disclosed the transfer of Alipay's shares to a Chinese company, it delayed disclosing additional details of the transactions underlying the restructuring.

The district court found that the investors failed to plead facts sufficient to establish a false or materially misleading statement. The court also found that Yahoo had no duty to correct or update its earlier statements once it learned of the restructuring in early 2011 and that none of Yahoo's statements triggered the duty to update. Finally, to the extent that any of the statements may have given rise to a duty to correct, the court found that the corrective disclosure was made within a reasonable time period.

Affirmed. On appeal, the first alleged misrepresentation at issue was a report of the market value of Alibaba that noted that the figures did not "include estimates of the value of Alibaba’s privately held businesses." This statement, the panel said, did not say or imply anything about Alipay's value or that it was restructured. Another alleged misrepresentation disclosed the restructuring, stating that 100 percent of Alipay's shares had been transferred to a Chinese company. While no additional details were disclosed in that statement, the panel found that it was "entirely consistent" with a more detailed explanation of the restructuring. Taken in context, the panel concluded, these statements did not create an impression of Yahoo's affairs that differed in a material way from that which actually existed.

The plaintiffs also argued that several pre-class period statements regarding Alipay gave rise to a duty to correct. The panel pointed out that neither the Supreme Court nor the Ninth Circuit have recognized a duty to correct. Still, even if the prior statements were misleading when made, and if there were a duty to correct, Yahoo corrected the statements within a reasonable time. The statements were corrected within six weeks, which the court found to be reasonable given the ongoing discussions regarding Alipay's restructuring.

The case is No. 12-17080.

No comments: