Chinese e-commerce company Alibaba, whose American Depository Shares (ADS) trade on the NYSE, has agreed to settle a long-running securities class action lawsuit in which the company was alleged to have misrepresented its exclusivity practices and certain aspects of the planned but withdrawn IPO of its financial affiliate, Ant Group. The company has agreed to pay $433.5 million to settle the lawsuit. The settlement is subject to court approval. As discussed below, this settlement has several interesting features.
A copy of Alibaba’s October 25, 2024, filing of Form 8-K describing the settlement can be found here. A copy of the plaintiffs’ October 25, 2024, memorandum in support of its unopposed motion for the court’s preliminary approval of the settlement can be found here.
Alibaba provides services and sales channels through a variety of online platforms. Among its operating units was an online platform originally known as Alipay, which was later spun-out and renamed Ant Group. Ant Group sold a variety of financial products online, such as mutual funds and insurance. Alibaba retained a 30% controlling minority interest in Ant Group. Ant Group was planning dual IPOs on the Shanghai and Hong Kong stock exchanges in November 2020. However, as discussed at length here, just before the IPOs were to be completed, Chinese officials and regulators essentially summoned Alibaba executives, including its Chairman and CEO at the time, Jack Ma, for a meeting in which the officials effectively barred the Ant Group IPOs from going forward. According to the subsequently filed securities lawsuit, the price of Alibaba’s ADSs fell in response to this news.
As discussed here, in November 2020, Alibaba ADS investors filed the first of several securities class action lawsuit against Alibaba and certain of its executives. The actions were ultimately consolidated. The lawsuit as first filed was essentially a “failure to launch” claim against Alibaba and the individual executives with respect to the withdrawn Ant Group IPO. The consolidated amended complaint also contained allegations that Alibaba had also misrepresented its so-called “exclusivity” requirements – that it, a requirement that merchants accessing the company’s platforms to sell the merchants’ products had to undertake to see products exclusively on Alibaba’s platforms. The defendants moved to dismiss the plaintiffs’ consolidated amended complaint.
In a March 22, 2023 opinion (here), Southern District of New York Judge George B. Daniels granted in part and denied in part the defendants’ motion to dismiss. Essentially, Judge Daniels granted the defendants’ motion to dismiss as to the Ant IPO-related allegations, but denied the motion as to the disclosures about Alibaba’s alleged exclusivity practices. Judge Daniels granted the motion to dismiss in its entirety as to Jack Ma, for lack of details that he had play “any role” in preparing the allegedly misleading statements.
After the court’s ruling on the dismissal motion, the case went forward. Among other things, the plaintiffs moved for class certification. The parties also eventually launched mediation efforts, which ultimately resulted in the agreement to settle the case.
The nearly half-a-billion dollar settlement is obviously quite substantial. According to the plaintiffs’ memorandum in support of the motion for preliminary court approval, the settlement is the 21st largest securities class action settlement in the Southern District of New York and is among the top 50 largest in the U.S. since Congress enacted the Private Securities Litigation Reform Act in 1995.
As to where this settlement ranks in the overall Top 50 settlements, it appears that, if it is approved, it would rank about 44th largest or so, just behind the $434 million settlement earlier this year in the Under Armour case (which is discussed here.) As far as I know, the Under Armour settlement is also still awaiting court approval.
It is hard to tell from the outside, but it sure looks like somebody involved in this settlement really wanted the Alibaba settlement amount to come in just below the amount of the Under Armour settlement, although it is hard to figure why.
It is remarkable that a case like this could be settled for this massive amount and yet the settlement does not even come within the top 40 all-time settlements.
The wording of Alibaba’s 8-K seems to suggest that the company itself will be funding the entire amount of the settlement. The 8-K states that “we have agreed to pay US$433.5 million to settle the abovementioned lawsuit.” There is no mention in the 8-K of any funding provided by D&O insurance. If anyone out there has any further insight into the source of settlement funds, including any D&O insurance contribution, I would appreciate it if they would let me know.