Pomerantz Vindicates Defrauded DouYu Investors

POMERANTZ MONITOR | NOVEMBER DECEMBER 2022

By Brian Calandra

On, August 9, 2022, New York State Supreme Court Justice Andrew Borrok preliminarily approved a $15 million global settlement of securities fraud claims against DouYu International Holdings Limited (“DouYu”), simultaneously resolving parallel state and federal court lawsuits arising out of DouYu’s $775 million debut on the Nasdaq in 2019. The final settlement hearing will be on December 1, 2022. Pomerantz represents the federal plaintiffs in the case in the United States District Court for the Southern District of New York.

DouYu (which translates to “fighting fish”) is the largest game-centric live streaming platform in China. The company’s platform operates on PC and mobile apps, and enables individuals to watch, create, or share videos in real time. Users who broadcast content on DouYu’s platform are called “streamers”.

The federal putative class action, filed in 2020, alleged that DouYu’s IPO documents touted the benefits of Chinese tech giant Tencent’s 37% stake in DouYu, referring to Tencent as a “major shareholder and strategic partner,” particularly “in live streaming, advertising and game distribution, which helps reinforce and solidify [DouYu’s] position as a leading game-centric live streaming platform in China.” But shareholders claimed that DouYu failed to mention that Tencent was simultaneously planning to invest more than $1 billion in Kuaishou, one of DouYu’s direct competitors.

According to the complaint, “DouYu’s ability to maintain its ‘deep pool of top streamers’ was, and is, absolutely critical to its success and its efforts to differentiate itself from major competitors.” The company’s offering documents credited DouYu’s large, enthusiastic, and highly engaged user base for attracting and retaining its top streamer pool, stating:

“We believe we are the go-to platform for game-centric live streaming in China . . . Our rich and dynamic content offerings and engaging social media features bolster organic growth of our user base.”

Yet DouYu withheld from its IPO investors that, in fact, many top gamers were departing en masse for competitors. Further, shareholders claimed they were unaware that DouYu’s “lucky draw” gifting feature ran afoul of Chinese gambling regulations, and that one of the site’s most popular streamers — a woman known as “Your Highness Qiao Biluo” — had used video software to disguise her age.

In the months after the IPO, the truth was gradually revealed, as media and analysts reported a decline in DouYu’s revenue, leading DouYu’s share price to plummet 47%.

The settlement is on behalf of all investors who bought DouYu American depositary shares between July 16, 2019, and Jan. 21, 2020, and resolves all claims against IPO underwriters JPMorgan Securities LLC, Morgan Stanley & Co. LLC, BofA Securities Inc. and CMB International Capital Ltd., as well as Cogency Global Inc., DouYu’s U.S. representative for its offering.