Pomerantz Appointed Co-Lead Counsel in JOYY Securities Litigation
On February 23, 2021, U.S. District Judge Stanley Blumenfeld, Jr. of the Central District of California appointed Pomerantz LLP as Co-Lead Counsel on behalf of Co-Lead Plaintiff Suresh Goyal in Hershewe v. JOYY Inc. et al., 20-cv-10611 (C.D. Cal.), a securities action brought on behalf of a class of defrauded investors concerning allegations that JOYY Inc. (“JOYY” or the “Company”) misled investors regarding the source of its streaming traffic and the amount of its streaming revenue.
JOYY is a Chinese video-based social media platform that operates live streaming channels for entertainment and group activities.
Allegations include that Defendants failed to disclose that: (i) JOYY had dramatically overstated its live streaming revenue; (ii) the majority of the Company’s live streaming users were bots that created the false appearance of revenue generation; (iii) JOYY overstated its cash reserves; and (iv) the Company’s acquisition of Bigo, Inc. (“Bigo”), a global live streaming social media platform controlled by CEO Li, was largely contrived to benefit corporate insiders.
On April 28, 2016, April 20, 2017, April 26, 2018, April 26, 2019 and April 27, 2020, JOYY filed annual reports with the SEC in which it reported year-over-year net revenue increases of 60.3%, 39.1%, 41.3%, 36% and 62.2%, respectively. The Company also reported an increasing number of paying users each year — 7.2 million in 2015, 11 million in 2016, 16.6 million in 2017, 19.8 million in 2018 and 23.8 million in 2019.
On March 5, 2019, JOYY issued a press release announcing that it had completed its acquisition of Bigo, a company in which it had already held a 31.7% interest. JOYY purchased the outstanding 68.3% interest from Bigo’s shareholders, including CEO Li, who personally received over $343 million in cash as part of the deal. CEO Li stated “Bigo has delivered both rapid user growth and significant monetization progress in 2018, making it one of the fastest growing internet companies worldwide.”
The truth emerged on November 18, 2020, when Muddy Waters Capital (“Muddy Waters”), an investigative research firm, published a report alleging that JOYY was “a multibillion-dollar fraud” and its “reported user metrics, revenues, and cash balances are predominantly fraudulent.” Citing a “year-long investigation,” during which they found significant discrepancies between the financial statements of the Company and those of its top streaming channel owners, Muddy Waters concluded that “[a]pproximately 84% of [JOYY’s] reported consolidated revenue appears to be fraudulent” and that JOYY-controlled “bot farms creat[ed] hundreds or thousands of [fake] viewers.” Muddy Waters also determined that “[JOYY], and not [CEO] Li, founded Bigo,” but, in “a scheme to bilk investors,” ownership was transferred to CEO Li before its acquisition for his own enrichment. On this news, JOYY’s share price fell $26.53 per share, or 26.4%, to close at $73.66 per share on November 18, 2020.