Handal v. Tenet Fintech Group Inc.

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

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ALEJANDRO HANDAL and DONALD

DOMINIQUE, Individually and on Behalf of

All Others Similarly Situated,

Plaintiffs, MEMORANDUM & ORDER

21-CV-6461 (PKC) (RER)

- against –

TENET FINTECH GROUP INC. F/K/A Peak

FINTECH GROUP INC., JOHNSON JOSEPH,

and JEAN LANDREVILLE,

Defendants.

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PAMELA K. CHEN, United States District Judge:

Lead Plaintiff Alejandro Handal and named Plaintiff Donald Dominique (collectively,

“Plaintiffs”), on behalf of a putative class, bring this action against Defendants Tenet Fintech

Group Inc., f/k/a Peak Fintech Group Inc. (“Tenet”), Tenet Chief Executive Officer Johnson

Joseph (“Joseph”), and Tenet Chief Financial Officer Jean Landreville (“Landreville”)

(collectively, “Defendants”) based on alleged violations of the Securities Act of 1933 (“the

Securities Act”) and the Securities Exchange Act of 1934 (“the Exchange Act”). Plaintiffs’

Amended Complaint alleges that: (1) Defendants violated Section 11 of the Securities Act, 15

U.S.C. § 77k (“Count One”); (2) Joseph and Landreville violated Section 15 of the Securities

Act, 15 U.S.C. § 77o (“Count Two”); (3) Defendants violated Section 10(b) and Rule 10b-5 of

the Exchange Act, 15 U.S.C. § 78j(b), 17 CFR § 240.10b-5 (“Count Three”); and (4) Joseph

and Landreville violated Section 20(a) of the Exchange Act, 15 U.S.C. § 78t (“Count Four”).

Defendants have moved to dismiss Plaintiffs’ Amended Complaint pursuant to Federal Rule of

Civil Procedure 12(b)(6). For the reasons that follow, the Court grants the motion to dismiss

in part and denies it in part.

BACKGROUND

I. Relevant Facts1

A. Registration of Defendants’ Common Stock on the Nasdaq and Subsequent

Suspension of Trading

Tenet is a Canadian company operating primarily in China, that “operates as an IT portfolio

management company.” (Am. Compl., Dkt. 25 (hereinafter “Dkt. 25”), ¶¶ 2, 28.) Tenet’s common

stock began trading on the Canadian Stock Exchange on October 23, 2015 under the ticker symbol

“PKK.” (Id. ¶ 21.) Tenet’s common stock has also been available for purchase on the over-the-

counter (OTC) markets “OTCQB” and “OTCQX” (hereinafter referred to generally as “OTC

markets”)—which enables securities to be traded “between brokers and dealers who negotiate

directly” and is “not an organized securities exchange”2—at various times, including from October

2015 to September 8, 2021. (Id. ¶¶ 4, 21; see also Defs.’ Mot. To Dismiss, Dkt. 33-1 (hereinafter

“Dkt. 33-1”), at 3.) In 2021, Defendants made plans to have their stock listed on a standard market

exchange in the United States and used a Form 40-F, a form for companies incorporated in

Canada,3 to register Tenet’s common stock in the United States. (Id. ¶¶ 2, 28.) Defendants’ Form

1 The Court accepts as true all factual allegations in the Amended Complaint. See Ashcroft

v. Iqbal, 556 U.S. 662, 678 (2009) (“[F]or the purposes of a motion to dismiss we must take all of

the factual allegations in the complaint as true[.]”) (quoting Bell Atl. Corp. v. Twombly, 550 U.S.

544, 555 (2007)).

2 See In re iAnthus Cap. Holdings, Inc. Sec. Litig., No. 20-CV-3135 (LAK), 2021 WL

3863372, at *3 (S.D.N.Y. Aug. 30, 2021) (quoting Black’s Law Dictionary 1331 (11th ed, 2019)).

3 Form 40–F is used to “register securities” with the Securities and Exchange Commission

“pursuant to section 12(b) or 12(g) of the Exchange Act” and can be used if “(1) [t]he registrant is

incorporated or organized under the laws of Canada or any Canadian province or territory; (2) [t]he

registrant is a foreign private issuer or a crown corporation; (3) [t]he registrant has been subject to

the periodic reporting requirements of any securities commission or equivalent regulatory

authority in Canada for a period of at least 12 calendar months immediately preceding the filing

40-F Registration Statement (“Registration Statement”) was filed with the Securities and Exchange

Commission (“SEC”) on September 3, 2021, seeking to have Tenet’s securities listed on the

Nasdaq Stock Market (“Nasdaq”). (Id. ¶¶ 2, 3.) Defendants then issued a press release on

September 7, 2021 noting that “the Nasdaq Stock Market LLC ha[d] approved the listing” of the

company’s common stock, and that such stock would begin trading on the Nasdaq under ticker

symbol “TNT” on Thursday, September 9, 2021. (Id. ¶¶ 4, 21.) In a September 8, 2021 letter to

the SEC, Nasdaq’s Vice President (“VP”) of Listing Qualifications, Eun Ag Choi, wrote to convey

Nasdaq’s approval for the listing and registering of Defendants’ securities. (Id. ¶ 3.) In the letter,

Choi wrote, “We understand that the Registrant is seeking immediate acceleration of the effective

date of registration, and we hereby join in such request.” (Id.) Consistent with the information in

this press release, the “TNT” securities began trading on the Nasdaq on September 9, 2021. (Id. ¶

21.)

Less than two weeks after Nasdaq VP Choi’s letter to the SEC, and the listing of Tenet’s

securities, trading of the “TNT” securities came to an abrupt halt. On September 21, 2021,

Defendants issued a press release stating that the Nasdaq had advised Defendants that the SEC was

“still in the process of reviewing the Company’s registration statement” and that, because “the

review process [was] taking longer than originally expected, trading of [the securities] on the

Nasdaq has been temporarily halted until the SEC completes its review and issues the notice of

effectiveness of the Company’s Form 40-F.” (Id. ¶ 5.) Nasdaq VP Choi then wrote a second letter

to the SEC on September 28, 2021, stating that the Nasdaq “had approved [the securities] for listing

of this Form and is currently in compliance with such obligations; and (4) [t]he aggregate market

value of the public float of the registrant’s outstanding equity shares is $75 million or more.” 17

C.F.R. § 249.240f (2012).

and registration upon official notice of issuance,” and that the securities began trading on the

Nasdaq on September 9, 2021, but that the Nasdaq had “halted trading” of the securities when it

became aware that “the Division of Corporation Finance ha[d] not yet accelerated the effective

date of the Company’s Form 40-F 12(b) registration statement.” Therefore, Nasdaq VP Choi

wrote, the Nasdaq was withdrawing its “earlier certification of approval.” (Id. ¶ 7.)

In the window of time between the Nasdaq listing Tenet’s securities and then halting their

trading due to the SEC’s failure to accelerate the effective date of the Registration Statement,

Tenet’s securities were available for sale on the Nasdaq for approximately eleven days and were

purchased by various individuals, including Plaintiffs. (Id. ¶ 31.) Lead Plaintiff Handal purchased

72,598 shares of Defendants’ stock between September 14, 2021 and September 15, 2021. (Id. ¶

19.) Named Plaintiff Dominique purchased 910 shares of Defendants’ stock on September 9,

2021. (Id. ¶ 20.)

On September 28, 2021, Defendant Joseph wrote to the SEC on behalf of Defendants

requesting that the SEC consent to the withdrawal of their Registration Statement. (Id. ¶ 8.)

Plaintiffs allege that this withdrawal was due to Defendants’ “fail[ure] to comply with the SEC’s

risk disclosure guidance regarding its Chinese operations.” (Id. ¶ 9.) On September 29, 2021, the

Nasdaq de-listed Defendants’ stock and the share price fell 17%. (Id.) Tenet’s securities currently

trade on the OTC markets in the United States under the ticker symbol “PKKFF.” (Id. ¶ 21.)

B. Defendants’ Alleged Misstatements

In the wake of the Nasdaq listing and de-listing, on October 4, 2021, market analyst

“Grizzly Research” published a report (the “Grizzly Report”) asserting that Tenet had engaged in

“questionable” business practices and identifying three examples of Tenet’s disclosures about

corporate transactions that Grizzly Research alleged were false. (See generally Dkt. 25-2.) The

Grizzly Report contained footers on nearly every page indicating that the authors of the report had

a “direct or indirect short position in the stock (and/or options, swaps, and other derivatives related

to one or more of these securities) of the company covered” in the report and therefore stood to

“realize significant gains in the event that the price of PKK’s stock decline[d].” (See, e.g., Dkt.

25-2, at ECF 2, 4–24.) 4 Plaintiffs rely on the three corporate transaction examples in the Grizzly

Report as the basis for their complaint, alleging that the information disclosed about these

transactions in the Registration Statement, as well as subsequent statements made by Joseph about

these transactions, were material misrepresentations and omissions in violation of the securities

laws. (Dkt. 25, ¶ 123, see also Dkt. 25-2, at ECF 2.) When the Grizzly Report was published,

Tenet’s stock price fell again, this time by 17.47%.5 (Dkt. 25, ¶ 123.) The following day, Joseph

participated in a question-and-answer session (“the Q&A”) with StockFam, an investor platform,

refuting the Grizzly Report’s findings, and Tenet’s stock price rose by 23.1%. (Id. ¶¶ 38, 124.)

Plaintiffs allege that the Q&A was “rife with materially false and misleading statements.” (Id.)

On October 13, 2021, “Grizzly Research” published a rebuttal report (“Rebuttal Report”) which

again took aim at the three problematic statements identified in the original Grizzly Report. (Id.)

Once the Rebuttal Report was published, Tenets’ share price fell 6%. (Id.)

The three allegedly false statements by Defendants identified in the Grizzly Report are: (1)

Tenet was in the process of acquiring a 70% equity stake in the company Jinxiaoer (Id. ¶¶ 35, 94);

(2) Tenet was going to acquire a 51% stake in the company Asia Synergy Financial Capital

(“ASFC”) for $10.2 million Canadian (Id. ¶¶ 43, 101); and (3) Tenet had acquired the assets of

4 Citations to “ECF” refer to the pagination generated by the Court’s electronic docketing

system and not the document’s internal pagination.

5 By this time, though Tenet’s securities had been withdrawn from the Nasdaq, they

continued to be traded on the OTC markets. (Id. ¶ 9.)

Beijing company Huayan Kun Thai Technology Company Ltd. (“Huayan”), which primarily

operated an insurance product called Heartbeat (Id. ¶ 83).

1. Jinxiaoer Acquisition

Plaintiffs allege that Defendants’ Registration Statement falsely stated that Defendants had

acquired a 70% equity interest in Jinxiaoer, a Chinese company operating a popular financial

lending application (“Jinxiaoer Platform”). (Id. ¶ 10.) According to an announcement made by

Tenet in December 2019, Defendants agreed to pay $600,000 in cash and $800,000 in Tenet’s

common stock over 18 months for this 70% stake in Jinxiaoer. (Id. ¶ 93.)

Tenet never acquired an equity interest in Jinxiaoer or the Jinxiaoer Platform. (Id. ¶ 10.)

Certain corporate records show that six entities own Jinxiaoer, none of which is Tenet or any of

Tenet’s subsidiaries. (Id. ¶¶ 41, 99.) Additionally, a search of publicly available records shows

that the Jinxiaoer Platform is still owned by Jinxiaoer and not Tenet. (Id. ¶¶ 42, 100.) In

disclaiming the Grizzly Report’s accusations, Joseph indicated in the Q&A that Tenet was

interested in Jinxiaoer’s assets as opposed to equity: “When [Tenet] acquired Jinxiaoer’s assets,

the plan was to roll everything over into a new subsidiary. But [Tenet] eventually decided that it

would be best to revamp the software and the business model to better fit into our Business Hub.

So right now, we’re using Jinxiaoer’s technology, but not through a standalone subsidiary.” (Id.

¶¶ 38, 117.) Plaintiffs allege that Joseph’s statement was untrue when he made it. (Id. ¶ 118.)

2. Ownership of ASFC

Plaintiffs allege that Defendants’ Registration Statement falsely stated that the company

ASFC was “one of [Tenet’s] key subsidiaries,” and falsely listed its ownership of ASFC at 51%.

(Id. ¶¶ 44, 102.) The Grizzly Report asserted that Tenet never owned ASFC and that the company

is instead owned by two other companies and three individuals, none of which seem to have a

connection to Tenet. (Id. ¶ 45.) To rebut this claim, Joseph told investors in the Q&A that the two

company shareholders and two of the three individual shareholders of ASFC held 51% of the

company on Tenet’s behalf pursuant to a nominee shareholder agreement. (Id. ¶¶ 46, 104.) Joseph

also stated that the Report’s author could have verified this arrangement “with a minimum amount

of research.” (Id.)6 However, based on a public database research of ASFC’s owners, no

combination of the reported ownership percentages of the five entities—the two corporate

shareholders and the three individual shareholders—adds up to 51%. (Id. ¶¶ 49–52; 107–10.)

3. Huayan Acquisition

On September 14, 2021, during the brief period when Tenet’s securities were trading on

the Nasdaq, Tenet announced that it had acquired the assets of Huayan, a Chinese company

providing software services through its proprietary “Heartbeat” insurance product management

and brokerage platform. (Id. ¶ 83.) Specifically, Defendants stated that Huayan’s employees and

operations would be transferred to Tenet’s subsidiary Xinxiang Technologies Ltd. (Id.) Plaintiffs

allege that this statement was false because Huayan did not and does not actually own the Heartbeat

platform. (Id. ¶¶ 84–85.) Instead, a third-party company called Beijing Huike Hulian Technology

Ltd. (“Huike”), owned by an individual named Kai Cui, solely owns the Heartbeat platform as

evidenced by Huike filing annual reports and a trademark application for the Heartbeat product.

(Id. ¶ 85.)

In the Q&A, Joseph denied that its claim about purchasing the Heartbeat platform was false

by saying, “Huayan and Huike are affiliated companies owned by the same people and that’s who

our transaction is with.” (Id. ¶ 86.) He then went on to explain that Defendants had asked Huayan

6 The Amended Complaint characterizes this statement as “paradoxical,” given

Defendants’ “admitted effort of hiding such clandestine arrangement—if it even existed.” (Id.)

to transfer “all its IP, including the Heartbeat platform” to Huike as a way of isolating the assets

to be acquired until the deal was finalized, but that Huayan had indeed been the “operating

company leveraging the Heartbeat platform until this year.” (Id.) The Rebuttal Report disputed

the truth of that statement, alleging that Huayan had never owned or operated Heartbeat, let alone

. . . transferred Heartbeat to Huike. (Id. ¶ 87.) Plaintiffs’ own research shows that there is no

overlap in the IP rights and assets owned by Huike and Huayan, which, Plaintiff alleges, supports

the inference that Huayan never transferred any IP rights to Huike. (Id. ¶ 90.) At the time the

Amended Complaint was filed, Huike still owned Heartbeat and no acquisition of Heartbeat or

Huayan’s assets had been made by Defendants. (Id. ¶ 92.)

II. Procedural History

Plaintiffs filed their initial complaint on November 19, 2021. (Dkt. 1.) Thereafter, three

putative class members filed motions to be appointed as lead plaintiff along with their lawyers to

be appointed as lead counsel. (See Dkts. 5, 8, 10.) Subsequently, two of the three motions were

withdrawn and Lead Plaintiff Handal’s motion to be appointed lead plaintiff was granted. (Dkt.

17.) The Rosen Law Group was appointed as lead counsel by the same order. (Id.) On February

22, 2022, the Court approved a joint stipulation by the parties that extended Plaintiffs’ time to

amend their complaint to April 11, 2022. (See 2/22/2022 Docket Order.) Plaintiffs filed the

Amended Complaint by that deadline. (Dkt. 25.) On June 10, 2022, Defendants requested a pre-

motion conference in anticipation of filing a motion to dismiss Plaintiffs’ claims. (Dkt. 26.)

Plaintiffs responded to this request for a pre-motion conference on June 24, 2022. (Dkt. 27.) The

Court denied Defendants’ pre-motion conference request as unnecessary and allowed the

Defendants to move forward with their motion to dismiss. (See 6/25/2023 Docket Order.) The

instant motion to dismiss was fully briefed on October 24, 2022.

LEGAL STANDARD

To withstand a Federal Rule of Civil Procedure 12(b)(6) motion to dismiss, “a complaint

must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible

on its face.” Spira v. Aeroflot-Russian Airlines, 552 F. Supp. 3d 418, 422 (E.D.N.Y. 2021)

(ultimately citing Twombly, 550 U.S. at 570 (quotations omitted)). “The plausibility standard does

not require detailed factual allegations, but it demands more than unadorned, the-defendant-

unlawfully-harmed-me accusations.” Zhong Zheng v. Pingtan Marine Enter. Ltd., 379 F. Supp.

3d 164, 175 (E.D.N.Y. 2019) (citing Iqbal, 556 U.S. at 678 (cleaned up)). A complaint must

contain sufficient “factual content,” generally accepted as true, to allow the Court to “draw the

reasonable inference that the defendant is liable for the misconduct alleged.” Brooklyn Union Gas

Co. v. Exxon Mobil Corp., 554 F. Supp. 3d 448, 457 (E.D.N.Y. 2021) (quoting Matson v. Bd. of

Educ., 631 F.3d 57, 63 (2d Cir. 2011)). “Dismissal is inappropriate unless it appears beyond doubt

that the plaintiff can prove no set of facts which would entitle him or her to relief.” Sweet v.

Sheahan, 235 F.3d 80, 83 (2d Cir. 2000).

DISCUSSION

I. Securities Act Claims

A. Count One: Violation of Section 11 of the Securities Act, 15 U.S.C. § 77k

The Court will first address Defendants’ motion to dismiss Count One of the Amended

Complaint, which alleges that Defendants violated Section 11 of the Securities Act, 15 U.S.C.

§ 77k, by making materially misleading statements in their September 3, 2021 Registration

Statement used to list Tenet stocks on the Nasdaq.

“Section 11 of the Securities Act prohibits materially misleading statements or omissions

in registration statements filed with the SEC.” In re Morgan Stanley Info. Fund Sec. Litig., 592

F.3d 347, 358 (2d Cir. 2010). The relevant statutory provision provides:

In case any part of the registration statement, when such part became

effective, contained an untrue statement of a material fact or omitted to state

a material fact required to be stated therein or necessary to make the

statements therein not misleading, any person acquiring such security. . .

may, either at law or in equity, in any court of competent jurisdiction, sue[.]

15 U.S.C. § 77k(a). “To state a claim under section 11, the plaintiff must allege that: (1) she

purchased a registered security, either directly from the issuer or in the aftermarket following the

offering; (2) the defendant participated in the offering in a manner sufficient to give rise to liability

under section 11; and (3) the registration statement ‘contained an untrue statement of a material

fact or omitted to state a material fact required to be stated therein or necessary to make the

statements therein not misleading.’” In re Morgan Stanley, 592 F.3d at 358–59 (quoting 15 U.S.C.

§ 77k(a)).

In contrast to claims brought under Section 10(b) of the Exchange Act, which the Court

discusses further infra, claims brought under Section 11 of the Securities Act do not need to allege

scienter, reliance, or loss causation. Id. at 359. In order to assert a Section 11 claim, however,

Plaintiffs must be able to “trace their shares to an allegedly misleading registration statement.” In

re Glob. Crossing, Ltd. Sec. Litig., 313 F. Supp. 2d 189, 206 (S.D.N.Y. 2003) (quoting DeMaria

v. Andersen, 318 F.3d 170, 176 (2d Cir. 2003)). “At least one named plaintiff must be a member

of that class—that is, a named plaintiff must have purchased shares traceable to the challenged

offering.” In re Glob. Crossing, 313 F. Supp. 2d at 207.

1. Section 11’s Applicability to Securities Offered Through Form 40-F

Defendants’ threshold argument is that the Form 40-F that Defendants used to register their

securities on the Nasdaq—which is used by Canadian companies or foreign private issuers to

register their stocks in U.S. exchanges—is not subject to Section 11 of the Securities Act because

it is not a “registration statement” as contemplated by the statute. (Dkt. 33-1, at 7–8.) Defendants’

argument has no basis in either the letter or spirit of the securities laws, and therefore fails.

Section 11 of the Securities Act refers simply to a “registration statement,” 15 U.S.C.

§ 77k(a), and the definition of “registration statement” is simply “the statement provided for in

section 77f of this title, and includes any amendment thereto and any report, document, or

memorandum filed as part of such statement or incorporated therein by reference.” 15 U.S.C.

§ 77b(a)(8). Section 77f, in turn, provides for the method of registering securities. See 15 U.S.C.

§ 77f. Instead of being narrowly defined, as Defendants argue, a registration statement is any

document that is the means of registering securities. The statutory language provides for a wide

range of documents to be considered “registration statements,” and the Court finds no basis for

artificially narrowing this term to conform to Defendants’ interpretation.

Notwithstanding the statute’s broad language, this case does not present a close call. By

Form 40-F’s own terms, the form can be used as a “registration statement pursuant to Section 12

of the Exchange [Act]” or an “annual report pursuant to Section 13(a) or 15(d) of the Securities

[Act].” (Def’s. Form 40-F, Dkt. 33-3 (hereinafter “Dkt. 33-3”), at ECF 2.) Defendants elected the

former option, using their Form 40-F to “register”7 their common shares for trading on the Nasdaq

7 Defendants consistently use the term “list” instead of “register” as part of their argument

that the action of holding out their common stock for sale on the Nasdaq was not an “offer” of

securities as contemplated by Section 11’s text. (See, e.g., Def’s. Reply, Dkt. 36 (hereinafter “Dkt.

36”), at 1 n.2.) The Court declines to adopt this artificial semantic distinction and uses “offer’ and

“pursuant to Section 12(b) of the Exchange Act.”8 (Id.) Plaintiffs point to the form’s wording as

a “registration statement” and also to the form’s instructions to argue that the Form 40-F was

indeed a registration statement for purposes of Section 11 liability. (Pl’s. Opp’n, Dkt. 34

(hereinafter “Dkt. 34”), at 1, 7.) Even Defendants refer to the Registration Statement as just that—

a registration statement—in their September 21, 2021 press release, in which they stated that the

SEC was “still in the process of reviewing the Company’s registration statement, known as Form

40-F[.]” (Dkt. 25, ¶ 54 (emphasis added).) Additionally, Plaintiffs point to an instruction on Form

40-F that specifically carves out a safe harbor protection from Section 11 liability, indicating that

Section 11 otherwise applies to the form. (Dkt. 34, at 7; see also Form 40-F, at 8, (d)(1).) Plaintiffs

cite to Carmack v. Amaya Inc., in which the district court rejected an argument similar to

Defendants’ registration of their securities made via a Form 40-F as a registration statement for

purposes of Section 11 liability. See 258 F. Supp. 3d 454, 461 (D.N.J. 2017) (“[Defendant] filed

its Registration Statement pursuant to Section 12 of the Exchange Act . . . on SEC Form 40-F in

order to become a reporting company under the Act.”). In Carmack, the defendant Canadian

company used a Form 40-F as a registration statement to list its common stock on the Nasdaq,

exactly as Defendants have done here, and the plaintiffs in that action sued the defendants under

“list” interchangeably because the Court finds that these terms convey the same meaning in this

context.

8 Section 12(b) of the Exchange Act provides, in relevant part: “A security may be

registered on a national securities exchange by the issuer filing an application with the exchange

. . . which application shall contain . . . [s]uch information, in such detail, as to the issuer and any

person directly or indirectly controlling or controlled by, or under direct or indirect common

control with, the issuer . . . as the Commission may by rules and regulations require[.]” 15 U.S.C.

§ 78l(b).

Section 11 for making materially inaccurate statements in their Form 40-F registration statement.9

Am. Compl. ¶¶ 55, 109, Carmack, No. 16-CV-1884 (D.N.J. Aug. 31, 2016). The Carmack court

found the Section 11 claim adequately pleaded and it thus survived the motion to dismiss.

Carmack, 258 F. Supp. 3d at 469. The Court sees no reason to hold differently here.

Indeed, the Court assumes that there is limited caselaw on whether statements in a Form

40-F can give rise to Section 11 liability for at least two reasons. First, it seems axiomatic that a

Form 40-F is a “registration statement.” Second, to find otherwise would be troubling from a

policy perspective. Allowing foreign companies to skirt Section 11 liability by registering their

securities in the United States via Form 40-F would undermine an important guardrail that protects

the trading public from false statements in registration statements.

Therefore, the Court finds that a registration statement made via Form 40-F is subject to

Section 11 liability.

2. Whether the Form 40-F Registration Statement Became Effective

Defendants’ second line of argument is that even if the Form 40-F is subject to Section 11,

the Registration Statement never became “effective” within the meaning of that term as it appears

in the statute. (Dkt. 33-1, at 11–12.)

The timeline at issue in this case does appear to be unique with respect to the question of

effectiveness. According to the sequence laid out in the Amended Complaint, Defendants’

9 In their reply, Defendants argue that Carmack is distinguishable because in that case, the

defendants filed both a Form 40-F and a Form F-10 and that the registration statement referred to

in the pleadings and incorporated into the Section 11 claim was the Form F-10. (Dkt. 36, at 2.)

Defendants are partially correct, but the Form 40-F registration statement was eventually

incorporated into the Form F-10, so in Carmack, the two forms became one in the same. Carmack,

Dkt. 36, ¶ 64 (“The [Form F-10] November Registration Statement incorporated the [Form 40-F]

May Registration Statement by reference . . . [t]he statements therein were therefore misleading

for the same reasons the May Registration Statement was misleading[.]”).

common stock traded on the Nasdaq absent SEC approval and those stocks were available to the

purchasing public for approximately eleven days before trading was halted and Defendants

withdrew the Registration Statement. According to Nasdaq guidance, “Listing can commence

only upon effectiveness of the security’s registration pursuant to Section 12(d).” See Nasdaq

Procedure 5210(f);10 see also 15 U.S.C. § 77e(a)(1) (“Unless a registration statement is in effect

as to a security, it shall be unlawful for any person, directly or indirectly to . . . sell such

security[.]”.) Despite rules to the contrary, the Nasdaq listed Defendants’ securities, presumably

under the assumption that the SEC would accelerate the effectiveness of Defendants’ Registration

Statement.11

In the absence of clear caselaw regarding what constitutes “effective” registration under

Section 11, the Court again applies common sense and takes into consideration Section 11’s

purpose. If the purchasing public was able to actually buy Defendants’ stock on the Nasdaq, which

was only listed there on the basis of the Registration Statement, the securities laws—including

Section 11’s requirement that all representations in a registration statement be truthful—apply,

even in the absence of the SEC’s seal of effectiveness.12 To find otherwise would penalize

10 The Court takes judicial notice of this Nasdaq guidance, which is available at

https://listingcenter.nasdaq.com/rulebook/nasdaq/rules/nasdaq-5200-series.

11 The Court can only speculate that there was some miscommunication that led the Nasdaq

to clear Tenet’s stock for trading without the necessary SEC approval, but the Court need not

resolve that question. For their part, the parties do not provide any context for this seemingly

aberrant set of events other than Defendants stating that the Nasdaq “prematurely listed” the

securities, seemingly contrary to its own rules. (Dkt. 36, at 3.)

12 Defendants mock Plaintiffs’ argument that the Registration Statement was effective

since they bought the shares as “gibberish.” (Dkt. 36, at 2.) Quite the opposite. It makes inherent

sense that where individuals were able to, and did, purchase actual securities listed on the Nasdaq,

the registration statement that led to the posting of those securities should be deemed effective,

and that the purchasers can avail themselves of the protections of the securities laws. While

Defendants readily accept the fact that Plaintiffs were able to purchase their securities, they argue,

purchasers of securities that were actively traded on the Nasdaq for over a week in reliance on a

listing they had no reason to doubt. The Court therefore finds that the Registration Statement was

effective for purposes of Section 11 liability.

3. Traceability

Defendants next argue that Plaintiffs are not able to trace their shares to the Registration

Statement and thus lack standing to bring a Section 11 claim. (Dkt. 33-1, at 10–11.)

“To bring a claim under § 11, the securities held by the plaintiff must be traceable to the

particular registration statement alleged to be false or misleading.” Slack Techs., LLC v. Pirani,

598 U.S. 759, 768 (2023). These securities cannot simply “bear some sort of minimal relationship

to a defective registration statement,” but must be “registered under the particular registration

statement alleged to contain a falsehood or misleading omission.” Id. at 767. Plaintiffs have met

the traceability prong.

Defendants argue that “[e]ven if the Form 40-F could be considered an effective ’33 Act

registration statement,” Plaintiffs could not trace their purchase of Tenet shares to it “because every

share of Tenet stock was already listed and trading in the market prior to the filing of the Form 40-

F.” (Dkt. 33-1, at 10.) Put another way, Defendants argue that because Tenet’s common stock

was technically available on the OTC markets before they traded on the Nasdaq, Plaintiffs cannot

prove that their purchase of the securities was the product of the Registration Statement that

brought Tenet’s common stock onto the Nasdaq. However, as Plaintiffs point out, this argument

ignores the fact that once Tenet’s securities began trading on the Nasdaq, they ceased being traded

on the OTC markets and were thus available for purchase only on the Nasdaq. (Dkt. 34, at 7; see

as a defense to refunding those purchases, that the “Nasdaq listed Tenet’s shares prematurely.”

However, the premature offering did not render these securities any less purchasable.

also Dkt. 25, ¶ 4 (stating that Tenet’s common stock would continue to trade on the OTC markets

“until market close on Wednesday, September 8, 2021.”) (emphasis added).) Therefore, but for

the Registration Statement, Tenet’s shares would not have been traded on the Nasdaq from

approximately September 9, 2021 to September 21, 2021 and Plaintiffs would not have purchased

them on September 9, 14, and 15, 2021 (Dkt. 25, ¶¶ 19, 20)—which means that Plaintiffs can trace

their shares to Defendants’ allegedly fraudulent Registration Statement.13

4. Plaintiffs Have Sufficiently Pleaded a Section 11 Claim Under Rule 9(b)

Now that the Court has determined that Section 11 applies to the facts of this case, and that

Plaintiffs have standing to bring a Section 11 claim, the Court must decide whether Plaintiffs are

subject to the heightened pleading requirements of Rule 9(b) for their Section 11 allegations or

whether the lesser pleading standards of Rule 8 apply. Compare Fed. R. Civ. P. 9(b) (“In alleging

fraud or mistake, a party must state with particularity the circumstances constituting fraud or

mistake.”) with Fed. R. Civ. P. 8(a) (providing that pleading must contain a “short and plain

statement” of claim showing pleader’s entitlement to relief). For the reasons below, the Court

applies Rule 9(b) and finds that Plaintiffs have alleged a Section 11 claim with sufficient

particularity.

In assessing Section 11 claims, courts must determine whether a plaintiff’s allegations are

“premised on fraud, or merely on negligence.” City of Pontiac Policemen’s & Firemen’s Ret. Sys.

v. UBS AG (“UBS”), 752 F.3d 173, 183 (2d Cir. 2014) (internal citation and quotations omitted).

13 Accordingly, Defendants’ statute of repose defense, arguing that because Tenet’s

common stock was first “offered” in 2015 on the OTC markets, Plaintiffs’ Section 11 claim is time

barred (Dkt. 33-1, at 11), is unavailing because Plaintiffs can trace their shares to the September

3, 2021 Registration Statement. As this lawsuit was filed on November 19, 2021, this action was

brought well within Section 11’s three-year statute of repose, which requires that Section 11 claims

be brought within three years of the securities’ offering. See 15 U.S.C. § 77m.

When the claims “sound in fraud” and are “identical” to a plaintiff’s Section 10(b) claims, the

heightened pleading standard of Federal Rule of Civil Procedure 9(b) applies. Id.

In an effort to have the Court apply Rule 8’s lesser pleading standards, Plaintiffs add a

footnote to the heading in their Amended Complaint titled, “Substantive Allegations Under

Securities Act,” that states, “Plaintiffs specifically disclaim any allegation of fraud, recklessness

or intentional misconduct concerning allegations under the Securities Act.” (Dkt. 25, at 9 n.1.)

Defendants respond that this footnote is not enough to allow the Court to simply apply Rule 8(b).

(Dkt. 33-1, at 12.) Plaintiffs argue in opposition that Rule 8(b) applies because their “Securities

Act and Exchange Act claims are separate.” (Dkt. 34, at 14.) The Court, however, finds that simply

because Plaintiffs took “the trouble to separate their claims into separate sections,” does not mean

that the Court must similarly cabin their Securities Act and Exchange Act claims and apply two

distinct pleading standards. Lighthouse Fin. Grp. v. Royall Bank of Scotland Grp., PLC, 902 F.

Supp. 2d 329, 338–39 (S.D.N.Y. 2012) (applying Rule 9(b) despite plaintiffs’ claims being

separately pleaded), aff’d sub nom. IBEW Local Union No. 58 Pension Trust Fund & Annuity Fund

v. Royal Bank of Scotland Grp., PLC, 783 F.3d 383 (2d Cir. 2015).

Plaintiffs also ask the Court to compare the allegations in the Securities Act section of the

Amended Complaint with their Exchange Act allegations in the Amended Complaint to argue that

the claims are not “nearly identical,” as Defendants argue. (Dkt. 34, at 14.) An examination of

the allegations in the Amended Complaint, however, leads the Court to conclude that the

allegations in both sections of this document are “substantively identical.” UBS, 752 F.3d at 183.

For example, both sections contain identically worded headings and allege the same core facts

giving rise to Plaintiffs’ claims. Plaintiffs’ attempt to thread the needle by providing minimally

edited articulations of the two sets of claims—all of which rely on the same alleged

misstatements—to create the illusion that the claims are distinct is unavailing. Compare Dkt. 25,

¶ 38 with Dkt. 25, ¶ 96. Indeed, in some instances, Plaintiffs use the exact same language to

describe their allegations. As but one example, under both the Securities Act section and the

Exchange Act section of the Amended Complaint, Plaintiffs call the Jinxiaoer deal a “fake

transaction.” (Dkt. 25, ¶¶ 37, 95.)

For the Court to apply Rule 8’s more liberal pleading standards to Plaintiffs’ Section 11

claim, the Court would need to find that Plaintiffs’ Section 11 claims plead “at most negligence.”

Fresno Cnty. Emps. Ret. Ass’n v. comScore, Inc., 268 F. Supp. 3d 526, 557 (S.D.N.Y. 2017). But

Plaintiffs allege more than mere negligence in their Section 11 claims; they suggest knowing and

intentional deception and fraud. For example, in explaining Joseph’s Q&A response to the Grizzly

Report’s statements on Defendant’s ownership of ASFC, Plaintiffs state:

Joseph explained, without any supporting documents, that the two company

shareholders of ASFC and two of the three ASFC individual shareholders secretly

hold 51% ownership on Tenet’s behalf pursuant to a nominee shareholder

agreement to circumvent Chinese regulatory restrictions. Paradoxically, Joseph

claimed that Grizzly could have “easily verified [such nominee shareholder

arrangement] with a minimum amount of research” despite [Defendant’s] admitted

effort of hiding such clandestine arrangement—if it even existed.

(Dkt. 25, ¶ 46 (emphasis added, bracket in original).) The language of this paragraph, coupled

with allegations of false statements throughout the Securities Act section of the Amended

Complaint (referencing “untrue statements,” and “false and misleading” statements) lead the Court

to conclude that this is not a case where Plaintiffs have relied on a theory of negligence for their

Securities Act claims.14 Therefore, because Plaintiffs Section 11 claims are “premised on

14 Plaintiffs point the Court to the decision in Altayyar v. Etsy, Inc., 242 F. Supp. 3d 161

(E.D.N.Y. 2017) to argue that, as in Altayyar, Rule 8 should be applied. (Dkt. 34, at 14 n.26.) In

that case, the court found that Plaintiff had used phrases “evocative of negligence,” such as

“through the exercise of reasonable diligence,” “duty to make a reasonable and diligent

investigation of the statements,” and “exercise reasonable care.” Id. at 185. While, here, Plaintiffs

allegations of fraud,” the Court holds Plaintiffs to the Rule 9(b) standard. Rombach v. Chang, 355

F.3d 164, 170 (2d Cir. 2004).

But even applying Rule 9(b), the Court finds that Plaintiffs have alleged their Section 11

claim with sufficient particularity. First, the Amended Complaint clearly identifies the three

alleged misstatements that were incorporated into the Registration Statement that form the basis

of their Section 11 claim: (1) Defendants’ certification statement that the Registration Statement

“meets all of the requirements for filing a Form 40-F” (Dkt. 25, ¶ 53); (2) Exhibit 99.172,

incorporated into the Registration Statement, which stated that Tenet acquired a “70% equity stake

in Jinxiaoer” (Id. ¶ 55); and (3) Exhibits 99.241 and 99.240, incorporated into the Registration

Statement, which listed ASFC as one of Tenet’s key subsidiaries and represented that Tenet owned

51% of that company (id. ¶ 57). Each of these categories of alleged misstatements is accompanied

by specific reasons as to why Plaintiffs believe these statements were false and misleading. (Id.,

¶¶ 54, 56, 58.) Therefore, the Court finds that this is sufficient information to satisfy Rule 9(b)’s

heightened pleading requirement and puts Defendants on fair notice of Plaintiffs’ securities fraud

claims. In re AOL Time Warner, Inc. Sec. and ERISA Litig., 381 F. Supp. 2d 192, 215 (S.D.N.Y.

2004) (holding securities fraud plaintiffs to 9(b) standard despite a disclaimer in their complaint,

and finding that they met the higher pleading standard). “[T]o hold otherwise would require

securities plaintiffs to produce information at the pleading stage to which they have no access

similarly use the phrase “duty bound” (Dkt. 25, ¶ 10) and “exercise of reasonable diligence” (Id.

¶ 73) in an apparent attempt to state a negligence theory, these nominal efforts are unconvincing

where “the gravamen of the complaint is plainly fraud.” See In re Chembio Diagnostics, Inc. Sec.

Litig., 586 F. Supp. 3d 199, 225 (quoting Rombach, 355 F.3d at 172) (finding Rule 9(b) applied to

Section 11 claims even where plaintiffs “insert the classic language of negligence pleading in their

Section 11 claim.”).

because of the [Private Securities Litigation Reform Act’s (“PSLRA”)] mandatory discovery

stay.” Id.

* * *

Therefore, Defendants’ motion to dismiss Count One of the Amended Complaint is denied.

B. Count Two: Violations of Section 15 of the Securities Act - Control Person

Liability

In Count Two of the Amended Complaint, Plaintiffs allege that Defendant Joseph, Tenet’s

CEO, and Defendant Landreville, Tenet’s CFO, violated Section 15 of the Securities Act, which

establishes control person liability for violations of Section 11. To establish Section 15 liability,

a plaintiff must show: (1) a “primary violation” of Section 11; and (2) control of the primary

violator by the defendants. See ECA & Loc. 134 IBEW Joint Pension Tr. of Chicago v. JP Morgan

Chase Co. (“ECA”), 553 F.3d 187, 206–07 (2d Cir. 2009); see also Morgan Stanley, 592 F.3d at

358. Moreover, “[w]hether a person is a ‘controlling person’ is a fact-intensive inquiry, and

generally should not be resolved on a motion to dismiss.” CompuDyne Corp. v. Shane, 453 F.

Supp. 2d 807, 829 (S.D.N.Y. 2006) (citing In re Oxford Health Plans, Inc. Sec. Litig., 187 F.R.D.

133, 143 (S.D.N.Y. 1999)).

As discussed, Plaintiffs have stated a claim for a Section 11 primary violation, so they need

only to sufficiently allege control as to Defendants Joseph and Landreville to state a claim under

Section 15. “Control is defined as ‘the power to direct or cause the direction of the management

and policies of [the primary violators], whether through the ownership of voting securities, by

contract, or otherwise.’” City of Omaha Police & Fire Ret. Sys. v. Evoqua Water Techs. Corp.,

450 F. Supp. 3d 379, 427 (S.D.N.Y. 2020) (quoting S.E.C. v. First Jersey Sec., Inc., 101 F.3d 1450,

1473 (2d Cir. 1996)). “The power to influence managerial decisions is not the same as ‘power to

direct the management and policies of the primary violator.’” Id. at 428 (quoting In re Tronox,

Inc. Sec. Litig., 769 F. Supp. 2d 202, 208 (S.D.N.Y. 2011)). “Actual control” is essential to

establishing control person liability. In re Blech Sec. Litig., 961 F. Supp. 569, 586 (S.D.N.Y.

1997).

Joseph signed the Registration Statement. (Dkt. 33-3, at ECF 6.) At the pleading stage,

this is sufficient to make out a Section 15 control claim against him. See In re Bear Stearns Mortg.

Pass-Through Certificates Litig., 851 F. Supp. 2d 746, 773 (S.D.N.Y. 2012) (holding that

allegations that individual defendants were officers and signed the registration statements at issue

sufficient to “satisfy Plaintiffs’ obligation to plead control”).

The analysis is more complicated when it comes to Landreville, as his signature does not

appear on the Registration Statement. Plaintiffs allege that both Joseph and Landreville were “in

positions to control and did control, the false and misleading statements and omissions contained

in the Registration Statement.” (Dkt. 25, ¶ 76.) And while Landreville is Tenet’s CFO, officer

status by itself, is insufficient to plead control. See In re Alstom SA, 406 F. Supp. 2d 433, 494

(S.D.N.Y. 2005) (“[S]tatus as officer or committee member is generally not enough to constitute

control[.]”). Because Landreville did not sign the Registration Statement and the Amended

Complaint contains nothing more than boilerplate allegations to establish that Landreville was a

control person of Tenet at the time of the Registration Statement’s publication, the Court finds

that, at this stage, Plaintiffs have not sufficiently alleged a Section 15 control claim as to him. See

In re Glob. Crossing, 2005 WL 1875445, at *3 (“Conclusory allegations of control are insufficient

as a matter of law.”); see also In re Flag Telecom Holdings, Ltd. Sec. Litig., 352 F. Supp. 2d 429,

457 (S.D.N.Y. 2005) (dismissing Section 15 claim as to two individual defendant officers who did

not sign the registration statement at issue and because plaintiffs insufficiently pleaded that these

individuals controlled the defendant company).

* * *

In sum, the Court finds that Plaintiffs have sufficiently alleged a violation of Section 11,

and a violation of Section 15, but only as to Joseph. Therefore, Defendants’ motion to dismiss

Count Two of the Amended Complaint is denied as to Joseph and granted as to Landreville.

II. Exchange Act Claims

A. Count Three: Violations of Section 10(b) of the Exchange Act and Rule 10b-5

– Misstatements and Omissions Concerning Business Ownership

In Count Three of the Amended Complaint, Plaintiffs claim that Defendants violated

Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder for misstatements and

omissions concerning the three business transactions discussed infra (see Background Section

I.B.1–3). (See Dkt. 25, ¶¶ 111–22; 135–44.)

1. Section 10(b) and Rule 10b-5 Standard

Section 10(b) of the Exchange Act provides that:

It shall be unlawful for any person, directly or indirectly, by the use of any means

or instrumentality of interstate commerce or of the mails, or of any facility of any

national securities exchange—. . . (b) To use or employ, in connection with the

purchase or sale of any security registered on a national securities exchange or any

security not so registered, any manipulative or deceptive device or contrivance in

contravention of such rules and regulations as the Commission may prescribe as

necessary or appropriate in the public interest or for the protection of investors.

15 U.S.C. § 78j(b). SEC Rule 10b-5 further explains that “any manipulative or deceptive

contrivance” includes the following:

It shall be unlawful for any person, directly or indirectly, by the use of any means

or instrumentality of interstate commerce, or of the mails or of any facility of any

national securities exchange, (a) To employ any device, scheme, or artifice to

defraud, (b) To make any untrue statement of a material fact or to omit to state a

material fact necessary in order to make the statements made, in the light of the

circumstances under which they were made, not misleading, or (c) To engage in

any act, practice, or course of business which operates or would operate as a fraud

or deceit upon any person, in connection with the purchase or sale of any security.

17 C.F.R. § 240.10b-5.

To survive a motion to dismiss under Section 10(b) of the Exchange Act, “a plaintiff must

allege that [each] defendant (1) made misstatements or omissions of material fact, (2) with scienter,

(3) in connection with the purchase or sale of securities, (4) upon which the plaintiff relied, and

(5) that the plaintiff’s reliance was the proximate cause of its injury.” ATSI Commc’ns, Inc. v.

Shaar Fund, Ltd. (“ATSI”), 493 F.3d 87, 105 (2d Cir. 2007); see also Ind. Pub. Ret. Sys. v. SAIC,

Inc., 818 F.3d 85, 93 (2d Cir. 2016). As discussed, claims of securities fraud are subject to a

heightened pleading standard under Rule 9(b) of the Federal Rules of Civil Procedure, such that a

party must “state with particularity the circumstances constituting fraud . . . .” (emphasis added);

see also ATSI, 493 F.3d at 99. In the context of a 10(b) claim, the Second Circuit has interpreted

Rule 9(b) to require that a plaintiff must “(1) specify the statements that the plaintiff contends were

fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4)

explain why the statements were fraudulent.” Nakahata v. New York-Presbyterian Healthcare

Sys., Inc., 723 F.3d 192, 197–98 (2d Cir. 2013) (quoting Mills v. Polar Molecular Corp., 12 F.3d

1170, 1175 (2d Cir. 1993) (citation omitted)).

Moreover, under the PSLRA, a plaintiff must “state with particularity facts giving rise to a

strong inference that the defendant acted with [scienter].” 15 U.S.C. § 78u-4(b)(2)(A); see also

ATSI, 493 F.3d at 99. “The plaintiff may satisfy this requirement by alleging facts (1) showing

that the defendants had both motive and opportunity to commit the fraud or (2) constituting strong

circumstantial evidence of conscious misbehavior or recklessness.” ATSI, 493 F.3d at 99. Any

allegation of conscious misbehavior or recklessness should be “viewed holistically and together

with the allegations of motive and opportunity” to determine whether the complaint supports a

strong inference of scienter. Set Cap. LLC v. Credit Suisse Gr. AG, 996 F.3d 64, 78 (2d Cir. 2021).

Although “the requisite intent of the alleged speaker of the fraud need not be alleged with great

specificity,” Chill v. Gen. Elec. Co., 101 F.3d 263, 267 (2d Cir. 1996), the “inference of scienter

must be more than merely plausible or reasonable—it must be cogent and at least as compelling

as any opposing inference of nonfraudulent intent.” Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551

U.S. 308, 314 (2007); see also In re Advanced Battery Tech. Sec. Litig., 781 F.3d 638, 644 (2d Cir.

2015); ECA, 553 F.3d at 198.

2. Application

Defendants argue that Plaintiffs have failed to sufficiently allege that Defendants: (1) made

material misstatements; (2) acted with scienter; and (3) that Plaintiffs’ reliance on these statements

was the proximate cause of their injury. (Dkt. 33-1, at 14–24.) The Court finds that Plaintiffs have

sufficiently pleaded material misstatements, have sufficiently pleaded scienter as to some of the

alleged misstatements, and have not adequately pleaded reliance.

Defendants attempt to circumvent any consideration of the fraud-related allegations in the

Amended Complaint by arguing that the Court cannot rely on the “untranslated Chinese language

exhibits submitted with the Amended Complaint.” (Id. at 15.) As support for this proposition,

Defendants cite to a series of in-circuit decisions where courts have deemed documents

unaccompanied by certified translations inadmissible, in contexts other than motions to dismiss.

(Id.)15 The Court is unpersuaded by this argument and will consider the documents that are

15 Defendants’ reference to In re Advanced Battery Tech. Sec. Litig. to support their

argument is a red herring. In that case, the court declined to consider a foreign-language

screenshot, accompanied by an uncertified translation, that was attached by the defendants to their

motion to dismiss, reasoning that the screenshot was “not incorporated into or fairly comprehended

by the Complaint and because [the plaintiffs] did not rely on them in bringing their lawsuit.” 2012

WL 3758085, at *8 (S.D.N.Y. Aug. 29, 2012). Here, the materials at issue were attached and

relied upon by Plaintiffs in their Amended Complaint, not documents relied upon by Defendants

in their motion to dismiss.

incorporated into the Amended Complaint at this stage of the litigation. See Tellabs, 551 U.S. at

322.

Defendants also suggest that the Court should not consider the Grizzly Report and the

Rebuttal Report because they are the publications of a short seller and thus unreliable. (Dkt. 33-

1, at 17.) Other courts in this circuit have rejected this argument, and the Court similarly rejects

that argument here because the truth or accuracy of the Grizzly Reports are factual disputes not

appropriate for resolution at this stage. See McIntire v. China MediaExpress Holdings, Inc., 927

F. Supp. 2d 105, 124 (S.D.N.Y. 2013) (considering a short seller report in denying defendant

company’s motion to dismiss). Therefore, at this stage of the proceedings, the Court accepts as

true the factual allegations contained in the Grizzly Report and Rebuttal Report upon which

Plaintiffs rely in the Amended Complaint. See Bernstein v. Seeman, 601 F. Supp. 2d 555, 556

(S.D.N.Y. 2009) (“[A] motion to dismiss is not the proper stage at which to resolve factual

disputes.”).

a. Material Misstatements16

Plaintiffs identify six allegedly material misstatements corresponding to Count Three of

their Amended Complaint—two statements relating to the Jinxiaoer acquisition, two statements

related to Tenet’s ownership of ASFC, and two statements related to the acquisition of the

Heartbeat platform from the Huayan company.

16 Defendants do not dispute the materiality of these alleged misstatements, so the Court

does not delve into the materiality analysis. However, the Court does deem these alleged

misstatements “material” because of the “substantial likelihood that a reasonable shareholder”

would consider the statements on important acquisition deals to be important with respect to

Tenet’s value and financial health. Basic Inc. v. Levinson, 485 U.S. 224, 240 (1988).

First, Plaintiffs identify as false Defendants’ inclusion of information about Tenet’s

acquisition of the Jinxiaoer platform via Exhibit 99.172 to their September 3, 2021 Registration

Statement. That information includes the statement that Tenet was going to acquire17 a “70%

equity stake in Jinxiaoer,” and the status update that Tenet “decided to revise Jinxiaoer’s revenue

model” and that it “spent a large portion of the [fourth] quarter on the development and

implementation of features to better meet its clients’ needs and [had] discussed the best ways to

integrate the Jinxiaoer loan brokerage platform into the Lending Hub.” (Dkt. 25, ¶ 115.)

Additionally, Plaintiffs point to the following statement of Joseph in the Q&A as false: “When we

acquired Jinxiaoer’s assets, the plan was to roll everything into a new subsidiary. [. . .] So right

now, we are using Jinxiaoer’s technology, but not through a standalone subsidiary.” (Id. ¶ 117.)

Plaintiffs allege that these two statements regarding Jinxiaoer—(1) the statements made in the

September 3, 2021 Registration Statement and (2) the statements made by Joseph in the October

5 Q&A—were materially false and misleading because Tenet did not acquire and does not own

the Jinxiaoer platform. (Id. ¶ 118.)

Second, Plaintiffs identify as false Defendants’ inclusion of information via Exhibit 99.241

to their Registration Statement about Tenet’s alleged equity ownership of ASFC as one of Tenet’s

“key subsidiaries.” (Id. ¶ 119.) Additionally, Plaintiffs point to another of Joseph’s Q&A

statements as false: “If you recall, Jiu Dong is the company we partnered with to create ASFC,

which owns 49% of ASFC while we own the 51% majority stake. . . . Because of financial

17 Defendants argue that the statement that Tenet “was to acquire” a 70% stake in Jinxiaoer

was a “forward-looking statement” protected by the PSLRA’s safe harbor. (Dkt. 33-1, at 22 n.15.)

A closer look at Exhibit 99.172 to the Registration Statement, however, reveals that Jinxiaoer was

mentioned not just the one time, but 17 times, and many of these references suggest that Jinxiaoer

was already integrated into Tenet’s business. (Dkt. 33-4, at ECF 9, 14, 15.) Thus, the Court does

not apply any forward-looking safe harbor protection to the Jinxiaoer-related statements relied

upon by Plaintiffs.

regulations at the time of its creation, we were advised that it would be better to have local Chinese

individuals or companies hold our shares in ASFC on our behalf . . . through what’s called a

nominee shareholder agreement[.]” (Id. ¶ 121.) Plaintiffs allege that these two statements about

ASFC—(1) the statements made in the September 3, 2021 Registration Statement and (2) the

statements made by Joseph in the October 5 Q&A—were materially false and misleading because

Tenet neither directly nor indirectly owns 51% of ASFC. (Id. ¶ 122.)

Third, Plaintiffs identify as false Defendants’ September 14, 2021 press release announcing

that it had acquired all of Huayan’s assets, including the Heartbeat platform. (Id. ¶ 111.) Plaintiffs

also point to the following Q&A statement by Joseph as false: “Huayan and Huike are affiliated

companies owned by the same people[;] . . . we asked Huayan to transfer all its IP, including the

Heartbeat platform, to Huike back in March.” (Id. ¶ 113.) Plaintiffs allege that these two

statements on Huayan—(1) the statements made in the September 14, 2021 press release and (2)

the statements made by Joseph in the October 5 Q&A—were materially false and misleading

because Huayan never owned Heartbeat, Huayan actively ran its own business (contrary to the

press release’s assertion that Huayan’s management of its assets was “wind[ing] down” in the lead

up to the transfer of these assets to Tenet’s subsidiary), the Tenet subsidiary that was purportedly

going to receive Huayan’s assets is not in operation, and a different company called Huike still

owns Heartbeat. (Id. ¶ 112.)

Defendants argue that “Plaintiffs have not presented the corroboration necessary to rely on

the Grizzly [R]eports,” (Dkt. 33-1, at 19), and caution the Court that it must “closely scrutinize

allegations based on short seller reports” because short sellers “have an obvious motive to

exaggerate the infirmities of the securities in which they speculate.” (Id. at 17 (quoting Long Miao

v. Fanhua, Inc. (“Fanhua”), 442 F. Supp. 3d 774, 801 (S.D.N.Y. 2020).) Defendants distinguish

this case from those where the complaint is found sufficient because the plaintiffs relied on short-

seller reports that were corroborated by their own investigations. (Id. at 19 (citing Lewy v.

SkyPeople Fruit Juice, Inc., No. 11-CV-2700 (PKC), 2012 WL 3957916, at *14 (S.D.N.Y. Sept.

10, 2012) (discussing plaintiffs’ investigators corroborating the material in a short-seller report

that relied on anonymous sources, noting that the investigators set forth their findings “in detail”));

see also In re Longwei Petroleum Inv. Holding Ltd. Sec. Litig., No. 13-CV-214 (HB), 2014 WL

285103, at *2 (S.D.N.Y. Jan. 27, 2014) (plaintiffs’ investigators corroborated short-seller report

through interviews, photographs, and visits). Instead, Defendants argue that this case is “on all

fours” with Fanhua, in which the court dismissed a complaint that relied on a short-seller report

that itself was premised exclusively on anonymous sources. 442 F. Supp. 3d at 803–04 (S.D.N.Y.

2020).

To be sure, courts are critical of anonymous sources relied upon in securities fraud

complaints, and will “dismiss[] some [complaints] but generally sustain[] others where

independent factual allegations corroborated the factual allegation in the complaint drawn from

short-sellers’ reports.” Fanhua, 442 F. Supp. at 801 (emphasis added). The Fanhua court did not

sustain the securities fraud complaint at issue because that complaint did “no more than

recapitulate the [short-seller report]’s characterization of purported interviews with anonymous

sources” and did not “allege any independent corroborative facts, any independent investigation

by counsel, or any contact by plaintiff’s counsel with the interviewees.” Id. at 802 (emphasis

added).

Here, while it is true that the substance of the Amended Complaint’s fraud allegations

largely stems from information contained in the Grizzly Report, Plaintiffs have done more than

simply repackage that report as their Amended Complaint. For starters, the Grizzly Report does

not rely on anonymous sources, but on a number of databases, press releases, and other publicly

available information. (See, e.g., Dkt. 25-2, at ECF 5–8; 10–17.) Therefore, the Grizzly Report

itself contains a significant amount of attributed research and is not a short-seller report premised

on statements from confidential witnesses. Additionally, here, unlike the Fanhua lawyers, who

did “nothing whatsoever” to confirm the statements in the short-seller report, Plaintiffs’ lawyers

have taken steps to corroborate the factual allegations made in the Grizzly Report. Id. at 804. For

example, Plaintiffs accessed China’s National Enterprise Credit Information Publicity System

(“NECIPS”) to confirm the alleged ownership structures for Jinxiaoer, ASFC, and Huayan alleged

in the Grizzly Report. (Dkt. 25, ¶¶ 41, 49, 89.) Additionally, Plaintiffs reviewed records from

Qixinbao—one of China’s largest business databases—to further vet the statements about Huayan

and ASFC in the Grizzly Report. (Id. ¶¶ 12, 50, 90, 91, 108, 109.) Finally, Plaintiffs examined

information on the Jinxaoer platform available on app-purchasing websites in order to assess

whether Tenet owned this asset. (Id. ¶¶ 42, 100.)

Therefore, because the material found in the Grizzly Report was attributed to multiple

publicly available sources, and because Plaintiffs were able to corroborate the Grizzly Report’s

assertions through public database research themselves, the misstatements set forth in the

Amended Complaint are sufficiently alleged. See In re Ideanomics, Inc. Sec. Litig., No. 20-CV-

4944 (GBD), 2022 WL 784812, at *8 (S.D.N.Y. Mar. 15, 2022) (sustaining a complaint where

plaintiffs were able to corroborate the “majority” of claims in an anonymous-sourced short-seller

report, even where plaintiffs could not establish the veracity of one of the report’s claims).

Therefore, because Plaintiffs have posited “independent and particularized facts to corroborate”

the information in the Grizzly Report by accessing the public records and other evidence on which

the Grizzly Reports relied, Plaintiffs have adequately alleged material misstatements for purposes

of its Section 10(b) claim. See Fanhua, 442 F. Supp. at 801.

Accepting all well-pleaded assertions of fact in the Amended Complaint as true, see Iqbal,

566 U.S. at 678, and drawing all reasonable inferences and resolving all doubts in favor of the non-

moving party, see Kaluczky v. City of White Plains, 57 F.3d 202, 206 (2d Cir.1995), the Court

concludes that, under the standards of Rule 9(b) and the PSLRA, Plaintiffs have adequately

pleaded at this stage of the litigation that Defendants made false or misleading statements in the

Registration Statement, and the subsequent investor Q&A, by (1) specifying the statements that

Plaintiffs allege were fraudulent, (2) identifying the speaker, (3) indicating when and where the

statement was made, and (4) explaining why the statement was fraudulent. See Novak v. Kasaks,

216 F.3d 300, 306 (2d Cir. 2000).

b. Scienter

Rule 9(b) and the PSLRA require Plaintiffs to “state with particularity facts giving rise to

a strong inference that the defendant acted with the required state of mind.” 15 U.S.C. § 78u-

4(b)(2)(A). “For an inference of scienter to be strong, ‘a reasonable person [must] deem [it] cogent

and at least as compelling as any opposing inference one could draw from the facts alleged,’” and

“the court must take into account plausible opposing inferences.” ATSI, 493 F.3d at 99 (quoting

Tellabs, 551 U.S. at 323). The requisite mental state is one “embracing intent to deceive,

manipulate, or defraud.” Tellabs, 551 U.S. at 319 (internal quotation marks and citation omitted).

“The inquiry . . . is whether all of the facts alleged, taken collectively, give rise to a strong inference

of scienter, not whether any individual allegation, scrutinized in isolation, meets that standard.”

Id. at 322–23. Ultimately, “[a] complaint will survive . . . only if a reasonable person would deem

the inference of scienter cogent and at least as compelling as any opposing inference one could

draw from the facts alleged.” Id. at 324.

A complaint “may satisfy this requirement by alleging facts (1) showing that the defendants

had both motive and opportunity to commit the fraud or (2) constituting strong circumstantial

evidence of conscious misbehavior or recklessness.” ATSI, 493 F.3d at 99. And where a complaint

does not sufficiently allege that defendants had a motive to defraud the public, it “must produce a

stronger inference of recklessness.” Kalnit v. Eichler, 264 F.3d 131, 143 (2d Cir. 2001). Plaintiffs

argue that Defendants had both the motive and opportunity to commit fraud or, in the alternative,

that they acted with recklessness when perpetrating this fraud. (Dkt. 34, at 19–22.)

(1) Motive and Opportunity

To begin with, there is no doubt that Defendants had the opportunity to manipulate the

price of the “TNT” stock as the corporation and its corporate officers. See, e.g., In re GeoPharma,

Inc. Sec. Litig., 399 F. Supp. 2d 432, 443 (S.D.N.Y. 2005) (“Regarding the ‘opportunity’ prong,

courts often assume that corporations, corporate officers and corporate directors would have the

opportunity to commit fraud if they so desired.”) (citing In re Time Warner Inc. Sec. Litig., 9 F.3d

259, 269 (2d Cir. 1993)). The closer question is whether Plaintiffs have adequately alleged motive.

The Court finds that they have not.

The Amended Complaint contains relatively little information on Plaintiffs’ theory of

scienter. Plaintiffs plead that Defendants “knew that the public documents and statements issued

or disseminated in the name of Tenet were materially false and misleading; knew that such

statements or documents 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 securities laws.” (Dkt. 25, ¶ 139.) Apart from the vague

and conclusory nature of these statements, Plaintiffs do not clearly explain the “why.” They argue

in opposition to the motion to dismiss that Defendants “intentionally lied about the equity and

assets acquisitions that did not even exist to artificially inflate Tenet’s value.” (Dkt. 34, at 20.)

However, “[g]eneral allegations that defendants acted in their economic self-interest are not

enough” to plead a strong inference of scienter. Ganino v. Citizens Utils. Co., 228 F.3d 154, 170

(2d Cir. 2000). Instead, “plaintiffs must assert a concrete and personal benefit to the individual

defendants resulting from the fraud.” Kalnit, 264 F.3d at 139; see also In re Initial Pub. Offering

Sec. Litig., 358 F. Supp. 2d 189, 214 (S.D.N.Y. 2004) (same). All Plaintiffs have done in this case

is plead that, as a result of Defendants’ actions, “the market price of Tenet common shares was

artificially inflated.” (Dkt. 25, ¶ 141.) On its own, that is insufficient. See, e.g., Rombach, 355

F.3d at 177 (2d Cir. 2004) (finding no inference of scienter where defendants’ motives were to

“artificially inflate and maintain the market price of . . . common stock[,]” “complete a previously

arranged corporate acquisition[,] . . . and to retire debt”); San Leandro Emergency Medical Grp.

Sharing Plan v. Philip Morris Cos., Inc., 75 F.3d 801, 813–14 (2d Cir. 1996) (holding that desire

to maintain a high bond or credit rating to maximize marketability of a substantial debt issuance

does not qualify as sufficient motive).

In response, Plaintiffs assert that because the “misstatements/lies” at issue in this case

“directly relate to the acquisition of another company,” motive can be found. (Dkt. 34, at 20

(internal citation and quotations omitted).) This argument is both inadequate and inapposite

because it is entirely conclusory and improperly conflates the type of information with the requisite

state of mind.

Therefore, Plaintiffs do not adequately allege scienter by demonstrating motive and

opportunity.

(2) Conscious Misbehavior or Recklessness

Because the Court finds that Plaintiffs have not adequately pleaded motive, the Court

assesses whether Plaintiffs have adequately pleaded, in the alternative, that Defendants’ conduct

was the product of conscious misbehavior or recklessness. The Court finds that Plaintiffs have

met this burden as to some—but not all—of the alleged misstatements.

“To prove intent based on a theory other than motive-and-opportunity, a securities fraud

plaintiff must allege facts that constitute strong circumstantial evidence of conscious misbehavior

or recklessness.” Bay Harbour Mgmt. LLC v. Carothers, 282 F. App’x 71, 77 (2d Cir. 2008)

(citation omitted). “Recklessness is defined as ‘at the least, . . . an extreme departure from the

standards of ordinary care . . . to the extent that the danger was either known to the defendant or

so obvious that the defendant must have been aware of it.’” ECA, 553 F.3d at 198 (quoting Novak,

216 F.3d at 308). The plaintiffs’ allegations must show both “(1) specific contradictory

information [that] was available to the defendants (2) at the same time they made their misleading

statements.” Glaser v. The9, Ltd., 772 F. Supp. 2d 573, 588 (S.D.N.Y. 2011) (quoting In re PXRE

Group, Ltd., Sec. Litig., 600 F.Supp.2d 510, 536 (S.D.N.Y.2009)). “Where motive is not apparent,

. . . the strength of the circumstantial allegations must be correspondingly greater.” Kalnit, 264

F.3d at 142.

Plaintiffs argue that upon publication of the Grizzly Report, Defendants “had a duty to

verify the accuracy” of the Grizzly Report and that the exculpatory statements given by Joseph in

the Q&A “show fraudulent intent” and “support scienter.” (Dkt. 34, at 22.) The Court notes that

this argument would necessarily apply only to the statements made after October 4, 2021, the day

the Grizzly Report was published. Thus, this argument would potentially salvage only three of the

six alleged misstatements: (1) Joseph’s statement in the October 5, 2021 Q&A as to the Huayan

acquisition (Dkt. 25, ¶ 113), (2) Joseph’s statement in the October 5, 2021 Q&A as to the Jinxiaoer

acquisition (Id. ¶ 118), and (3) Joseph’s statement in the October 5, 2021 Q&A as to the ASFC

acquisition (Id. ¶ 121).18 The Court finds that Plaintiffs’ allegations as to these three statements

are sufficient to demonstrate conscious misbehavior or recklessness by Defendants.

To begin with, the Grizzly Report qualifies as “specific contradictory information” that

was available to Defendants “at the same time” that Defendant Joseph made his statements in the

October 5, 2021 Q&A. Glaser, 772 F. Supp. 2d at 588. Additionally, it is readily apparent that

Joseph, who was at “the highest corporate level” of Tenet, was “on notice” of facts contrary to his

own Q&A statements relating to Jinxiaoer, Huayan, and ASFC after the October 4 publication of

the Grizzly Report. Indeed, Joseph’s statements in the Q&A were in direct response to the Grizzly

Report, which he acknowledged having read in his opening statement in the Q&A. (Dkt. 25-3, at

ECF 2.) Therefore, Plaintiffs have sufficiently alleged scienter as to Joseph. Tenet’s scienter can

be imputed from that of Joseph because the intent of an executive who acted with scienter can be

imputed to a company. See UBS, 875 F. Supp. 2d at 369 (citing Teamsters Local 445 Freight Div.

Pension Fund v. Dynex Cap. Inc., 531 F. 3d 190, 195 (2d Cir. 2008)). Because the Amended

Complaint does not plead specific—or any—facts indicating that Defendant Landreville acted with

reckless disregard for the truth, Joseph’s scienter cannot be imputed to him. See In re Wachovia

18 As discussed, scienter has not been sufficiently pleaded for the following statements

made before publication of the Grizzly Report: (1) the Huayan statement made in the September

14, 2021 Press Release (Dkt. 25, ¶ 111), (2) the Jinxaoer statement made in an exhibit to Tenet’s

September 3, 2021 Registration Statement (Id. ¶ 115), or (3) the ASFC statement made in an

exhibit to Tenet’s September 3, 2021 Registration Statement (Id. ¶ 119).

Equity Sec. Litig., 753 F. Supp. 2d 326, 351 (S.D.N.Y.2011) (allegation that individual defendants

“received reports detailing” problems insufficiently specific for a finding of scienter).

Defendants argue that there is an opposing inference to be made from the comments Joseph

made in the October 5, 2021 Q&A, i.e., that Joseph was making “good faith efforts to describe

complex foreign transactions” with respect to Jinxiaoer, Huayan, and ASFC. (Dkt. 33-1, at 20.)

However, the Court finds that a reasonable person would find “the inference of scienter”—i.e.,

that Joseph was trying to deceive the public about, or distract the public from looking further into,

the supposed transactions with Jinxiaoer, Huayan, and ASFC—“cogent and at least as compelling

as [the] opposing inference of nonfraudulent intent”—i.e., that Joseph was simply trying to break

down complicated transactions. Tellabs, 551 U.S. at 311.

Therefore, Plaintiffs have adequately pleaded scienter on a recklessness theory with respect

to Defendant Joseph’s (and Tenet’s) three statements in the October 5, 2021 Q&A after publication

of the Grizzly Report. Scienter has not been adequately pleaded for any alleged misstatements

that were made by Defendants before October 4, 2021 or as to Defendant Landreville.

3. Reliance

Defendants lastly dispute that Plaintiffs—specifically Lead Plaintiff Handal19—relied on

Defendants’ allegedly fraudulent misconduct in purchasing or selling Tenet securities. (Dkt. 33-

1, at 23–24.) The reliance prong of a prima facie case under 10(b) and 10b-5 is also often referred

to as “transaction causation.” See, e.g., Teamsters Loc. 445 Freight Div. Pension Fund v.

Bombardier, Inc., No. 05-CV-1898 (SAS), 2005 WL 2148919, at *5 (S.D.N.Y. 2005). To

19 Because the Court must rely on the non-conclusory factual allegations in the Amended

Complaint in deciding this motion, the Court declines to consider the email correspondence

attached by Defendants in their motion to dismiss between Lead Plaintiff Handal and Tenet

representatives. (See Dkt. 33-6, at ECF 2–5.)

sufficiently allege transaction causation, a plaintiff must allege that but for the fraudulent statement

or omission, the plaintiff would not have entered into the transaction. See Castellano v. Young &

Rubicam, Inc., 257 F.3d 171 (2d Cir. 2001). “A rebuttable presumption of transaction causation

may be established under the fraud on the market theory, even where a plaintiff was unaware of

the fraudulent conduct at the time of the purchase or sale.” Teamsters Loc. 445 Freight Div.

Pension Fund, 2005 WL 2148919, at *5; DeMarco v. Lehman Bros., Inc., 309 F. Supp. 2d 631,

635 (S.D.N.Y. 2004) (citing Basic, 485 U.S. at 248–49) (explaining that under fraud-on-the-market

theory “where there has been a misrepresentation to the securities marketplace, a rebuttable

presumption arises that investors who purchased or sold securities in an efficient market relied

upon the misrepresentation.”).

The Amended Complaint states that Plaintiffs “relied on the statements [of Defendants]

and/or the integrity of the market price of Tenet common shares during the Class Period in

purchasing Tenet common shares at prices that were artificially inflated as a result of Defendants’

false and misleading statements.” (Dkt. 25, ¶ 141.) The Amended Complaint also invokes the

fraud-on-the-market doctrine.20 (Id., ¶¶ 132–33.) To support this inference, Plaintiffs allege that

Tenet’s common stock was listed and actively traded on the OTC markets and on the Nasdaq, both

“efficient markets.” (Id., ¶ 132.a.)

20 Plaintiffs also include one paragraph invoking the Affiliated Ute presumption of reliance

(Dkt. 25, ¶ 134), which can be applied in cases “involving primarily a failure to disclose.”

Affiliated Ute v. United States, 406 U.S. 128, 153 (1972) (emphasis added). This presumption

relieves plaintiffs of the need to plead positive proof of reliance in order to recover under Section

10b-5. Id. Here, Plaintiffs’ Amended Complaint points to misstatements, not omissions, so the

Affiliated Ute presumption does not apply. See Waggoner v. Barclays PLC, 875 F.3d 79, 96 (2d

Cir. 2017) (concluding that investors were not entitled to the Affiliated Ute presumption because

the complaint alleged numerous affirmative misstatements, and any alleged “omission” was

“simply the inverse” of the misrepresentation allegations, and the presumption does not apply to

“misstatements whose only omission is the truth that the statement misrepresents”).

Defendants counter that Plaintiffs have not pleaded an efficient market because the OTC

markets are “not presumed to be efficient,” and Tenet’s shares traded on the Nasdaq for only two

weeks. (Dkt. 36, at 8–9.) First, the Court notes that because scienter has been established only as

to the October 5 Q&A statements of Defendant Joseph, the securities purchases that survive this

motion to dismiss are those transactions that occurred on the OTC markets, because by October 5,

2021, Tenet’s common stock had been withdrawn from Nasdaq. Therefore, the Court does not

analyze the Nasdaq for reliance purposes. And while Plaintiffs clearly assert in their opposition

that the Nasdaq is an efficient market, neither their opposition nor the Amended Complaint

provides any detail as to whether the OTC markets are also efficient for purposes of establishing

reliance via fraud-on-the-market. The Court follows other courts in this district in finding that the

OTC markets are not presumed to be efficient. See Alki Partners, L.P. v. Vatas Holding GmbH,

769 F. Supp. 2d 478, 493 (S.D.N.Y. 2011) (“[W]hile the Nasdaq is recognized as maintaining an

efficient market[,] . . . the Court is unaware of any court holding that the OTCBB . . . meet[s] this

same standard.”) (internal quotations omitted) (citing Burke v. China Aviation Oil (Singapore)

Corp., Ltd., 421 F. Supp. 2d 649, 653 (S.D.N.Y. 2005))).

Even if the OTC markets were efficient, however, Plaintiffs still would not be able to

establish reliance. This is because the surviving alleged misstatements were the October 5, 2021

statements of Defendant Joseph at the Q&A. Because Lead Plaintiff Handal purchased

Defendants’ stock between September 14, 2021 and September 15, 2021, (Dkt. 25, ¶ 19), and

named Plaintiff Dominique purchased Defendants’ stock on September 9, 2021, (Id. ¶ 20), they

necessarily did not rely on the only actionable misrepresentations in this case, which were made

on October 5, 2021.

Therefore, reliance has not been sufficiently pleaded.

* * *

In sum, Plaintiffs have sufficiently alleged material misstatements. They have also

adequately pleaded scienter on the part of Tenet and Defendant Joseph as to the three October 5

Q&A statements. They have not adequately pleaded scienter as to Defendant Landreville, nor

have they adequately alleged scienter as to the (1) the Huayan statement made in the September

14, 2021 Press Release (Id. ¶ 111), (2) the Jinxaoer statement made in an exhibit to Tenet’s

September 3, 2021 Registration Statement (Id. ¶ 115), or (3) the ASFC statement made in an

exhibit to Tenet’s September 3, 2021 Registration Statement (Id. ¶ 119). Finally, with respect to

the three alleged misstatements as to which scienter has been sufficiently pleaded, Plaintiffs have

failed to adequately allege reliance because their purchases were made before the three actionable

misstatements occurred and because the OTC markets are not presumed to be efficient.

For these reasons, the Court dismisses Count Three of the Amended Complaint without

prejudice, to the extent Plaintiffs can plead any additional facts that would cure the deficiencies

identified herein.

B. Count Four: Violation of Section 20(a) of the Exchange Act – Control Person

Liability

“Any claim for ‘control person’ liability under § 20(a) of the Exchange Act must be

predicated on a primary violation of securities law.” Pac. Inv. Mgmt. Co. LLC v. Mayer Brown

LLP, 603 F.3d 144, 160 (citing 15 U.S.C. § 78t(a)). Because Plaintiffs have failed to state a claim

for a primary violation under the Exchange Act against Defendants, Plaintiffs cannot establish

control person liability under the Act. Accordingly, Count Four is also dismissed. ATSI, 493 F.3d

at 108.

LEAVE TO AMEND

Plaintiffs have requested leave to amend the Complaint in the event of dismissal. (Dkt.

34, at 26 n.35.) Pursuant to Rule 15(a), leave to amend a complaint “shall be freely granted when

justice so requires.” Fed. R. Civ. P. 15(a). Moreover, “[i]t is the usual practice upon granting a

motion to dismiss to allow leave to replead.” See Morrone v. CSC Holdings Corp., 404 F. Supp.

2d 450, 455 (E.D.N.Y. 2005) (citing Ronzani v. Sanofi S.A., 899 F.2d 195, 198 (2d Cir. 1990)).

Plaintiffs are therefore granted leave to replead within thirty (30) days of this Memorandum &

Order.

CONCLUSION

For the foregoing reasons, Defendants’ motion to dismiss is granted in part and denied in

part. Plaintiffs are granted leave to amend the Amended Complaint to cure any deficiencies

identified herein within thirty (30) days.

SO ORDERED.

/s/ Pamela K. Chen

Pamela K. Chen

United States District Judge

Dated: September 25, 2023

Brooklyn, New York