In re Baidu, Inc. Securities Litigation

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

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In re iQIYI, Inc. Securities Litigation

MEMORANDUM & ORDER

20-CV-01830 (DG) (TAM)

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In re Baidu, Inc. Securities Litigation

20-CV-03794 (DG) (TAM)

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DIANE GUJARATI, United States District Judge:

On March 11, 2024, Lead Plaintiffs Robert J. Gereige, M.D. and Ronald L. Hershberger

(together, the “iQIYI Plaintiffs”) filed the operative Second Amended Consolidated Class

Action Complaint (“iQIYI SACC”) in In re iQIYI, Inc. Securities Litigation, No. 20-CV-01830

(the “iQIYI Action”) against Defendants iQIYI, Inc. (“iQIYI”); Yu Gong (“Gong”); Xiaodong

Wang (“X. Wang,” and together with Defendant Gong, the “iQIYI Individual Defendants”);

Baidu, Inc. (“Baidu,” and collectively with iQIYI and the iQIYI Individual Defendants, the

“iQIYI Exchange Act Defendants”); Robin Yanhong Li (“Y. Li”); Qi Lu (“Lu”); Herman Yu

(“Yu”); Xuyang Ren (“Ren”); Victor Zhixiang Liang (“Liang”); Chuan Wang (“C. Wang”);

Giselle Manon (“Manon,” and collectively with Y. Li, Lu, Yu, Ren, Liang, and C. Wang, the

“iQIYI Director Defendants”); Goldman Sachs (Asia) LLC (“Goldman Sachs”); Credit Suisse

Securities (USA) LLC (“Credit Suisse”); Merrill Lynch, Pierce, Fenner & Smith, Incorporated

(“Merrill Lynch”); China Renaissance Securities (Hong Kong) Limited (“China Renaissance”);

Citigroup Global Markets Inc. (“Citigroup”); UBS Securities LLC (“UBS,” and collectively

with Goldman Sachs, Credit Suisse, Merrill Lynch, China Renaissance, and Citigroup, the

“iQIYI Underwriter Defendants”). See generally iQIYI ECF No. 175.1 The iQIYI Director

Defendants, the iQIYI Underwriter Defendants, and the iQIYI Exchange Act Defendants are

referred to herein, collectively, as the “iQIYI Defendants.”

Also on March 11, 2024, Lead Plaintiffs Benjamin Paz Tchimino, Inveriones B Y J

Limitada, Central Pennsylvania Teamsters Pension Fund – Defined Benefit Plan, and Central

Pennsylvania Teamsters Pension Fund – Retirement Income Plan 1987 (collectively, the “Baidu

Plaintiffs,” and together with the iQIYI Plaintiffs, “Plaintiffs”) filed the operative Amended

Consolidated Class Action Complaint (“Baidu ACC”) in In re Baidu, Inc. Securities Litigation,

No. 20-CV-03794 (the “Baidu Action”) against Defendants Baidu; iQIYI; Y. Li; Yu; Jennifer

Xinzhe Li (“X. Li”); Gong; X. Wang (collectively with Defendants Y. Li, Yu, X. Li, and Gong,

the “Baidu Individual Defendants”). See generally Baidu ECF No. 75.2 Defendant Baidu,

Defendant iQIYI, and the Baidu Individual Defendants are referred to herein, collectively, as

the “Baidu Defendants.” The Baidu Defendants and the iQIYI Defendants are referred to

herein, together, as “Defendants.”3

The Court refers herein to the iQIYI SACC and the Baidu ACC, together, as the

“Operative Complaints.”

The iQIYI SACC contains approximately 392 paragraphs and spans 112 pages and the

Baidu ACC contains approximately 313 paragraphs and spans 86 pages. The Court has

1 The Court uses “iQIYI ECF No.” to refer to filings on the docket of the iQIYI Action.

2 The Court uses “Baidu ECF No.” to refer to filings on the docket of the Baidu Action.

3 Familiarity with the detailed procedural history and background of the iQIYI Action and the

Baidu Action – including with the Lee Action, see iQIYI ECF No. 1; the Le Rivage Action,

see No. 20-CV-02653 (E.D.N.Y.); the Jenkins Action, see No. 20-CV-03068 (E.D.N.Y.); the

Alagappan Action, see Baidu ECF No. 1; and the Nampally Action, see No. 20-CV-04430

(E.D.N.Y.) – is assumed herein.

considered all allegations contained in the Operative Complaints, including those not expressly

referenced herein.

The iQIYI SACC is brought in four Counts. Count I asserts Violation of Section 10(b)

of the Exchange Act (“Section 10(b)”) and SEC Rule 10b-5 (“Rule 10b-5”) against iQIYI and

the iQIYI Individual Defendants. See iQIYI SACC ¶¶ 252-61. Count II asserts Violation of

Section 20(a) of the Exchange Act (“Section 20(a)”) against the iQIYI Individual Defendants

and Baidu. See iQIYI SACC ¶¶ 262-67.4 Count III asserts Violations of Section 11 of the

Securities Act (“Section 11”) against iQIYI, the iQIYI Individual Defendants, the iQIYI Director

Defendants, and the iQIYI Underwriter Defendants. See iQIYI SACC ¶¶ 379-87. Count IV

asserts Violations of Section 15 of the Securities Act (“Section 15”) against Baidu and the iQIYI

Individual Defendants. See iQIYI SACC ¶¶ 388-92.5

The iQIYI Plaintiffs bring the Exchange Act claims individually and on behalf of all

persons and entities who, during the period from March 29, 2018 through August 13, 2020,

inclusive (the “iQIYI Class Period”), purchased the publicly traded common stock of iQIYI on

the NASDAQ stock exchange or on any U.S.-based trading platform and were allegedly

damaged thereby (the “Exchange Act Class”). See iQIYI SACC at 2; see also iQIYI SACC at 2

n.1 (setting forth certain exclusions from the Exchange Act Class). The iQIYI Plaintiffs seek,

inter alia, “compensatory damages in favor of Plaintiffs and the other Exchange Act Class

members against all Exchange Act Defendants, jointly and severally, for all damages sustained

as a result of Exchange Act Defendants’ wrongdoing,” including interest, as well as reasonable

costs and expenses, including counsel fees and expert fees. See iQIYI SACC at 80-81.

4 The Court refers herein to Counts I and II, together, as the “Exchange Act Claims.”

5 The Court refers herein to Counts III and IV, together, as the “Securities Act Claims.”

The iQIYI Plaintiffs bring the Securities Act claims individually and on behalf of a class

(the “Securities Act Class”) consisting of all persons and entities who purchased or otherwise

acquired iQIYI common stock pursuant and traceable to iQIYI’s Registration Statement and

Prospectus (together, the “Offering Documents”) issued in connection with the initial public

offering completed on or about March 28, 2018 (the “IPO”). See iQIYI SACC ¶ 268; see also

iQIYI SACC ¶ 275 n.4. The iQIYI Plaintiffs seek, inter alia, “damages in favor of Plaintiffs and

the other Securities Act Class members against all Securities Act Defendants, jointly and

severally, together with interest thereon,” as well as reasonable costs and expenses, including

counsel fees and expert fees. See iQIYI SACC at 112.

The Baidu ACC is brought in two Counts. Count I asserts Violation of Section 10(b)

and Rule 10b-5 against all Baidu Defendants. See Baidu ACC ¶¶ 298-307. Count II asserts

Violation of Section 20(a) against Defendants Y. Li, Yu, and X. Li. See Baidu ACC ¶¶ 308-13.

The Baidu ACC is brought on behalf of a class consisting of all persons and entities who

purchased or otherwise acquired Baidu American Depositary Shares (“ADSs”) between April 8,

2016 and August 13, 2020, both dates inclusive (the “Baidu Class Period”). See Baidu ACC

¶ 1. The Baidu Plaintiffs seek, inter alia, “damages sustained by Plaintiffs and the Class by

reason of the acts and transactions alleged” in the Baidu ACC, “prejudgment and post-judgment

interest,” and attorneys’ fees, expert fees, and other costs. See Baidu ACC at 85-86.

Pending before the Court are (1) the Common Motion to Dismiss the iQIYI and Baidu

Actions for Failure to Plead Any Material Misstatement or Omission, see Notice of Motion,

iQIYI ECF No. 156, Baidu ECF No. 61; Joint Memorandum of Law in Support of Defendants’

Common Motion to Dismiss (“Defs.’ Joint Br.”), iQIYI ECF No. 158, Baidu ECF No. 63;

Declaration of Robert A. Fumerton in Support of Defendants’ Motions to Dismiss (“Fumerton

Declaration”), iQIYI ECF No. 160, Baidu ECF No. 65;6 Joint Reply Memorandum of Law in

Further Support of Defendants’ Common Motion to Dismiss (“Defs.’ Joint Reply”), iQIYI ECF

No. 164, Baidu ECF No. 69; Reply Declaration of Robert A. Fumerton in Further Support of

Defendants’ Motions to Dismiss (“Fumerton Reply Declaration”), iQIYI ECF No. 166, Baidu

ECF No. 71,7 (2) the Motion to Dismiss the iQIYI Action for Failure to Plead Scienter, Loss

Causation, and Standing, see Notice of Motion, iQIYI ECF No. 157; Joint Memorandum of Law

in Support of Motion to Dismiss the iQIYI Action (“Defs.’ iQIYI Br.”), iQIYI ECF No. 159;

Fumerton Declaration; Reply Memorandum of Law in Further Support of Motion to Dismiss

the iQIYI Action (“Defs.’ iQIYI Reply”), iQIYI ECF No. 165; Fumerton Reply Declaration, and

(3) the Motion to Dismiss the Baidu Action for Failure to Plead Scienter and Loss Causation,

see Notice of Motion, Baidu ECF No. 62; Memorandum of Law in Support of Motion to

Dismiss the Baidu Action (“Defs.’ Baidu Br.”), Baidu ECF No. 64; Fumerton Declaration;

Reply Memorandum of Law in Further Support of Motion to Dismiss the Baidu Action (“Defs.’

Baidu Reply”), Baidu ECF No. 70; Fumerton Reply Declaration. See also Supplemental

Memorandum of Law in Support of Defendants’ Motions to Dismiss the iQIYI and Baidu

Actions (“Defs.’ Supp. Br.”), iQIYI ECF No. 176, Baidu ECF No. 76; Supplemental Reply

Memorandum of Law in Further Support of Defendants’ Motions to Dismiss the iQIYI and

Baidu Actions (“Defs.’ Supp. Reply”), iQIYI ECF No. 178, Baidu ECF No. 78.8

6 Together with the Fumerton Declaration, Defendants submitted twenty-three exhibits

(“Fumerton Exs.”). See iQIYI ECF Nos. 160-1 to 160-23; Baidu ECF Nos. 65-1 to 65-23. In

citing to these exhibits, the Court uses the letters assigned to the exhibits in the Fumerton

Declaration.

7 Together with the Fumerton Reply Declaration, Defendants submitted two exhibits. See

iQIYI ECF Nos. 166-1, 166-2; Baidu ECF Nos. 71-1, 71-2.

8 Each motion is brought pursuant to Rules 8(a), 9(b), and 12(b)(6) of the Federal Rules of

The respective Plaintiffs oppose the respective motions. See Lead Plaintiffs’ Joint

Memorandum of Law in Opposition to Defendants’ Common Motion to Dismiss the iQIYI and

Baidu Actions (“Pls.’ Joint Br.”), iQIYI ECF No. 161, Baidu ECF No. 66; Memorandum of Law

in Opposition to Defendants’ Motions to Dismiss the iQIYI Action for Failure to Plead Scienter,

Loss Causation, and Standing (“Pls.’ iQIYI Br.”), iQIYI ECF No. 162; Declaration of Laurence

M. Rosen in Support of Lead Plaintiffs’ Joint Opposition to Defendants’ Common Motion to

Dismiss (“Rosen Declaration”), iQIYI ECF No. 163, Baidu ECF No. 68;9 Memorandum of Law

in Opposition to Motion to Dismiss the Baidu Action (“Pls.’ Baidu Br.”), Baidu ECF No. 67;

see also Plaintiffs’ Supplemental Joint Memorandum of Law in Opposition to Defendants’

Motions to Dismiss the iQIYI and Baidu Actions (“Pls.’ Supp. Br.”), iQIYI ECF No. 177, Baidu

ECF No. 77.

For the reasons set forth below, Defendants’ motions to dismiss are granted and the

iQIYI SACC and Baidu ACC are dismissed.10

Civil Procedure and Section 101(b) of the Private Securities Litigation Reform Act, 15

U.S.C. § 78u-4(b)(2). See iQIYI ECF Nos. 156, 157; Baidu ECF Nos. 61, 62.

9 Together with the Rosen Declaration, Plaintiffs submitted twelve exhibits. See iQIYI ECF

Nos. 163-1 to 163-12; Baidu ECF Nos. 68-1 to 68-12.

10 The parties appear to request oral argument in connection with their supplemental briefing.

See Defs.’ Supp. Br. at 1; Pls.’ Supp. Br. at 1. The request for oral argument is denied. The

parties have presented their respective arguments clearly in their written submissions and

additional oral argument is not necessary at this stage of the proceedings, particularly in light

of the fulsome February 26, 2024 oral argument, discussed below.

BACKGROUND11

I. Factual Background

A. Defendants iQIYI and Baidu

As alleged in the Operative Complaints, iQIYI – hailed as the “Netflix of China” – is a

Beijing, China-based online streaming entertainment provider. See iQIYI SACC ¶¶ 29, 269;

Baidu ACC ¶ 39. As alleged in the Baidu ACC, Baidu is one of the most well-known Internet

companies based in the People’s Republic of China (“PRC”) and owned a majority stake in

iQIYI throughout the Baidu Class Period. See Baidu ACC ¶ 2; see also iQIYI SACC ¶¶ 28

(alleging, inter alia, that Baidu owned a majority of iQIYI and maintained 92.7% voting

control), 344 (alleging, inter alia, that since iQIYI launched in 2010, Baidu has been iQIYI’s

controlling shareholder).12 As alleged in the Baidu ACC, Baidu reported on iQIYI’s financials

and other metrics in its filings with the SEC and in other public statements, and consolidated

iQIYI’s financial statements with its own. See Baidu ACC ¶ 2.

The Baidu Plaintiffs allege that iQIYI was the fastest growing segment of Baidu’s

business in terms of revenue, and as such, iQIYI was one of Baidu’s most critical assets. See

Baidu ACC ¶¶ 3, 45. The Baidu Plaintiffs allege that given iQIYI’s importance to Baidu, and

iQIYI’s need for continuous cash flows, the integrity of iQIYI’s revenue reporting was of the

utmost importance to Baidu investors. See Baidu ACC ¶¶ 47-48; see also Baidu ACC ¶¶ 49-50.

Plaintiffs allege that, like Netflix, iQIYI’s customers primarily access iQIYI’s

11 In light of the substantial overlap between the iQIYI SACC and the Baidu ACC, the Court

sets forth the allegations together here and does not in all instances note minor discrepancies.

The Court has, however, considered any such discrepancies. When analyzing whether a

particular complaint should be dismissed, the Court considers the allegations contained in

that particular complaint.

12 Both iQIYI and Baidu listed their ADSs on the NASDAQ. See iQIYI SACC ¶¶ 23, 329;

Baidu ACC ¶ 38.

entertainment offerings content through a monthly or annual subscription which allows them to

view iQIYI’s entertainment programs. See iQIYI SACC ¶¶ 30, 270; Baidu ACC ¶ 40. Plaintiffs

allege that iQIYI’s two primary sources of revenue – membership subscriptions and advertising

– are both dependent on, and a function of, the number of customers subscribing to iQIYI’s

service and viewing its programs. See iQIYI SACC ¶¶ 31, 271; Baidu ACC ¶ 41.

Plaintiffs further allege that “active users” is one of the most important metrics investors

look to when investing in a media company like iQIYI because iQIYI generates a majority

(over 75%) of its revenue through a combination of selling subscriptions to its online streaming

service and by selling advertisements on its platform, and that the most accurate way for

investors to assess iQIYI’s overall viewership numbers was by looking to the number of daily

active users (“DAUs”) that were using iQIYI’s platform. See iQIYI SACC ¶¶ 38-39, 278-79;

Baidu ACC ¶¶ 56-57. Plaintiffs further allege that the other key metric for assessing iQIYI’s

success was its membership services revenue, which was primarily the revenue iQIYI generated

from membership subscriptions for its streaming services. See iQIYI SACC ¶¶ 41, 281; Baidu

ACC ¶ 59. Plaintiffs allege that because service subscriptions are generally for future services

that are to be performed by iQIYI, U.S. Generally Accepted Accounting Principles (“GAAP”)

required iQIYI to record subscription payments as deferred revenue that is recognized ratably

over the term of the subscription. See iQIYI SACC ¶¶ 41, 281; Baidu ACC ¶ 59. Plaintiffs

further allege that iQIYI’s primary source of deferred revenue is the sale of customer

memberships. See iQIYI SACC ¶¶ 41, 281; Baidu ACC ¶ 60. Plaintiffs allege that accordingly,

daily active user metrics and deferred revenue were crucial metrics to investors and served as

the two leading indicators for the growth and success of iQIYI’s membership services and

advertising revenues. See iQIYI SACC ¶¶ 42, 282; Baidu ACC ¶ 61.

Plaintiffs allege that prior to and during the iQIYI and Baidu Class Periods, “it was

extremely difficult for investors to understand iQIYI’s corporate structure and accounting

methods,” as iQIYI operates “through a complex web of on-shore and off-shore companies,”

which results in “an inherently unclear accounting structure,” see iQIYI SACC ¶¶ 32, 272;

Baidu ACC ¶ 52; that although iQIYI purportedly operates under U.S. GAAP and the U.S.

Public Company Accounting Oversight Board (“PCAOB”), iQIYI acknowledges that its annual

report is prepared by an auditor who is not inspected by the PCAOB, and gaining 100%

transparency into iQIYI’s membership numbers and financial information, and accounting for

such financial information, is “difficult and, in some cases, not possible,” see iQIYI SACC ¶ 33;

Baidu ACC ¶ 53; see also iQIYI SACC ¶ 273 (alleging that iQIYI acknowledges that the

Registration Statement was prepared by an auditor who is not inspected by the PCAOB); and

that because much of the third-party research related to iQIYI’s operations such as mobile

advertising data, financial research, and governmental filings was not easily accessible because

of limitations imposed by the Chinese government and language barriers, U.S. investors were

forced to rely almost entirely on the substantive representations and financial data contained in

iQIYI’s SEC filings, see iQIYI SACC ¶¶ 34, 274; Baidu ACC ¶ 54 (also alleging that U.S.

investors were forced to place increased reliance on the substantive representations and

financial data contained in Baidu’s SEC filings).

B. Additional Defendants

1. Baidu Individual Defendants

As alleged in the Baidu ACC, Defendant Y. Li is Baidu’s co-founder and served as

Baidu’s Chief Executive Officer (“CEO”) and Chairman during the Baidu Class Period, see

Baidu ACC ¶ 27; Defendant Yu served as Baidu’s Chief Financial Officer (“CFO”) from

September 2017 through at least October 2021, see Baidu ACC ¶ 29; Defendant X. Li served as

Baidu’s CFO from March 2008 until September 2017, see Baidu ACC ¶ 31; Defendant Gong is

and was at all pertinent times iQIYI’s CEO, Principal Executive Officer, and a Director of

iQIYI’s board, see Baidu ACC ¶ 32; and Defendant X. Wang was, at all pertinent times,

iQIYI’s CFO and Principal Financial and Accounting Officer, see Baidu ACC ¶ 33.

2. iQIYI Individual Defendants

As alleged in the iQIYI SACC, Defendant Gong is and was at all pertinent times iQIYI’s

CEO, Principal Executive Officer, and a Director, see iQIYI SACC ¶ 25, and Defendant X.

Wang is and was at all pertinent times iQIYI’s CFO and Principal Financial and Accounting

Officer, see iQIYI SACC ¶ 26.

3. iQIYI Director Defendants

The iQIYI Plaintiffs allege that Defendant Y. Li was at all pertinent times the Chairman

of iQIYI’s Board of Directors and reviewed, contributed to, participated in drafting, and signed

iQIYI’s Registration Statement. See iQIYI SACC ¶ 335; see also Baidu ACC ¶ 28. As alleged

in the iQIYI SACC, Defendants Lu, Yu, Ren, Liang, and C. Wang were at all pertinent times

Directors of iQIYI and reviewed, contributed to, and signed or authorized the signing and

issuance of iQIYI’s Registration Statement. See iQIYI SACC ¶¶ 336-40; see also Baidu ACC

¶ 30. As further alleged in the iQIYI SACC, Defendant Manon was at all pertinent times the

authorized representative in the United States of iQIYI and reviewed, contributed to, and signed

or authorized the signing and issuance of iQIYI’s Registration Statement. See iQIYI SACC

¶ 341.

4. iQIYI Underwriter Defendants

As alleged in the iQIYI SACC, Defendants Goldman Sachs, Credit Suisse, Merrill

Lynch, China Renaissance, Citigroup, and UBS are investment banking firms that acted as

underwriters of iQIYI’s IPO, helping to draft and disseminate the IPO documents. See iQIYI

SACC ¶¶ 345-50. The iQIYI SACC alleges, inter alia, that the Underwriter Defendants

specialize in, among other things, underwriting public offerings of securities; that the

Underwriter Defendants shared millions of dollars in fees collectively; that the Underwriter

Defendants arranged a multi-city roadshow prior to the IPO during which they, and

representatives from iQIYI, met with potential investors and presented highly favorable

information about iQIYI, its operations, and its financial prospects; that representatives of the

Underwriter Defendants assisted iQIYI and the iQIYI Individual Defendants in planning the IPO

and purportedly conducted an adequate and reasonable investigation into the business and

operations of iQIYI – i.e., a “due diligence” investigation – and that during the course of their

due diligence, the Underwriter Defendants had continual access to internal, confidential, current

corporate information concerning iQIYI’s most up-to-date operational and financial results and

prospects; and that agents of the Underwriter Defendants met with iQIYI’s lawyers,

management, and top executives and engaged in drafting sessions, during which sessions

understandings were reached as to (1) the strategy to best accomplish the IPO, (2) the terms of

the IPO, including the price at which iQIYI securities would be sold, (3) the language to be used

in iQIYI’s Registration Statement, (4) what disclosures about iQIYI would be made in its

Registration Statement, and (5) what responses would be made to the SEC in connection with

its review of iQIYI’s Registration Statement. See iQIYI SACC ¶ 353.

C. Relevant Events

1. IPO

As alleged in the Operative Complaints, on February 27, 2018, iQIYI filed its

Registration Statement on Form F-1 with the SEC in connection with the IPO, and, after several

amendments, the SEC declared the Registration Statement effective on March 28, 2018. See

iQIYI SACC ¶¶ 35, 275; Baidu ACC ¶ 43. Plaintiffs allege that on March 29, 2018, iQIYI

conducted its IPO pursuant to the Offering Documents and issued 125 million ADSs to the

public at the offering price of $18.00 per share, and as a result of the offering, iQIYI received

approximately $2,182,500,000 in proceeds upon the IPO’s completion, after underwriting

discounts and commission. See iQIYI SACC ¶¶ 35, 275; Baidu ACC ¶ 43. Plaintiffs allege that

following the IPO, iQIYI shares traded on the NASDAQ market; that along with being listed on

a major U.S. exchange came heightened regulatory requirements as well as the requirements of

the federal securities laws; and that as part of those requirements, iQIYI was required to file

accurate, audited, GAAP-compliant financial statements with the SEC. See iQIYI SACC ¶¶ 36,

276; Baidu ACC ¶ 51.

2. Xin’ai Sports Venture

As alleged in the Operative Complaints, on August 6, 2018, iQIYI issued a press release

announcing that iQIYI would partner with Super Sports Media, a subsidiary of DDMC Group,

to set up a joint venture named Beijing Xin’ai Sports Media Technology Co., Ltd (“Xin’ai

Sports”). See iQIYI SACC ¶ 77; Baidu ACC ¶ 102.

Plaintiffs allege that, according to iQIYI’s SEC filings, in July 2018, iQIYI acquired a

32% interest in Xin’ai Sports for a combination of cash and non-cash consideration totaling

RMB796,000. See iQIYI SACC ¶ 82; Baidu ACC ¶ 106.13 Plaintiffs further allege that the non-

cash portion of the consideration iQIYI purportedly paid to acquire its equity interest in Xin’ai

13 The Operative Complaints note in the sections discussing the Xin’ai Sports venture that

RMB amounts are in 1,000s. See iQIYI SACC ¶ 82 n.16; Baidu ACC ¶ 101 n.11.

Sports totaled RMB763,750 and iQIYI recorded this non-cash consideration as “deferred

revenue related to content distribution, licenses of intellectual property and traffic support

services to be provided to Xin’ai,” see iQIYI SACC ¶ 83; Baidu ACC ¶ 107, and that

approximately 96% of the acquisition price was non-cash consideration that iQIYI recorded as

deferred revenue related to property and services iQIYI was to provide to Xin’ai in the future,

see iQIYI SACC ¶ 84; Baidu ACC ¶ 108.

Plaintiffs allege that the notes to iQIYI’s financial statements disclose that iQIYI

recognized total revenue from content licensed to an “equity investee” in the amount of

RMB88,457 for the year ended December 31, 2018, and RMB443,503 for the year ended

December 31, 2019; that no cost of revenues is reported associated with the content licensed to

the equity investee; and that 2018 was the first year iQIYI recognized revenue for content

licensed to an equity investee and iQIYI held no other significant equity method investments in

2018 and 2019, evidencing that the revenue iQIYI recognized in those years is directly

attributable to iQIYI’s equity method investment in Xin’ai Sports. See iQIYI SACC ¶ 85; Baidu

ACC ¶ 109.

3. Press Releases Regarding Financial and Operating Results

As alleged in the Operative Complaints, on May 16, 2019, during after-market hours,

iQIYI issued a press release announcing its financial and operating results for the first quarter of

fiscal year 2019, which press release reported, inter alia, a decline in iQIYI’s deferred revenue

from RMB2.195 billion to RMB1.960 billion. See iQIYI SACC ¶ 102; Baidu ACC ¶ 126. The

iQIYI Plaintiffs allege that this announcement caused the price of iQIYI common stock to fall

by $1.34 per share, or 6.58%, to close at $19.04 per share on May 17, 2019. See iQIYI SACC

¶ 104; Fumerton Ex. B at 7.

The Baidu Plaintiffs allege that, on May 16, 2019, during after-market hours, Baidu

issued a press release announcing its financial and operating results for the first quarter of fiscal

year 2019, which press release reported, inter alia, a decline in Baidu’s deferred revenue from

RMB1.883 billion in the fourth quarter of 2018 to RMB1.774 billion in the first quarter of 2019.

See Baidu ACC ¶ 126. The Baidu Plaintiffs allege that this announcement and iQIYI’s

announcement caused the price of Baidu’s ADSs to fall by $25.39 per share, or 16.52%, to close

at $128.31 per share on May 17, 2019. See Baidu ACC ¶ 128; Fumerton Ex. Q at 18.14

4. Wolfpack Report

As alleged in the Operative Complaints, on April 7, 2020, during market hours,

Wolfpack Research – a global financial research and due diligence firm – released a report (the

“Wolfpack Report”) detailing, inter alia, how iQIYI had misled investors and failed to disclose

pertinent information related to iQIYI’s user numbers and revenue figures. See iQIYI SACC

¶¶ 2-3, 105; Baidu ACC ¶¶ 10, 129; see also Fumerton Ex. H (the Wolfpack Report); Baidu

ACC ¶ 10 (alleging that the Wolfpack Report cited to public and private information, including

financial statements that iQIYI filed with the Chinese government, as well as other reliable

Chinese sources).

The iQIYI Plaintiffs allege that the publication of the Wolfpack Report at 10:35 a.m. on

April 7, 2020 caused iQIYI’s share price to immediately fall $2.75 per share to $14.51 at 10:45

a.m. and that iQIYI’s share price closed at $16.51 per share at the end of the next trading day on

April 8, 2020, a 4.3% decline, damaging investors. See iQIYI SACC ¶ 109. The Baidu

Plaintiffs allege that publication of the Wolfpack Report caused Baidu ADSs to fall $4.46 per

14 The Court notes that the Baidu ACC’s reference to “$19.04” rather than $128.31, see Baidu

ACC ¶ 128, appears to be a typographical error.

ADS, or 4%, to close at $97.33 on the next full trading day, April 8, 2020, thereby damaging

investors. See Baidu ACC ¶ 133.

Plaintiffs allege that on April 7, 2020, iQIYI issued a press release on its website

denying the allegations made in the Wolfpack Report and assuring investors that iQIYI is in

compliance with all rules and regulations. See iQIYI SACC ¶ 110; Baidu ACC ¶ 134.

5. Disclosure of Investigations

Plaintiffs allege that on August 13, 2020, iQIYI issued a press release announcing its

financial results for the second quarter of 2020, which press release disclosed that the SEC’s

Division of Enforcement had opened an investigation into iQIYI based on the allegations in the

Wolfpack Report and had requested financial records, operating records, and other documents

from iQIYI as part of the investigation, and further disclosed that iQIYI’s Audit Committee had

engaged professional advisers to conduct an internal review of iQIYI’s books and records. See

iQIYI SACC ¶ 111; Baidu ACC ¶ 135. The iQIYI Plaintiffs allege that iQIYI issued the press

release on its website at 4:30 p.m., causing the price of iQIYI shares to drop $4.25 by 4:32 p.m.

to $17.50 per share. See iQIYI SACC ¶ 113.

Plaintiffs allege that on August 14, 2020, iQIYI hosted an earnings call with analysts to

discuss its financial results for the second quarter of 2020, and that on the call, Defendant X.

Wang revealed for the first time that the iQIYI Exchange Act Defendants and Baidu Defendants

knew for about three to four months that NASDAQ and the SEC had opened inquiries into

iQIYI based on the Wolfpack Report. See iQIYI SACC ¶ 112; Baidu ACC ¶ 136. The iQIYI

Plaintiffs allege that following these disclosures, iQIYI’s ADS price fell $2.49 per share, or

11.4%, to close at $19.26 on August 14, damaging investors. See iQIYI SACC ¶ 113.

The Baidu Plaintiffs allege that on August 13, 2020, Baidu hosted an earnings call where

Defendant Yu acknowledged the existence of the SEC investigation. See Baidu ACC ¶ 137.

The Baidu Plaintiffs allege that, on this news, Baidu ADSs fell $7.83 per ADS, or 6%, to close

at $116.74 on August 14, 2020. See Baidu ACC ¶ 138.

The Baidu Plaintiffs allege that on October 5, 2020, Baidu filed a Form 6-K with the

SEC disclosing interim financial results, and also stated that the SEC investigation into iQIYI

based on the allegations in the Wolfpack Report was still ongoing. See Baidu ACC ¶ 140.

Plaintiffs allege that on March 9, 2021, iQIYI filed its Form 20-F with the SEC for the

year ending December 31, 2020, which revealed that the SEC’s investigation into iQIYI based

on the allegations in the Wolfpack Report was still ongoing. See iQIYI SACC ¶ 114; Baidu

ACC ¶ 141. The Baidu Plaintiffs allege that on that same day, Baidu filed its 2020 Annual

Report and also acknowledged that the SEC investigation was still ongoing. See Baidu ACC

¶ 141.

D. Alleged Misstatements15

1. Daily Active Users

Plaintiffs allege that, according to data from two leading industry research firms that

cover China’s mobile internet market – QuestMobile Research Institute (“QuestMobile”) and

Aurora Mobile Limited (“Aurora”) – the actual average mobile DAUs were substantially lower

than iQIYI reported to investors. See iQIYI SACC ¶¶ 48, 286; Baidu ACC ¶ 72.16 Plaintiffs

15 In the iQIYI SACC and the Baidu ACC, Plaintiffs use bold and italics to highlight alleged

misstatements. See iQIYI SACC ¶ 139; Baidu ACC ¶ 165. The Court retains Plaintiffs’ bold

and italics.

16 Plaintiffs allege that they were able to obtain the QuestMobile and Aurora data only after

conducting extensive research and data analysis of PRC media reports and archived industry

reports, which are only published in Chinese and not readily obtainable by investors. See

iQIYI SACC ¶¶ 48 n.5, 286 n.42; Baidu ACC ¶ 72 n.4.

allege that, according to data from QuestMobile, the true average mobile DAUs for iQIYI for

2015, 2016, and 2017 were overstated by 50%, 33.4%, and 11.5%, respectively, and iQIYI’s

DAUs for the full years 2018 and 2019 were overstated by 10.4% and 22.5%, respectively. See

iQIYI SACC ¶¶ 49 (setting forth chart of DAUs as reported by QuestMobile and iQIYI), 147,

287, 362; Baidu ACC ¶¶ 72 (setting forth same chart), 174. Plaintiffs also allege that Aurora’s

data corroborates QuestMobile’s data, and that according to Aurora’s data, between December

2017 and March 2019, iQIYI never had more than 90 million mobile DAUs, despite iQIYI and

Baidu reporting DAUs in excess of that number during the same periods. See iQIYI SACC

¶¶ 51-52, 148, 289, 363; Baidu ACC ¶¶ 75-76, 175. Plaintiffs further allege that iQIYI,

QuestMobile, and Aurora each used the same methodology for calculating DAUs: the number

of unique devices that used iQIYI’s apps at least once during the day. See iQIYI SACC ¶¶ 48,

286; Baidu ACC ¶ 72.

Plaintiffs allege that iQIYI’s Registration Statement, which was signed by Defendants

Gong, X. Wang, Y. Li, Lu, Yu, Ren, Liang, and C. Wang, see iQIYI SACC ¶¶ 140, 320; Baidu

ACC ¶ 167; see also Fumerton Ex. A (iQIYI Registration Statement), stated that iQIYI’s

number of DAUs were higher than they actually were. See iQIYI SACC ¶¶ 141, 358; Baidu

ACC ¶ 168. Specifically, Plaintiffs allege that the Registration Statement contained the

following misstatements concerning iQIYI’s DAUs:

• That iQIYI has “a massive and highly engaged user base, which drives [its] revenue

growth.” See iQIYI SACC ¶¶ 141, 358; Baidu ACC ¶ 168.

• That “[b]etween the fourth quarters of 2015 and 2016, [the Company’s] average mobile

DAUs increased by 42.0% from 88.3 million to 125.4 million, and [its] average mobile

MAUs increased by 10.9% from 365.5 million to 405.4 million.” See iQIYI SACC

¶¶ 142, 360; Baidu ACC ¶ 169.

• That “[b]etween the fourth quarters of 2016 and 2017, [the Company’s] average mobile

DAUs increased by 0.5% from 125.4 million to 126.0 million, and [its] average mobile

MAUs increased by 3.9% from 405.4 million to 421.3 million.” See iQIYI SACC

¶¶ 143, 359; Baidu ACC ¶ 170.

Plaintiffs further allege that on March 15, 2019, iQIYI filed with the SEC its annual

report on Form 20-F for the year ended December 31, 2018 (the “2018 iQIYI Annual Report”).

See iQIYI SACC ¶ 144; Baidu ACC ¶ 171.17 Plaintiffs allege that the 2018 iQIYI Annual

Report stated that “[f]or the year of 2018, our average mobile MAUs were 454.5 million and

our average mobile DAUs were 135.4 million.” See iQIYI SACC ¶ 144; Baidu ACC ¶ 171.

The Baidu Plaintiffs allege that a similar statement was set forth in the 2018 Baidu Annual

Report, also filed on March 15, 2019. See Baidu ACC ¶¶ 196-97 (alleging that the 2018 Baidu

Annual Report stated that “[f]or the year of 2018, iQIYI’s average mobile MAUs were 455

million, and its average mobile DAUs were 135 million”).18

Plaintiffs allege that on March 12, 2020, iQIYI filed with the SEC its annual report on

Form 20-F for the year ended December 31, 2019 (the “2019 iQIYI Annual Report”). See iQIYI

SACC ¶ 145; Baidu ACC ¶ 172.19 Plaintiffs allege that the 2019 iQIYI Annual Report stated

that “[f]or the year of 2019, our average mobile MAUs were 476.0 million and our average

17 Plaintiffs allege that attached to the 2018 iQIYI Annual Report were certifications pursuant

to the Sarbanes-Oxley Act of 2002 (“SOX”) signed by Defendants Gong and Wang attesting

to the accuracy of financial reporting, the disclosure of any material changes to iQIYI’s

internal control over financial reporting, and the disclosure of all fraud. See iQIYI SACC

¶ 144; Baidu ACC ¶ 171.

18 The Baidu Plaintiffs allege that attached to the 2018 Baidu Annual Report were certifications

pursuant to SOX signed by Defendants Y. Li and Yu attesting to the accuracy of financial

reporting, the disclosure of any material changes to Baidu’s internal control over financial

reporting, and the disclosure of all fraud. See Baidu ACC ¶ 196.

19 As with the 2018 iQIYI Annual Report, Plaintiffs allege that attached to the 2019 iQIYI

Annual Report were certifications pursuant to SOX signed by Defendants Gong and Wang

attesting to the accuracy of financial reporting, the disclosure of any material changes to

iQIYI’s internal control over financial reporting, and the disclosure of all fraud. See iQIYI

SACC ¶ 145; Baidu ACC ¶ 172.

mobile DAUs were 139.9 million.” See iQIYI SACC ¶ 145; Baidu ACC ¶ 172. The Baidu

Plaintiffs allege that a similar statement was set forth in the 2019 Baidu Annual Report filed on

March 13, 2020. See Baidu ACC ¶¶ 198-99 (alleging that the 2019 Baidu Annual Report stated

that “[f]or the year of 2019, iQIYI’s average mobile MAUs were 476 million, and its average

mobile DAUs were 140 million”).20

The Baidu Plaintiffs further allege that on April 4, 2020, Baidu issued a Prospectus on

Form 424B2 that stated, in pertinent part, that “[f]or the year of 2019, iQIYI’s average mobile

MAUs were 476.0 million, and its average mobile DAUs were 139.9 million.” See Baidu ACC

¶ 200.

Plaintiffs allege that the statements identified above regarding iQIYI’s DAUs were

material misstatements because iQIYI had substantially fewer mobile DAUs than were

disclosed in the Registration Statement and iQIYI’s 2018 and 2019 Annual Reports. See iQIYI

SACC ¶¶ 146-47; Baidu ACC ¶¶ 173, 201; see also iQIYI SACC ¶ 285 (alleging that iQIYI’s

reported DAU numbers were, as a result of the Securities Act Defendants’ negligence,

significantly overstated).

2. Deferred Revenue

Plaintiffs allege that certain of iQIYI’s and Baidu’s reported deferred revenue amounts

were overstated. Specifically, Plaintiffs allege that the iQIYI Registration Statement

misrepresented the amount of iQIYI’s deferred revenue, as evidenced by reliable data in third-

party credit reports that “show that the deferred revenue of iQIYI’s operating subsidiaries was

20 As with the 2018 Baidu Annual Report, the Baidu Plaintiffs allege that attached to the 2019

Baidu Annual Report were certifications pursuant to SOX signed by Defendants Y. Li and

Yu attesting to the accuracy of financial reporting, the disclosure of any material changes to

Baidu’s internal control over financial reporting, and the disclosure of all fraud. See Baidu

ACC ¶ 198.

substantially lower” than disclosed in the Registration Statement, when accounting for the exact

same entities. See iQIYI SACC ¶¶ 149, 292; Baidu ACC ¶¶ 176-77. Plaintiffs allege that the

amounts reported in the credit reports are taken from the PRC tax filings of iQIYI’s Variable

Interest Entities (“VIEs”)21 and allege that filings with the Chinese State Administration for

Industry and Commerce (“SAIC”) and PRC tax authorities are the most accurate sources of

financial information for a PRC-based company because Chinese companies and their officers

often operate beyond the reach of criminal and civil judgments and sanctions imposed by

American courts but are subject to penalties imposed in China for false documents with the

SAIC or PRC tax authorities. See iQIYI SACC ¶¶ 154, 370; Baidu ACC ¶ 182. Further,

Plaintiffs allege that the difference in reported revenues in China and the U.S. is not attributable

to different standards in the two countries, as the accounting standards in China and the U.S. are

the same with respect to the recording of deferred revenue. See iQIYI SACC ¶¶ 116, 294; Baidu

ACC ¶ 143. And Plaintiffs allege that iQIYI’s use of VIEs does not explain why iQIYI’s

deferred revenues it reported in the PRC are substantially different than the deferred revenues it

reported in the U.S. See iQIYI SACC ¶¶ 138, 319; Baidu ACC ¶ 164.

Plaintiffs allege that the iQIYI Registration Statement contained the following

misstatements concerning iQIYI’s deferred revenue amounts:

• That iQIYI’s customer advances and deferred revenue was RMB339,880,000 as of

December 31, 2015; RMB796,703,000 as of December 31, 2016; and RMB1,633,649,000

21 As alleged by the iQIYI Plaintiffs, VIEs are entities controlled by a company by means other

than a majority of voting rights and iQIYI primarily conducts its business in China through

VIEs because PRC laws and regulations prohibit or restrict foreign ownership of companies.

See iQIYI SACC ¶ 68 n.15. The iQIYI Plaintiffs further allege that iQIYI conducts its

business in China through VIEs Beijing iQIYI, Shanghai iQIYI, Shanghai Zhong Yuan,

iQIYI Pictures, and Beijing iQIYI Cinema, and their respective subsidiaries. See iQIYI

SACC ¶ 68 n.15.

as of December 31, 2017. See iQIYI SACC ¶¶ 150, 365; Baidu ACC ¶ 178.22

• That the combined customer advances and deferred revenue for iQIYI’s five VIEs was

RMB796,255,000 as of December 31, 2016 and RMB1,633,197,000 as of December 31,

2017. See iQIYI SACC ¶¶ 151, 366; Baidu ACC ¶ 179.

Plaintiffs further allege that, with respect to iQIYI’s alleged overstated deferred revenue

amounts in 2015, iQIYI reported in its Registration Statement RMB339,880,000 of consolidated

deferred revenue compared to the actual amount of only RMB93,963,000 of deferred revenue as

reported for its VIEs in PRC tax filings, and that “the Registration Statement stated that

customer advances and deferred revenue for iQIYI’s five VIEs represented over 99.9% of

iQIYI’s consolidated customer advances and deferred revenue for 2016 and 2017, so the same

is likely true for 2015.” See iQIYI SACC ¶¶ 153, 293; Baidu ACC ¶ 181.

The Baidu Plaintiffs allege that on April 8, 2016, Baidu filed with the SEC its annual

report for the year ended December 31, 2015 (the “2015 Baidu Annual Report”) on a Form 20-F

signed by Defendant Y. Li and that the 2015 Baidu Annual Report stated that Baidu’s deferred

revenue was RMB375,672,000 for 2015. See Baidu ACC ¶¶ 202-03.23

The Baidu Plaintiffs allege that on March 31, 2017, Baidu filed with the SEC its annual

report for the year ended December 31, 2016 (the “2016 Baidu Annual Report”) on a Form 20-F

signed by Defendant Y. Li and that the 2016 Baidu Annual Report stated that Baidu’s deferred

revenues were RMB375,672,000 for 2015 and RMB596,460,000 for 2016. See Baidu ACC

22 Plaintiffs allege that these amounts purportedly consolidated iQIYI’s VIEs and other

subsidiaries. See iQIYI SACC ¶¶ 150, 365; Baidu ACC ¶ 178.

23 The Baidu Plaintiffs allege that attached to the 2015 Baidu Annual Report were certifications

pursuant to SOX signed by Defendants Y. Li and X. Li attesting to the accuracy of financial

reporting, the disclosure of any material changes to Baidu’s internal control over financial

reporting, and the disclosure of all fraud. See Baidu ACC ¶ 202.

¶¶ 204-05.24

The Baidu Plaintiffs allege that on March 15, 2018, Baidu filed with the SEC its annual

report for the year ended December 31, 2017 (the “2017 Baidu Annual Report”) on a Form 20-F

signed by Defendant Y. Li and that the 2017 Annual Report stated that Baidu’s deferred

revenues were RMB596,460,000 for 2016 and RMB788,000,000 for 2017. See Baidu ACC

¶¶ 206-07.25

Plaintiffs allege that the 2018 iQIYI Annual Report contained the following

misstatement concerning iQIYI’s deferred revenue amounts: that iQIYI’s consolidated customer

advances and deferred revenue were RMB1,633,649,000 as of December 31, 2017, and that

customer advances and deferred revenue for iQIYI’s five VIEs were RMB1,633,197,000 as of

December 31, 2017. See iQIYI SACC ¶ 155; Baidu ACC ¶ 183. And the Baidu Plaintiffs allege

that the 2018 Baidu Annual Report stated that Baidu’s deferred revenues were

RMB788,000,000 for 2017 and RMB1,883,000,000 for 2018. See Baidu ACC ¶ 209.

The Baidu Plaintiffs allege that the 2019 Baidu Annual Report stated that Baidu’s

customer deposits and deferred revenues were RMB9,221,000,000 for 2018 and 11,062,000,000

for 2019. See Baidu ACC ¶ 211; Fumerton Ex. V (2019 Baidu Annual Report).26

24 The Baidu Plaintiffs allege that attached to the 2016 Baidu Annual Report were certifications

pursuant to SOX signed by Defendants Y. Li and X. Li attesting to the accuracy of financial

reporting, the disclosure of any material changes to Baidu’s internal control over financial

reporting, and the disclosure of all fraud. See Baidu ACC ¶ 204.

25 The Baidu Plaintiffs allege that attached to the 2017 Baidu Annual Report were certifications

pursuant to SOX signed by Defendants Y. Li and Yu attesting to the accuracy of financial

reporting, the disclosure of any material changes to Baidu’s internal control over financial

reporting, and the disclosure of all fraud. See Baidu ACC ¶ 206.

26 The Court notes that the Baidu ACC’s reference to “11,062,000,000,000” rather than

11,062,000,000, see Baidu ACC ¶ 211, appears to be a typographical error.

3. Membership Services Revenue

Plaintiffs further allege that iQIYI materially misstated membership services revenue

during the iQIYI and Baidu Class Periods. See iQIYI SACC ¶ 56; Baidu ACC ¶ 80. Plaintiffs

allege that deferred revenues should track and be positively correlated with the increase in

paying members and the corresponding increase in membership services revenue – i.e., if

paying members and membership services revenue are increasing, so should deferred revenue,

and if deferred revenue decreases, membership services revenue and the number of paying

members should decrease. See iQIYI SACC ¶ 61; Baidu ACC ¶ 85. Plaintiffs allege, however,

that as it pertains to iQIYI’s performance during the iQIYI and Baidu Class Periods, there was a

material divergence between the two reported amounts, and that at times during the iQIYI and

Baidu Class Periods, iQIYI experienced increasing membership service revenue while at the

same time experiencing decreasing deferred revenue. See iQIYI SACC ¶ 62; Baidu ACC ¶ 86.

Plaintiffs allege that the divergence in iQIYI’s increasing paying members and membership

services revenues and its decreasing deferred revenue balances indicates that the iQIYI

Exchange Act Defendants and the Baidu Defendants were overstating the number of paying

members and therefore the amount of membership services revenue. See iQIYI SACC ¶ 62;

Baidu ACC ¶ 86; see also iQIYI SACC ¶¶ 63-67; Baidu ACC ¶¶ 87-91.

4. Xin’ai Sports

Plaintiffs allege that given the irreconcilable disparity between iQIYI’s (1) real user and

revenue figures; and (2) overstated reported user and revenue figures, iQIYI needed a way to

make it seem as though iQIYI’s deferred revenue tracked the purported user and revenue

growth iQIYI was touting to investors and that to do so, iQIYI used fraudulent accounting of an

equity investment, in violation of GAAP, that generated RMB763,750 of deferred revenue for

iQIYI “out of thin air.” See iQIYI SACC ¶ 76; Baidu ACC ¶ 101.27

Plaintiffs allege that iQIYI’s characterization of its obligation to transfer goods and

services to Xin’ai Sports as deferred revenue was improper. See iQIYI SACC ¶ 92 (alleging

that iQIYI’s investment in Xin’ai Sport was not a revenue contract and that, under GAAP, the

transaction should have been recorded as a liability, not as deferred revenue later to be

recognized as revenue in iQIYI’s income statement); Baidu ACC ¶ 116 (same); see also iQIYI

SACC ¶ 95 (alleging, inter alia, that by classifying the obligation as deferred revenue and later

recognizing the transfer as revenue, iQIYI significantly overstated its reported revenues); Baidu

ACC ¶ 119 (same).

Plaintiffs further allege that in addition to overstating revenue, iQIYI also recognized

profit on the overstated revenue. See iQIYI SACC ¶ 97; Baidu ACC ¶ 121. And, Plaintiffs

allege that the iQIYI Exchange Act Defendants and the Baidu Defendants “invented” the non-

cash investment in Xin’ai Sports “out of thin air.” See iQIYI SACC ¶¶ 98-101 (alleging, inter

alia, that the audited financial statements of Wuhan DDMC, the other major equity investor in

Xin’ai Sports, disclose that iQIYI made a RMB38.25mm cash-only investment into Xin’ai

Sports and received 38.25% of the equity in return and make no mention of any non-cash

contributions by any of the investors – much less the RMB763.75mm of non-cash consideration

reported in iQIYI’s financial statements); Baidu ACC ¶¶ 122-25 (same). Plaintiffs allege that

by engaging in this “sham accounting” for its investment in Xin’ai Sports, iQIYI created

RMB763,750 of deferred revenue, which it used to prop up and avoid detection of its fraudulent

subscriber and revenue growth figures iQIYI was reporting to investors. See iQIYI SACC

27 As noted above, the Operative Complaints note in the sections discussing the Xin’ai Sports

venture that RMB amounts are in 1,000s.

¶ 101; Baidu ACC ¶ 125.

Plaintiffs allege that the 2018 iQIYI Annual Report contained the following

misstatements concerning iQIYI’s equity investment in Xin’ai Sports:

• That “[t]he excess of the carrying value of the investment over the proportionate share

of Xin’ai’s net assets of RMB609,502 (US$88,648) was recognized as basis differences

and investment goodwill.” See Baidu ACC ¶ 186; iQIYI SACC ¶ 159 (without bold and

italics).

• That RMB763,750 was reported as “[a]cquisition of long-term investments with non-

cash consideration,” which iQIYI ultimately recorded as “deferred revenue related to

content distribution, licenses of intellectual property and traffic support services to be

provided to Xin’ai.” See iQIYI SACC ¶ 160; Baidu ACC ¶ 187 (alteration accepted).

Plaintiffs allege that the 2019 iQIYI Annual Report contained the following

misstatements concerning iQIYI’s equity investment in Xin’ai Sports:

• That “[t]he excess of the carrying value of the investment over the proportionate share

of Xin’ai’s net assets of RMB609,502 was recognized as basis differences and

investment goodwill” and “[a]s of December 31, 2019, the Group’s equity interest was

diluted to 26% of Xin’ai’s total equity due to a subsequent round of equity financing.”

See Baidu ACC ¶ 188; iQIYI SACC ¶ 162 (without bold and italics).

• That RMB763,750 was reported as “[a]cquisition of long-term investments with non-cash

consideration,” which iQIYI ultimately recorded as “deferred revenue related to content

distribution, licenses of intellectual property and traffic support services to be provided to

Xin’ai.” See iQIYI SACC ¶ 163; Baidu ACC ¶ 189 (alteration accepted).

5. Wolfpack Report

Plaintiffs allege that on April 7, 2020, the Wolfpack Report was published and revealed

to investors for the first time that iQIYI’s user numbers and deferred revenues were inflated.

See iQIYI SACC ¶ 165; Baidu ACC ¶ 192. Plaintiffs further allege that on April 7, 2020, iQIYI

issued a press release on its website stating in relevant part:

The Company has been made aware of and reviewed the short seller report

published by Wolfpack Research on April 7, 2020. The Company believes that the

report contains numerous errors, unsubstantiated statements and misleading

conclusions and interpretations regarding information relating to the Company.

The Company emphasizes that it has always been and will remain committed to

maintaining high standards of corporate governance and internal control, as well

as transparent and timely disclosure in compliance with the applicable rules and

regulations of the Securities and Exchange Commission and the Nasdaq Global

Select Market.

See iQIYI SACC ¶ 165; Baidu ACC ¶ 192. Plaintiffs allege that these statements were

materially false and misleading for the same reasons set forth as to why the statements

regarding DAUs, deferred revenue, and Xin’ai sports were materially false and misleading. See

iQIYI SACC ¶ 166; Baidu ACC ¶ 193.

E. Scienter-Related Allegations

The iQIYI SACC and the Baidu ACC include various allegations purporting to establish

scienter with respect to the iQIYI Exchange Act Defendants and the Baidu Defendants,

respectively.

Plaintiffs assert that the iQIYI Exchange Act Defendants’ and the Baidu Defendants’

review of contrary information supports scienter. Specifically, Plaintiffs allege that the iQIYI

Exchange Act Defendants and the Baidu Defendants monitored and reviewed iQIYI’s DAUs

and third-party research reports containing information contrary to the iQIYI Exchange Act

Defendants’ and the Baidu Defendants’ alleged misrepresentations. See iQIYI SACC ¶¶ 196-98

(alleging, inter alia, that iQIYI Exchange Act Defendants regularly referenced QuestMobile data

during the iQIYI Class Period; that iQIYI directed investors to rely on QuestMobile data for a

platform matrix consisting of DAU numbers during iQIYI’s second quarter 2019 earnings call;

and that the iQIYI Exchange Act Defendants’ constant reliance on and reference to QuestMobile

data demonstrates that they in fact had access to such QuestMobile reports and reviewed such

reports and underlying data contained therein); Baidu ACC ¶¶ 232-35 (alleging, inter alia, that

Defendant Li referenced the QuestMobile data during various Baidu earnings calls). Plaintiffs

further allege, inter alia, that the iQIYI Exchange Act Defendants’ and Baidu Defendants’

review of iQIYI’s VIEs’ PRC tax filings containing contrary facts concerning iQIYI’s deferred

revenue supports an inference of scienter, see iQIYI SACC ¶¶ 199-200 (alleging, inter alia, that

as the legal representative, Defendant Gong was responsible for ensuring the accuracy of the

VIEs’ PRC tax filings); Baidu ACC ¶¶ 236-37 (same), and that iQIYI’s management regularly

reviewed iQIYI’s financial statements during the iQIYI and Baidu Class Periods, see iQIYI

SACC ¶¶ 201-06; Baidu ACC ¶¶ 238-42. And the Baidu ACC alleges that Baidu’s

management reviewed Baidu’s financial statements and data contained therein, which

necessarily included user metrics and revenue figures. See Baidu ACC ¶¶ 243-45.

Plaintiffs additionally allege that the iQIYI Individual Defendants’ and Baidu Individual

Defendants’ knowledge of iQIYI’s allegedly inflated DAUs, membership service revenues, and

deferred revenues can be inferred because these facts were critical to iQIYI’s core operations,

see iQIYI SACC ¶¶ 207-21; Baidu ACC ¶¶ 247-62, that the iQIYI Exchange Act Defendants

and Baidu Defendants having waited months to tell investors about the SEC and NASDAQ

investigations supports a strong inference of scienter, see iQIYI SACC ¶¶ 222-24; Baidu ACC

¶¶ 263-65, and that iQIYI’s accounting treatment of the Xin’ai Sports investment supports a

strong inference of scienter, see iQIYI SACC ¶¶ 225-26 (alleging that the iQIYI Exchange Act

Defendants used this investment to “mask the disparity between iQIYI’s real and overstated

deferred revenue figures”); Baidu ACC ¶¶ 266-67 (alleging same with respect to Baidu

Defendants).

Plaintiffs also allege that Defendant Gong’s and Defendant X. Wang’s SOX

certifications support a strong inference of scienter, see iQIYI SACC ¶¶ 227-30; Baidu ACC

¶¶ 268-71, and the Baidu Plaintiffs allege that Defendant Y. Li’s, Defendant X. Li’s, and

Defendant Yu’s SOX certifications support a strong inference of scienter, see Baidu ACC

¶¶ 272-75.

II. Procedural Background

On August 18, 2022, the Court held a conference regarding the potential consolidation

of the Baidu Action and iQIYI Action. See iQIYI August 18, 2022 Minute Entry; Baidu August

18, 2022 Minute Entry. By Order issued September 6, 2022, the Court, in light of the common

questions of law and fact at issue in the iQIYI and Baidu Actions, directed the parties to jointly

propose a schedule for the coordinated briefing of motion(s) to dismiss in the actions. See iQIYI

September 6, 2022 Order; Baidu September 6, 2022 Order.

On September 30, 2022, the parties filed a letter jointly proposing three tracks of motion

to dismiss briefing: (1) a motion by all Defendants to dismiss both actions for failure to allege

any actionable misrepresentation or omission; (2) a motion by all Defendants in the iQIYI

Action to dismiss the iQIYI Action on any additional grounds; and (3) a motion by all

Defendants in the Baidu Action to dismiss the Baidu Action on any additional grounds. See

iQIYI ECF No. 153; Baidu ECF No. 55. By Order dated October 6, 2022, the Court set a

briefing schedule. See October 6, 2022 Order.

On March 3, 2023, the three instant motions were filed.

On February 23, 2024, Defendants filed a letter providing notice of supplemental

authority. See iQIYI ECF No. 172; Baidu ECF No. 74.

On February 26, 2024, oral argument was held on the motions to dismiss. See iQIYI

February 26, 2024 Minute Entry; Baidu February 26, 2024 Minute Entry; see also Transcript of

February 26, 2024 Oral Argument (“Tr.”), iQIYI ECF No. 174. At oral argument, the parties

were heard on the motions; Plaintiffs were granted leave to file amended consolidated

complaints in the iQIYI and Baidu Actions; the Court set a schedule for the filing of amended

consolidated complaints and for supplemental briefing; and the Court held in abeyance

Defendants’ Motions to Dismiss, iQIYI ECF Nos. 156, 157; Baidu ECF Nos. 61, 62, pending

the filing of the amended consolidated complaints and supplemental briefing. See iQIYI

February 26, 2024 Minute Entry; Baidu February 26, 2024 Minute Entry; see also generally Tr.

On March 11, 2024, Plaintiffs filed amended consolidated complaints. See iQIYI ECF

No. 175; Baidu ECF No. 75.

On March 25, 2024, Defendants filed their consolidated supplemental brief. See iQIYI

ECF No. 176; Baidu ECF No. 76. On April 8, 2024, Plaintiffs filed their response. See iQIYI

ECF No. 177; Baidu ECF No. 77. On April 22, 2024, Defendants filed their reply. See iQIYI

ECF No. 178; Baidu ECF No. 78.

STANDARD OF REVIEW

Rule 8(a) of the Federal Rules of Civil Procedure provides:

A pleading that states a claim for relief must contain: (1) a short and plain statement

of the grounds for the court’s jurisdiction, unless the court already has jurisdiction

and the claim needs no new jurisdictional support; (2) a short and plain statement

of the claim showing that the pleader is entitled to relief; and (3) a demand for the

relief sought, which may include relief in the alternative or different types of relief.

Fed. R. Civ. P. 8(a).

A “short and plain statement of the claim” is required “in order to give the defendant fair

notice of what the claim is and the grounds upon which it rests.” See Bell Atlantic Corp. v.

Twombly, 550 U.S. 544, 555 (2007) (quotation and ellipsis omitted).

To survive dismissal for failure to state a claim pursuant to Rule 12(b)(6) of the Federal

Rules of Civil Procedure, a complaint must plead “enough facts to state a claim to relief that is

plausible on its face.” Twombly, 550 U.S. at 570. A claim is plausible “when the plaintiff

pleads factual content that allows the court to draw the reasonable inference that the defendant

is liable for the misconduct alleged.” Matson v. Bd. of Educ. of City Sch. Dist. of N.Y., 631 F.3d

57, 63 (2d Cir. 2011) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). The Court must

“accept all ‘well-pleaded factual allegations’ in the complaint as true” and “construe all

reasonable inferences that can be drawn from the complaint in the light most favorable to the

plaintiff.” Lynch v. City of N.Y., 952 F.3d 67, 74-75 (2d Cir. 2020) (first quoting Iqbal, 556

U.S. at 679; then quoting Arar v. Ashcroft, 585 F.3d 559, 567 (2d Cir. 2009)). However, “more

than labels and conclusions” are required and “formulaic recitation[s] of the elements of a cause

of action will not do.” See Twombly, 550 U.S. at 555. Factual allegations “must be enough to

raise a right to relief above the speculative level,” and dismissal is proper where “the allegations

in a complaint, however true, could not raise a claim of entitlement to relief.” See id. at 558. A

court is not “bound to accept conclusory allegations or legal conclusions masquerading as

factual conclusions.” See Faber v. Metro. Life Ins. Co., 648 F.3d 98, 104 (2d Cir. 2011)

(quotation omitted); see also Iqbal, 556 U.S. at 678 (noting that a court is “not bound to accept

as true a legal conclusion couched as a factual allegation” (quoting Twombly, 550 U.S. at 555));

Ruston v. Town Bd. for Town of Skaneateles, 610 F.3d 55, 59 (2d Cir. 2010) (noting that

“factual allegations must be sufficient to support necessary legal conclusions”). “In considering

a motion to dismiss for failure to state a claim, ‘[a] district court is normally required to look

only to the allegations on the face of the complaint,’” though “[it] may consider documents that

‘are attached to the complaint,’ ‘incorporated in it by reference,’ ‘integral’ to the complaint, or

the proper subject of judicial notice.” United States v. Strock, 982 F.3d 51, 63 (2d Cir. 2020)

(quoting Roth v. Jennings, 489 F.3d 499, 509 (2d Cir. 2007)).

A complaint alleging securities fraud must also satisfy the heightened pleading

requirements set forth in Rule 9(b) of the Federal Rules of Civil Procedure and the PSLRA, 15

U.S.C. § 78u-4(b). See Anschutz Corp. v. Merrill Lynch & Co., 690 F.3d 98, 108 (2d Cir.

2012). Under Rule 9(b), a plaintiff alleging fraud “must state with particularity the

circumstances constituting fraud.” See Fed. R. Civ. P. 9(b). To satisfy this requirement, “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.’” In re Synchrony Fin. Sec. Litig., 988 F.3d 157, 167 (2d Cir. 2021)

(quoting Anschutz, 690 F.3d at 108). “The PSLRA expanded on the Rule 9(b) standard,

requiring that ‘securities fraud complaints specify each misleading statement; that they set forth

the facts on which a belief that a statement is misleading was formed; and that they state with

particularity facts giving rise to a strong inference that the defendant acted with the required

state of mind.’” Anschutz, 690 F.3d at 108 (alteration accepted) (quoting Dura Pharms., Inc. v.

Broudo, 544 U.S. 336, 345 (2005)); see also 15 U.S.C. § 78u-4(b)(1), (2).

“Rule 9(b) requires that ‘in a case involving multiple defendants, plaintiffs must plead

circumstances providing a factual basis for scienter for each defendant; guilt by association is

impermissible.’” Greco v. Qudian Inc., No. 20-CV-00577, 2022 WL 4226022, at *25

(S.D.N.Y. Sept. 13, 2022) (alteration accepted) (quoting In re DDAVP Direct Purchaser

Antitrust Litig., 585 F.3d 677, 695 (2d Cir. 2009)).

DISCUSSION

For the reasons set forth below, each of the Operative Complaints is dismissed in its

entirety.

I. Count I of the iQIYI SACC and Count I of the Baidu ACC are Dismissed for

Failure to State a Claim

As set forth below, Plaintiffs have failed to state a claim under Section 10(b) and Rule

10b-5. Accordingly, Count I of the iQIYI SACC and Count I of the Baidu ACC must be

dismissed.

A. Applicable Law

Section 10(b) provides:

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 -- [t]o 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, or any securities-based swap agreement 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) (footnote omitted).

Rule 10b-5 provides:

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 state a claim for securities fraud under these provisions 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.” In re Synchrony Fin. Sec.

Litig., 988 F.3d at 167 (quotation omitted).28

“[T]o be actionable under Section 10(b) and Rule 10b-5, the alleged misstatement or

omission must be material.” In re Lululemon Sec. Litig., 14 F. Supp. 3d 553, 572 (S.D.N.Y.

2014) (citing Basic Inc. v. Levinson, 485 U.S. 224, 238 (1988)), aff’d, 604 F. App’x 62 (2d Cir.

2015). “At the pleading stage, a plaintiff satisfies the materiality requirement of Rule 10b-5 by

alleging a statement or omission that a reasonable investor would have considered significant in

making investment decisions.” Ganino v. Citizens Utils. Co., 228 F.3d 154, 161 (2d Cir. 2000)

(citing Basic, 485 U.S. at 231). Assessing materiality is “a fact-specific inquiry.” See ECA &

Loc. 134 IBEW Joint Pension Tr. of Chi. v. JP Morgan Chase Co. (“ECA”), 553 F.3d 187, 197

(2d Cir. 2009).

“[E]xpressions of puffery and corporate optimism do not give rise to securities

violations.” Rombach v. Chang, 355 F.3d 164, 174 (2d Cir. 2004). Statements are considered

expressions of puffery when they are “too general to cause a reasonable investor to rely upon

them.” See City of Pontiac Policemen’s & Firemen’s Ret. Sys. v. UBS AG, 752 F.3d 173, 183

(2d Cir. 2014) (quoting ECA, 553 F.3d at 206).

To adequately plead scienter, a complaint must “state with particularity facts giving rise

to a strong inference that the defendant acted with the required state of mind.” See 15 U.S.C.

§ 78u-4(b)(2)(A). “The requisite state of mind in a section 10(b) and Rule 10b-5 action is an

intent ‘to deceive, manipulate, or defraud.’” ECA, 553 F.3d at 198 (quoting Tellabs, Inc. v.

Makor Issues & Rights, Ltd., 551 U.S. 308, 319 (2007)). “To qualify as ‘strong’ . . . an

28 Here, Defendants challenge Count I of the iQIYI SACC and Count I of the Baidu ACC on the

grounds that the Operative Complaints fail to plead any actionable misstatement or omission,

fail to plead scienter, and fail to plead loss causation. See generally Defs.’ Joint Br.; Defs.’

iQIYI Br.; Defs.’ Baidu Br.; Defs.’ Supp. Br.

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, 551 U.S. at

314. “The strength of an inference cannot be decided in a vacuum,” and “[t]o determine

whether the plaintiff has alleged facts that give rise to the requisite ‘strong inference’ of

scienter, a court must consider plausible, nonculpable explanations for the defendant’s conduct,

as well as inferences favoring the plaintiff.” Id. at 323-24. “[T]he court’s job is not to

scrutinize each allegation in isolation but to assess all the allegations holistically.” Id. at 326.

“The requisite scienter can be established by alleging facts to show either (1) that

defendants had the motive and opportunity to commit fraud, or (2) strong circumstantial

evidence of conscious misbehavior or recklessness.” ECA, 553 F.3d at 198.

“In order to raise a strong inference of scienter through ‘motive and opportunity’ to

defraud,” a plaintiff must allege that a defendant “‘benefitted in some concrete and personal

way from the purported fraud.’” Id. (quoting Novak v. Kasaks, 216 F.3d 300, 307-08 (2d Cir.

2000)). “General allegations that the defendants acted in their economic self-interest are not

enough.” Ganino, 228 F.3d at 170. “Motives that are common to most corporate officers, such

as the desire for the corporation to appear profitable and the desire to keep stock prices high to

increase officer compensation, do not constitute ‘motive’ for purposes of this inquiry. Rather,

the ‘motive’ showing is generally met when corporate insiders allegedly make a

misrepresentation in order to sell their own shares at a profit.” ECA, 553 F.3d at 198 (citations

omitted).

As an alternative to establishing scienter through allegations regarding motive and

opportunity, a plaintiff can “raise a strong inference of scienter under the ‘strong circumstantial

evidence’ prong, ‘though the strength of the circumstantial allegations must be correspondingly

greater’ if there is no motive.” See ECA, 553 F.3d at 198-99 (quoting Kalnit v. Eichler, 264

F.3d 131, 142 (2d Cir. 2001)). “Recklessness is sufficient to establish scienter only if the

defendants’ actions represent ‘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.’” Gregory v. ProNAi Therapeutics Inc., 757 F. App’x 35, 37 (2d Cir.

2018) (quoting In re Carter-Wallace, Inc. Sec. Litig., 220 F.3d 36, 39 (2d Cir. 2000)).

“At least four circumstances may give rise to a strong inference of the requisite scienter:

where the complaint sufficiently alleges that the defendants (1) ‘benefitted in a concrete and

personal way from the purported fraud’; (2) ‘engaged in deliberately illegal behavior’; (3)

‘knew facts or had access to information suggesting that their public statements were not

accurate’; or (4) ‘failed to check information they had a duty to monitor.’” ECA, 553 F.3d at

199 (quoting Novak, 216 F.3d at 311). “Where plaintiffs contend defendants had access to

contrary facts, they must specifically identify the reports or statements containing this

information.” Novak, 216 F.3d at 309; see also Teamsters Loc. 445 Freight Div. Pension Fund

v. Dynex Cap. Inc., 531 F.3d 190, 196 (2d Cir. 2008) (rejecting plaintiff’s argument that

plaintiff had raised an inference of scienter by alleging that defendants failed to review or check

information that they had a duty to monitor where plaintiff had “not specifically identified any

reports or statements that would have come to light in a reasonable investigation and that would

have demonstrated the falsity of the allegedly misleading statements”); Okla. Firefighters

Pension & Ret. Sys. v. Lexmark Int’l, Inc., 367 F. Supp. 3d 16, 37 (S.D.N.Y. 2019) (stating that

“Second Circuit cases uniformly rely on allegations that [1] specific contradictory information

was available to the defendants [2] at the same time they made their misleading statements” and

that “bare assertions that the defendants, due to their high-level positions in the Company, had

access to adverse undisclosed financial information through internal corporate documents,

meetings, and reports, without any further facts or details will not suffice to create a strong

inference of scienter” (quotations omitted) (alteration accepted)).

“Where a defendant is a corporation,” a plaintiff must “plead[] facts that give rise to a

strong inference that someone whose intent could be imputed to the corporation acted with the

requisite scienter.” Jackson v. Abernathy, 960 F.3d 94, 98 (2d Cir. 2020) (quotation omitted).

“In exceedingly rare instances, a statement may be so dramatic that collective corporate scienter

may be inferred.” Id. at 99 (quotation omitted).

B. Plaintiffs Have Failed to Establish a Strong Inference of Scienter

Count I of the iQIYI SACC and Count I of the Baidu ACC must be dismissed because

Plaintiffs have failed to adequately plead scienter with respect to any Defendant.

1. Motive and Opportunity

In arguing that they have adequately pled scienter, Plaintiffs appear to rely principally

on their assertion that they have adequately alleged circumstantial evidence of conscious

misbehavior or recklessness, not on motive and opportunity. To the extent that Plaintiffs argue

that they have adequately alleged motive and opportunity, they appear to rely on the Operative

Complaints’ allegations regarding iQIYI’s accounting treatment of the Xin’ai Sports

investment. See Pls.’ Supp. Br. at 2-3 n.3 (arguing that “Defendants were motivated to create

deferred revenue out of thin air to cover up the overstated revenue figures” (referencing iQIYI

SACC ¶ 225; Baidu ACC ¶ 266)).29

29 Indeed, as correctly noted by Defendants, see Defs.’ Supp. Br. at 3, the Operative Complaints

omit allegations contained in the prior consolidated complaints regarding certain Defendants’

financial motivation to mislead investors. Compare iQIYI Amended Consolidated Class

Action Complaint ¶¶ 190-91, iQIYI ECF No. 104; Baidu Consolidated Class Action

Complaint ¶¶ 228-29, Baidu ECF No. 48, and iQIYI SACC; Baidu ACC.

Plaintiffs, however, cannot establish motive and opportunity through allegations of

generalized “motives possessed by virtually all corporate insiders,” see Novak, 216 F.3d at 307,

such as a motive to “mask the disparity between iQIYI’s real and overstated deferred revenue

figures,” see iQIYI SACC ¶ 225; Baidu ACC ¶ 266.30

Plaintiffs have failed to sufficiently allege a strong inference of scienter through motive

and opportunity.

2. Circumstantial Evidence

With respect to circumstantial evidence of conscious misbehavior or recklessness,

Plaintiffs principally allege that the iQIYI Exchange Act Defendants and Baidu Defendants

reviewed information contrary to Defendants’ public statements – specifically, contrary

information contained in iQIYI’s DAUs, certain third-party research reports, and iQIYI’s VIEs’

PRC tax filings, see iQIYI SACC ¶¶ 196-206; Baidu ACC ¶¶ 232-46; that the iQIYI Individual

Defendants’ and Baidu Individual Defendants’ knowledge of iQIYI’s allegedly inflated user

numbers and deferred revenues can be inferred because these facts were critical to iQIYI’s core

operations, see iQIYI SACC ¶¶ 207-21; Baidu ACC ¶¶ 247-62;31 that the iQIYI Exchange Act

Defendants and Baidu Defendants waited months to tell investors about the SEC and NASDAQ

investigations, see iQIYI SACC ¶¶ 222-24; Baidu ACC ¶¶ 263-65; and that Defendants Gong,

30 Moreover, as noted by Defendants, the timing of the Xin’ai Sports venture – which occurred

in 2018 – undercuts Plaintiffs’ theory that the Xin’ai Sports venture was designed to mask

the alleged disparity between iQIYI’s real and overstated deferred revenue figures – which

disparity Plaintiffs allege occurred for iQIYI’s deferred revenue for 2015-2017. See Defs.’

Supp. Reply at 5-6.

31 The Baidu Plaintiffs additionally allege that given Baidu’s majority ownership of iQIYI, and

that iQIYI was a critical asset and the principal driver of Baidu’s growth during the Baidu

Class Period, Defendants Y. Li, X. Li, and Yu were well aware that iQIYI’s performance

was critical to Baidu as well. See Baidu ACC ¶ 261.

Wang, Y. Li, X. Li, and Yu executed SOX certifications, see iQIYI SACC ¶¶ 227-30; Baidu

ACC ¶¶ 268-75.32

Here, assessed holistically, the allegations in the Operative Complaints do not

demonstrate strong circumstantial evidence of conscious misbehavior or recklessness.

Plaintiffs do not sufficiently allege that any Defendant knew or had access to specific

reports or statements containing information contradicting public statements. See Novak, 216

F.3d at 309; Dynex, 531 F.3d at 196.33 Although Plaintiffs allege that the iQIYI Exchange Act

Defendants and Baidu Defendants admitted to monitoring iQIYI’s DAUs, see iQIYI SACC ¶¶ 6,

197; Baidu ACC ¶ 5, 233; that iQIYI’s management periodically met with iQIYI’s Audit

Committee to review and discuss iQIYI’s financial statements, see iQIYI SACC ¶¶ 8, 201-04;

and that Baidu’s management periodically met with Baidu’s Audit Committee, Baidu ACC

¶¶ 7, 243-44, Plaintiffs do not allege that any Defendant – or the iQIYI Audit Committee or

Baidu Audit Committee – was presented with specific internal DAU data or reports

contradicting Defendants’ public statements. And, although Plaintiffs allege that the iQIYI

Exchange Act Defendants and Baidu Defendants “undoubtedly were aware” that their “public

statements were false and misleading as they repeatedly referenced data from QuestMobile,” see

iQIYI SACC ¶ 9; Baidu ACC ¶ 8; see also iQIYI SACC ¶ 198; Baidu ACC ¶¶ 234-35, Plaintiffs

do not allege that any Defendant reviewed any specific QuestMobile reports – or any other

32 Further, Plaintiffs argue that “[b]ecause the Baidu Complaint adequately alleges scienter

against the Individual Defendants, it has alleged scienter against Baidu and iQIYI as well.”

See Pls.’ Baidu Br. at 5 n.3.

33 When asked by the Court at the February 26, 2024 oral argument whether Plaintiffs had “any

allegations that any individual defendant was presented with information that was contrary”

to Defendants’ alleged misstatements, counsel responded: “We don’t have specific direct

evidence of them seeing a document.” See Tr. at 30.

third-party reports – that contradicted iQIYI’s reported DAUs.34 Further, Plaintiffs’ allegations

regarding the availability of sources purportedly indicating that the accounting of the Xin’ai

Sports venture was improper, see iQIYI SACC ¶ 99; Baidu ACC ¶ 123, fall short in light of the

absence of specific allegations in the Operative Complaints regarding any Defendant’s review

or knowledge of those sources. And, Plaintiffs’ generalized assertion that “[d]ue to the

importance of iQIYI to Baidu and the [Baidu] Individual Defendants, the [Baidu] Defendants

clearly had access to information that contradicted their public statements regarding iQIYI’s

revenues and DAUs,” see Pls.’ Baidu Br. at 5; see also Pls.’ Baidu Br. at 6-7, is unavailing.35

Plaintiffs’ argument that scienter is further buttressed by the fact that Defendants had a

duty to monitor iQIYI’s revenue and DAUs, see Pls.’ Baidu Br. at 9; see also Pls.’ iQIYI Br. at

4 (arguing that “Defendants had a duty to familiarize themselves with the facts relevant to the

core operations of [iQIYI] and the financial reporting of those operations” (alteration accepted)

(quotation omitted)); Pls.’ Baidu Br. at 11 (stating that “[a]t a minimum, if Defendants failed to

monitor these key operating metrics and obvious accounting irregularities within them, they

were reckless in failing to do so”), and Plaintiffs’ argument that the Baidu Individual

Defendants’ frequent communications in SEC filings and representations to the market about

iQIYI, its DAUs, and its revenue supports that those metrics were critical to Baidu and supports

34 In any event, as discussed below, the QuestMobile and Aurora data does not plausibly

establish that iQIYI’s reported DAUs were misstated.

35 Further, as Defendants persuasively argue, Plaintiffs’ allegation that “Defendant Gong must

have signed off on the Shanghai VIEs’ tax returns – which contained the true deferred

revenue amounts that contradicted the amounts . . . disclosed to investors,” see iQIYI SACC

¶ 200; Baidu ACC ¶ 237, does not indicate whether Defendant Gong must have reviewed

deferred revenue of all five of iQIYI’s VIEs. See Defs.’ Supp. Br. at 5; Defs.’ Supp. Reply at

5. In any event, for the reasons discussed below in connection with the Court’s analysis of

the iQIYI Plaintiffs’ Section 11 claim, the deferred revenue reported in VIE tax returns does

not plausibly establish the falsity of the deferred revenue reported by iQIYI or Baidu.

an inference that Defendants knew their statements were false when made, see Pls.’ Baidu Br. at

10-11, are unavailing, particularly in light of Plaintiffs’ failure to sufficiently allege that any

specific contradictory information would have come to light in a reasonable investigation by

Defendants. See Dynex, 531 F.3d at 196; see also, e.g., Born v. Quad/Graphics, Inc., 521 F.

Supp. 3d 469, 493 (S.D.N.Y. 2021) (concluding that “absent particularized allegations of

specific information Defendants had at their disposal that rendered their statements false or

misleading, allegations of circumstantial evidence – such as the individual Defendants’ senior

positions, control over [the defendant company], regulatory certifications, and the relative

importance of [the company’s strategy] – are not sufficient to plead scienter, even considered in

their totality” and collecting cases).

Plaintiffs’ reliance on allegations regarding Defendants’ purported delay in disclosing

the SEC and NASDAQ investigations also is unavailing. As an initial matter, Plaintiffs do not

sufficiently allege that Defendants had a duty to disclose such investigations. See generally

iQIYI SACC; Baidu ACC; see also, e.g., In re Lions Gate Ent. Corp. Sec. Litig., 165 F. Supp.

3d 1, 24 (S.D.N.Y. 2016) (concluding that “[b]ecause there is no clear case law that would

require the disclosure of the SEC investigation . . . in the absence of a pre-existing duty to

disclose, the plaintiffs cannot show that the defendants acted” with the requisite scienter).36

Moreover, any purported delay in disclosing investigations does not support a strong inference

that Defendants were “trying to downplay the Wolfpack Report by making investors think the

36 The Baidu ACC conclusorily asserts that Defendants did have an affirmative duty to disclose

the investigations. See Baidu ACC ¶ 265. The Court, however, is not bound to accept

conclusory allegations. See Faber, 648 F.3d at 104. And, Plaintiffs’ argument that “by

denying the contents of the Wolfpack Report, Defendants put it and its contents at issue” and

therefore “Defendants had a duty to disclose that the government was investigating iQIYI for

the very contents of the Wolfpack Report,” see Pls.’ Baidu Br. at 13-14, is unpersuasive.

allegations from the report were untrue,” see iQIYI SACC ¶ 224; Baidu ACC ¶ 265 – a more

compelling inference is that Defendants did not believe it was necessary to immediately address

the report. See Tellabs, 551 U.S. at 314; see also, e.g., In re Lions Gate, 165 F. Supp. 3d at 24.

Plaintiffs’ allegations that iQIYI’s user numbers and revenue figures were part of

iQIYI’s core operations and that iQIYI was part of Baidu’s core operations do not save

Plaintiffs’ scienter theory. Although the United States Court of Appeals for the Second Circuit

has not expressly determined whether the core operations doctrine survives as a viable theory of

scienter following the enactment of the PSLRA, see Frederick v. Mechel OAO, 475 F. App’x

353, 356 & n.5 (2d Cir. 2012); see also Swanson v. Danimer Sci., Inc., No. 23-7674-CV, 2024

WL 4315109, at *2 (2d Cir. Sept. 27, 2024), courts have held that the doctrine can provide

supplemental support for allegations of scienter, even if it cannot establish scienter

independently, see City of Omaha Police & Fire Ret. Sys. v. Evoqua Water Techs. Corp., 450 F.

Supp. 3d 379, 424 (S.D.N.Y. 2020) (collecting cases); see also New Orleans Emps. Ret. Sys. v.

Celestica, Inc., 455 F. App’x 10, 14 n.3 (2d Cir. 2011). Here, Plaintiffs’ allegations regarding

core operations are insufficient to establish any Defendant’s scienter.

In addition, Plaintiffs’ reliance on SOX certifications is unavailing, as Plaintiffs have

failed to sufficiently allege any Defendant’s awareness of or recklessness to the allegedly

materially misleading nature of the statements at issue. See Plumbers & Pipefitters Nat’l

Pension Fund v. Orthofix Int’l N.V., 89 F. Supp. 3d 602, 615 (S.D.N.Y. 2015) (stating that

“[t]he plaintiff cannot raise an inference of fraudulent intent based on the signing of a

certification without alleging any facts to show a concomitant awareness of or recklessness to

the materially misleading nature of the statements”); In re Turquoise Hill Res. Ltd. Sec. Litig.,

No. 13-CV-08846, 2014 WL 7176187, at *7 (S.D.N.Y. Dec. 16, 2014) (concluding that

plaintiff’s reliance on defendant’s SOX certifications was unavailing, noting that plaintiff had

not “offered any particularized allegation of an inference that the [SOX certifications] were not

honestly and reasonably believed to be true when made” (alteration accepted) (ellipsis and

quotation omitted)). Plaintiffs’ argument that Defendants’ denial of the accuracy of the

Wolfpack Report supports scienter, see Pls.’ Baidu Br. at 12-13; see also Pls.’ iQIYI Br. at 5

(stating that Defendants’ “false exculpatory statements prove their scienter”), is unavailing for

the same reason – i.e., that Plaintiffs have not plausibly alleged that those denials were not

honestly and reasonably believed to be true when made.37

Plaintiffs have failed to allege strong circumstantial evidence of conscious misbehavior

or recklessness sufficient to demonstrate scienter with respect to any Defendant.38

* * *

Plaintiffs have failed to adequately plead scienter. Accordingly, Count I of the iQIYI

SACC and Count I of the Baidu ACC are dismissed for failure to state a claim.39

37 Further, as noted by Defendants, many of Plaintiffs’ arguments as to circumstantial evidence

are particularly weak – or do not apply at all – with respect to Baidu and its executives. See

Defs.’ Baidu Reply at 3 (arguing that it would be “unreasonable to presume, under the core

operations doctrine, that Baidu’s executives knew of any alleged fraud occurring at iQIYI

simply because iQIYI is a large investment for Baidu” and that “Plaintiffs do not allege that

Baidu’s executives had any involvement with iQIYI’s accounting” or “that Baidu’s

executives had anything to do with iQIYI’s denial of the Wolfpack Report or disclosure of

the SEC and NASDAQ investigations”).

38 Contrary to Plaintiffs’ assertion, see Pls.’ Baidu Br. at 5 n.3, Plaintiffs have failed to

adequately plead corporate scienter. Plaintiffs do not plead facts that give rise to a strong

inference that someone whose intent could be imputed to iQIYI or Baidu acted with the

requisite scienter. See Dynex, 531 F.3d at 195. As set forth above, Plaintiffs have failed to

establish a strong inference of scienter as to any individual Defendant. And Plaintiffs do not

allege any statement “so ‘dramatic’ that collective corporate scienter may be inferred.” See

Jackson, 960 F.3d at 99 (quoting Dynex, 531 F.3d at 195-96).

39 In light of the above, the Court need not – and does not – reach the issues of whether

Plaintiffs have adequately pled that any Defendant made an actionable misstatement or

omission in connection with the Exchange Act claims or whether Plaintiffs have adequately

II. Count II of the iQIYI SACC and Count II of the Baidu ACC are Dismissed for

Failure to State a Claim

In light of the dismissal of Count I of the iQIYI SACC and Count I of the Baidu ACC,

Count II of the iQIYI SACC and Count II of the Baidu ACC must be dismissed for failure to

state a claim.

In Count II of the iQIYI SACC and Count II of the Baidu ACC, Plaintiffs bring claims

under Section 20(a) of the Exchange Act, which provides:

Every person who, directly or indirectly, controls any person liable under any

provision of this chapter or of any rule or regulation thereunder shall also be liable

jointly and severally with and to the same extent as such controlled person to any

person to whom such controlled person is liable (including to the Commission in

any action brought under paragraph (1) or (3) of section 78u(d) of this title), unless

the controlling person acted in good faith and did not directly or indirectly induce

the act or acts constituting the violation or cause of action.

15 U.S.C. § 78t(a).

“To establish a prima facie case of control person liability, a plaintiff must show (1) a

primary violation by the controlled person, (2) control of the primary violator by the defendant,

and (3) that the defendant was, in some meaningful sense, a culpable participant in the

controlled person’s fraud.” ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 108 (2d Cir.

2007).

Because Plaintiffs have failed to adequately plead a primary violation of the Exchange

Act in the iQIYI SACC and the Baidu ACC, Count II of each complaint must be dismissed.

pled loss causation. See, e.g., Hutchinson v. Perez, No. 12-CV-01073, 2012 WL 5451258, at

*8 (S.D.N.Y. Nov. 8, 2012) (“Since the Court must dismiss the Amended Complaint if

Plaintiff fails to adequately plead scienter, I need not reach loss causation or misleading

statements and omissions under the PSLRA.”), amended, No. 12-CV-01073, 2013 WL

93171 (S.D.N.Y. Jan. 8, 2013).

III. Count III of the iQIYI SACC is Dismissed for Failure to State a Claim

As set forth below, the iQIYI Plaintiffs have failed to state a claim under Section 11.

Accordingly, Count III of the iQIYI SACC must be dismissed.40

A. Applicable Law

Section 11 of the Securities Act provides in relevant part:

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 (unless it is proved that at the time

of such acquisition he knew of such untruth or omission) may, either at law or in

equity, in any court of competent jurisdiction, sue--

(1) every person who signed the registration statement;

(2) every person who was a director of (or person performing similar functions) or

partner in the issuer at the time of the filing of the part of the registration statement

with respect to which his liability is asserted;

(3) every person who, with his consent, is named in the registration statement as

being or about to become a director, person performing similar functions, or

partner;

(4) every accountant, engineer, or appraiser, or any person whose profession gives

authority to a statement made by him, who has with his consent been named as

having prepared or certified any part of the registration statement, or as having

prepared or certified any report or valuation which is used in connection with the

registration statement, with respect to the statement in such registration statement,

report, or valuation, which purports to have been prepared or certified by him;

(5) every underwriter with respect to such security.

15 U.S.C. § 77k(a).

Section 11 “imposes strict liability on issuers and signatories, and negligence liability on

underwriters, for material misstatements or omissions in a registration statement.” See Fed.

40 The iQIYI Plaintiffs’ Section 11 claim is premised on allegedly untrue statements contained

in the iQIYI Registration Statement regarding iQIYI’s DAUs and deferred revenue. See

iQIYI SACC ¶¶ 358-71.

Hous. Fin. Agency for Fed. Nat’l Mortg. Ass’n v. Nomura Holding Am., Inc., 873 F.3d 85, 99

(2d Cir. 2017) (quotation omitted). To state a claim under Section 11, a “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 Info. Fund Sec.

Litig., 592 F.3d 347, 358-59 (2d Cir. 2010) (quotation omitted). “The definition of materiality

is the same for [Section 11] as it is under section 10(b) of the Exchange Act.” Id. at 360.

The Second Circuit has stated that although “[f]raud is not an element or a requisite to a

claim under Section 11” and “a plaintiff need allege no more than negligence to proceed under

Section 11,” claims under Section 11 “may be – and often are – predicated on fraud,” and

“claims that do rely upon averments of fraud are subject to the test of Rule 9(b).” See Rombach,

355 F.3d at 171.

To determine whether the allegations underlying a Section 11 claim are premised on

fraud, “[t]he question is whether a plaintiff’s allegations ‘are classically associated with fraud.’”

See In re Synchrony, 988 F.3d at 173 (quoting Rombach, 355 F.3d at 172); see also In re

Gentiva Sec. Litig., 932 F. Supp. 2d 352, 392 (E.D.N.Y. 2013) (stating that “courts have looked

at the following to indicate that a Section 11 claim sounds in fraud: (1) the complaint contains

merely a blanket disclaimer that the plaintiffs do not allege fraud for the purposes of the

Securities Act claims; (2) the allegations themselves include classic fraud language; (3) the

complaint does not show any basis for the claims that is nonfraudulent; and (4) the plaintiffs do

not separate the factual allegations supporting the fraud claims and negligence claims, but rather

require the courts to parse the complaints”); see also In re NIO, Inc. Sec. Litig., No. 19-CV-

01424, 2021 WL 3566300, at *5 (E.D.N.Y. Aug. 12, 2021) (stating that courts “will also

consider whether the ‘gravamen of the complaint is plainly fraud,’ or whether alternative bases

of liability exist” (quoting Rombach, 355 F.3d at 172)).

B. The Section 11 Claim Does Not Sound in Fraud

As an initial matter, Defendants argue that the Section 11 claim in the iQIYI SACC

sounds in fraud and thus should be analyzed under the heightened pleading standard of Rule

9(b) as opposed to under Rule 8. See Defs.’ Joint Br. at 10-11.41 Specifically, Defendants

argue that although the iQIYI Plaintiffs put their Exchange Act and Securities Act allegations

into separate sections in the iQIYI SACC, the gravamen of both sets of claims is fraud, as the

Securities Act claims are based on the same alleged misrepresentations as the Exchange Act

claims, see Defs.’ Joint Br. at 10-11, and that “[t]he iQIYI Plaintiffs’ superficial changes to their

Securities Act allegations – such as sprinkling the word ‘negligence’ throughout and changing

‘false and misleading’ to ‘untrue’ – do not alter the substance of their claims, which is that

iQIYI’s Registration Statement artificially inflated DAUs and customer advances and deferred

revenue to defraud investors.” See Defs.’ Supp. Br. at 5-6 (citations omitted). Plaintiffs dispute

that the Securities Act claims sound in fraud, arguing that these claims sound in negligence –

i.e., Defendants’ failure to conduct an adequate and reasonable investigation into the business

and operations of iQIYI. See Pls.’ iQIYI Br. at 14-15; see also Pls.’ Supp. Br. at 5-6 (asserting

41 Defendants further argue that because the Section 11 claim sounds in fraud, the iQIYI

Plaintiffs must establish scienter to state a claim and that the “Securities Act claims, like the

Exchange Act claims, therefore must be dismissed for failure to plead scienter.” See Defs.’

iQIYI Br. at 8-11. Plaintiffs argue that they are not required to allege scienter for their

Section 11 claim. See Pls.’ iQIYI Br. at 15-17. In light of the below, the Court need not

address these arguments.

that “[n]ot only does the Section 11 claim disclaim any allegation of fraud, it is also separated

from the Section 10(b) claim, alleges that the Securities Act Defendants acted negligently

without using classic fraud language, and alleges alternative grounds for liability –

negligence”).

The Section 11 claim here does not sound in fraud. The iQIYI SACC asserts that the

“Securities Act Claims solely allege strict liability and negligence causes of action, and do not

sound in fraud,” see iQIYI SACC ¶ 268 (expressly excluding and disclaiming any allegation that

could be construed as alleging fraud, intentional misconduct, or deliberately reckless

misconduct and expressly not incorporating by reference any allegations contained in Sections

I-XIII of the iQIYI SACC), and separates the Exchange Act claims from the Securities Act

claims, see generally iQIYI SACC. Further, the Securities Act section of the iQIYI SACC does

not use “classic fraud language.” See In re NIO, 2021 WL 3566300, at *5; see, e.g., iQIYI

SACC ¶¶ 277 (alleging that Offering Documents contained inflated viewership and revenue

numbers “as a result of Securities Act Defendants’ negligence”), 283, 285, 290, 294, 362.

Although the Exchange Act claims and Securities Act claims share common factual allegations,

the allegations contained in the Securities Act section of the iQIYI SACC provide an alternative

basis of liability – namely, negligence – and notably, the iQIYI Director Defendants and iQIYI

Underwriter Defendants are not defendants to the Exchange Act claims. See In re NIO, 2021

WL 3566300, at *5; see also, e.g., iQIYI SACC ¶¶ 334 (alleging that the Individual Defendants

owed a duty to the purchasers of the shares of iQIYI to make a reasonable and diligent

investigation of the statements contained in the Offering Documents and are liable to Plaintiffs

for breach of that duty), 343 (alleging same with respect to Director Defendants), 353 (alleging

same with respect to Underwriter Defendants).

For the reasons set forth below, however, Count III of the iQIYI SACC nevertheless

must be dismissed.

C. The iQIYI Plaintiffs Have Failed to Allege an Untrue Statement of a

Material Fact

Count III of the iQIYI SACC must be dismissed because the iQIYI Plaintiffs have failed

to adequately plead an untrue statement of a material fact.

1. The iQIYI Plaintiffs Have Failed to Allege an Untrue Statement of a

Material Fact with Respect to DAUs

Defendants argue that the iQIYI Plaintiffs fail to allege that Defendants overstated

iQIYI’s DAUs. See Defs.’ Joint Br. at 12-15; Defs.’ Supp. Br. at 6-7. Specifically, Defendants

argue, inter alia, that the iQIYI SACC’s “single new conclusory allegation about DAUs” – that

QuestMobile and Aurora each used the same methodology for calculating DAUs: the number of

unique devices that used iQIYI’s apps at least once during the day – makes Plaintiffs’

misrepresentation claim “even less plausible,” because QuestMobile’s and Aurora’s respective

estimates of iQIYI’s DAUs differ so greatly from each other. See Defs.’ Supp. Br. at 6 (noting

that “for some periods, QuestMobile’s estimates differ more from Aurora’s than from

iQIYI’s”); see also Defs.’ Joint Br. at 14-15 (arguing that Plaintiffs fail to plead the amount by

which iQIYI’s DAUs were allegedly misstated); Defs.’ Supp. Reply at 8 (asserting that

“[u]ltimately, all Plaintiffs allege is that QuestMobile, Aurora, and iQIYI each came up with

different numbers” and that Plaintiffs “allege nothing to establish whose numbers were correct

or, more to the point, that iQIYI’s reported DAUs were false”). Defendants suggest that “[o]ne

obvious potential explanation is that the three companies used different underlying data.” See

Defs.’ Supp. Br. at 6 n.4; see also Defs.’ Supp. Br. at 7 (arguing that Plaintiffs fail to adequately

allege the basis for their assertion that QuestMobile, Aurora, and iQIYI calculate DAUs in the

same way). Further, Defendants state that QuestMobile and Aurora expressly disclaimed the

accuracy and completeness of their respective estimates. See Defs.’ Joint Br. at 14. And

Defendants argue that “[t]o the extent Plaintiffs challenge iQIYI touting its ‘massive and highly

engaged user base,’ such statements are inactionable puffery” and, “[i]n any event, Plaintiffs’

own allegations show that iQIYI’s user base was massive and highly engaged.” See Defs.’ Joint

Br. at 15 n.11 (citations omitted).42

In opposition, Plaintiffs argue, inter alia, that the iQIYI SACC’s new allegations

establish that QuestMobile and Aurora were using the same methodology as iQIYI to calculate

average DAUs, see Pls.’ Supp. Br. at 7; that iQIYI regularly recognizes the accuracy and

reliability of third-party research firms’ data, particularly QuestMobile’s, see Pls.’ Joint Br. at

10 (stating that “[a]t numerous earnings calls, iQIYI and Baidu repeatedly cited QuestMobile

data and other third-party research firms’ data to support the Company’s performance and also

asked investors to rely on those data”); see also Pls.’ Supp. Br. at 7; that in any event, reliability

of the QuestMobile and Aurora reports is a question of fact that cannot be decided at the

pleading stage, see Pls.’ Supp. Br. at 7; that Plaintiffs are not required to precisely quantify the

amount by which financial statements were overstated and, in response to Defendants’

arguments that the amounts of DAUs reported by QuestMobile and Aurora were not identical,

42 Defendants additionally argue that the iQIYI SACC fails to sufficiently allege an untrue

statement of a material fact because Plaintiffs improperly rely “solely” on a short-seller

report. See Defs.’ Joint Br. at 11-12. Here, however, given Plaintiffs’ representations

regarding their research and analysis, see, e.g., iQIYI SACC ¶ 286 n.42, and Plaintiffs’

reliance on sources other than the Wolfpack Report, Plaintiffs’ reliance on the Wolfpack

Report is insufficient in itself to warrant dismissal. See Long Miao v. Fanhua, Inc., 442 F.

Supp. 3d 774, 801 (S.D.N.Y. 2020) (concluding that plaintiff’s suggestion “that a

complaint’s reliance on a short-seller report inherently requires dismissal” was “wrong,”

noting that courts have sustained complaints relying on short seller reports “where

independent factual allegations corroborated the factual allegation in the complaint drawn

from short-sellers’ reports”).

that “absolute precision” is not required for a pleading, see Pls.’ Joint Br. at 12; and that

Defendants’ assertion that the statement about iQIYI’s user base being “massive” and “highly

engaged” was puffery is wrong because iQIYI’s user base is objectively verifiable, see Pls.’

Joint Br. at 12-13 n.11 (arguing that “despite Defendants’ assertion that the Complaints failed to

allege facts that the user base was not ‘massive,’ Defendants concealed the inflated nature of

iQIYI’s DAUs, and so-called half-truths will support claims for securities fraud” (ellipsis and

quotation omitted)).

Here, the iQIYI Plaintiffs have failed to allege any untrue statement of a material fact

with respect to DAUs.

As an initial matter, the iQIYI Plaintiffs have failed to plausibly allege falsity with

respect to the statement regarding iQIYI’s “massive and highly engaged user base,” see iQIYI

SACC ¶ 358, because such statement is an expression of puffery.

Further, although the iQIYI SACC alleges that iQIYI, QuestMobile, and Aurora each

used the same methodology for calculating DAUs, see iQIYI SACC ¶ 286, the iQIYI Plaintiffs

also allege that QuestMobile’s and Aurora’s estimates of iQIYI’s DAUs differ significantly

from each other. For example, the iQIYI Plaintiffs allege that iQIYI’s DAUs according to

QuestMobile were 113 million in the fourth quarter of 2017, 122.6 million in 2018, and 114.2

million in 2019, see iQIYI SACC ¶ 147; see also iQIYI SACC ¶ 287, and also allege that

“[a]ccording to Aurora’s data, between December 2017 and March 2019, iQIYI never had more

than 90 million mobile DAU,” see iQIYI SACC ¶ 52 (emphasis omitted); see also iQIYI SACC

¶ 289. The iQIYI Plaintiffs do not, however, allege any facts accounting for the discrepancy

between these estimates.43 That QuestMobile’s and Aurora’s estimates differ greatly from one

another – without explanation – renders the allegations that those estimates differ from iQIYI’s

reported DAUs insufficient to plausibly allege the falsity of iQIYI’s public statements.

Construing all reasonable inferences in the light most favorable to the iQIYI Plaintiffs,

the Court cannot conclude that the discrepancies among the various DAU reports renders

plausible – rather than speculative – Plaintiffs’ theory that iQIYI misstated its DAUs.

The iQIYI Plaintiffs have failed to allege an untrue statement of a material fact with

respect to DAUs.

2. The iQIYI Plaintiffs Have Failed to Allege an Untrue Statement of a

Material Fact with Respect to Deferred Revenue

Defendants argue that the iQIYI Plaintiffs fail to allege that Defendants overstated

iQIYI’s deferred revenue. See Defs.’ Joint Br. at 15-19; Defs.’ Supp. Br. at 7-9. Defendants

argue, inter alia, that Plaintiffs plead no basis to infer that the third-party credit reports on

which Plaintiffs rely are accurate and comparable to iQIYI’s SEC filings, as iQIYI’s SEC

filings, unlike the VIEs’ filings, do not individually report deferred revenue, see Defs.’ Joint Br.

at 16 (arguing, inter alia, that “the comparisons Plaintiffs seek to draw are apples-to-oranges”);

see also Defs.’ Supp. Br. at 8 (arguing that Plaintiffs fail to allege facts establishing that the

“deferred revenue” metric in the PRC credit reports is the same as the “customer advances and

deferred revenue” metric reported in iQIYI’s Registration Statement and noting that “[o]n their

face, the two metrics are different, as the latter includes customer advances”); that Plaintiffs

have failed to allege anything about how the PRC tax filings were prepared, including under

43 Plaintiffs’ omission of allegations to account for the discrepancy between QuestMobile’s and

Aurora’s estimates of iQIYI’s DAUs is notable given that the issue of DAUs – specifically,

the issue of comparison of QuestMobile’s, Aurora’s, and iQIYI’s respective DAU figures –

was highlighted in briefing and during oral argument.

what accounting principles, see Defs.’ Supp. Br. at 8 (noting that Plaintiffs do not allege that the

PRC tax filings underlying the credit reports were for the SAIC, that Plaintiffs acknowledge that

the SAIC is distinct from the State Tax Bureau, and that “all [Plaintiffs] allege about filings

with the State Tax Bureau is that ‘all revenue earned from any source by the entity must be

recorded as revenue during the fiscal year such revenue is earned’” (quoting iQIYI SACC ¶ 126;

Baidu ACC ¶ 153)); see also Defs.’ Joint Br. at 17 (arguing that Plaintiffs “do not allege who

authored the third-party reports, when they were published or for what purpose, what reporting

periods were covered, or what methodologies were used (including whether they were prepared

in accordance with GAAP)”); and that there is no merit to Plaintiffs’ suggestion that

submissions to PRC tax authorities are the most accurate sources of financial information, see

Defs.’ Joint Br. at 18 (asserting that courts have recognized that the civil and criminal

consequences of false filings in the United States are more severe than those in China).

In opposition, Plaintiffs argue, inter alia, that they have sufficiently established that the

credit reports are accurate and more reliable than iQIYI’s SEC filings, see Pls.’ Joint Br. at 13-

14 (arguing that courts have found allegations regarding penalties imposed in China for filing

false documents with the SAIC and PRC tax authorities sufficient to establish the accuracy of

filings); that courts routinely find falsity established when a complaint alleges that a company’s

reported financial or operating performance metrics in its SEC filings differ from those reported

by its operating subsidiaries in China, see Pls.’ Joint Br. at 14-15; that Defendants’ arguments

regarding the authorship and reliability of the credit reports are “red herrings,” see Pls.’ Joint

Br. at 15 (arguing that the credit reports are not anonymous and stating that the iQIYI SACC

alleges that the reports specifically covered the years 2015 to 2017); and that Plaintiffs have

alleged that the information in the credit reports came from PRC tax filings that require revenue

to be prepared according to PRC GAAP, which Plaintiffs allege is the same as U.S. GAAP in all

material respects for revenue and deferred revenue, see Pls.’ Joint Br. at 15-16; see also Pls.’

Supp. Br. at 8.44

Here, the iQIYI Plaintiffs have failed to allege any untrue statement of a material fact

with respect to deferred revenue.

As an initial matter, and critically, as Defendants correctly note, the metrics that the

iQIYI Plaintiffs seek to have the Court compare – “customer advances and deferred revenue,”

the line item set forth in the iQIYI Registration Statement, and “deferred revenue,” the line item

purportedly set forth the third-party credit reports – are different on their face. See Defs.’ Supp.

Br. at 8. Although the iQIYI Plaintiffs assert in supplemental briefing that the PRC tax filings

disclose customer advances and deferred revenue under a single line item, there is no such

allegation in the iQIYI SACC, and the iQIYI Plaintiffs have not filed the referenced third-party

credit reports. See Southwick Clothing LLC v. GFT (USA) Corp., No. 99-CV-10452, 2004 WL

2914093, at *6 (S.D.N.Y. Dec. 15, 2004) (stating that “[a] complaint cannot be amended merely

by raising new facts and theories in plaintiffs’ opposition papers, and hence such new

allegations and claims should not be considered in resolving the motion”).

Further, as Defendants correctly note, Plaintiffs’ allegations do not plausibly establish

that it is otherwise appropriate to compare the deferred revenue numbers allegedly reported in

the third-party credit reports and the deferred revenue numbers reported in iQIYI’s Registration

Statement. Although the iQIYI Plaintiffs allege that PRC law requires financial statements filed

with the SAIC by iQIYI’s subsidiaries to be audited by Chinese CPA firms in conformance with

44 Plaintiffs also assert, in their supplemental briefing, that “the tax filings, as cited in the credit

reports that Plaintiffs’ counsel reviewed, disclose customer advances and deferred revenue

under a single line item – just like iQIYI’s SEC filings.” See Pls.’ Supp. Br. at 8-9 n.10.

Chinese GAAP, see iQIYI SACC ¶ 305, and that Chinese GAAP is substantially the same as

U.S. GAAP, see iQIYI SACC ¶ 306; see also iQIYI SACC ¶¶ 307-08, 313-15, the iQIYI

Plaintiffs do not allege that the deferred revenue reported in the third-party credit reports was

based on filings with the SAIC. Indeed, the iQIYI Plaintiffs allege only that the “amounts

reported in the credit reports are taken from the PRC tax filings of iQIYI’s VIEs” and the iQIYI

Plaintiffs make clear that the SAIC and “PRC tax authorities” are distinct. See iQIYI SACC

¶ 370 (discussing how filings with the SAIC and PRC tax authorities are the most accurate

sources of financial information for a PRC-based company). Contrary to Plaintiffs’ assertion in

briefing, the iQIYI SACC does not in fact allege that filings with the PRC tax authorities were

required to comply with GAAP. Accordingly, the iQIYI Plaintiffs have not plausibly alleged

that the two values – the deferred revenue of iQIYI’s five VIEs purportedly reported in the

third-party credit reports and the deferred revenue of iQIYI’s five VIEs reported in iQIYI’s

Registration Statement – should be equivalent.45

The iQIYI Plaintiffs have failed to establish that iQIYI’s Registration Statement

contained an untrue statement of a material fact with respect to iQIYI’s deferred revenue.

* * *

Because the iQIYI Plaintiffs have failed to plead any untrue statement of a material fact

regarding iQIYI’s DAUs or deferred revenue figures, Count III of the iQIYI SACC must be

45 And indeed, the issue of whether the two values should be equivalent was raised by

Defendants in briefing, see Defs.’ Joint Br. at 18 (arguing, inter alia, that “Plaintiffs do not

allege that PRC tax filings are filed with the SAIC or are required to comply with GAAP”),

and at oral argument, see Tr. at 14 (counsel arguing, with respect to the credit reports, that

“[Plaintiffs] don’t tell you what PRC tax filings are reflected on them” and “[Plaintiffs] don’t

tell you which definition of deferred revenue, is it GAAP, or is it something else” and that

“these things are needed to be pled”).

dismissed for failure to state a claim.46

IV. Count IV of the iQIYI SACC is Dismissed for Failure to State a Claim

In light of the dismissal of Count III of the iQIYI SACC, Count IV of the iQIYI SACC

must be dismissed for failure to state a claim.

In Count IV of the iQIYI SACC, the iQIYI Plaintiffs assert violations of Section 15 of

the Securities Act, which provides, inter alia:

Every person who, by or through stock ownership, agency, or otherwise, or who,

pursuant to or in connection with an agreement or understanding with one or more

other persons by or through stock ownership, agency, or otherwise, controls any

person liable under sections 77k or 77l of this title, shall also be liable jointly and

severally with and to the same extent as such controlled person to any person to

whom such controlled person is liable, unless the controlling person had no

knowledge of or reasonable ground to believe in the existence of the facts by

reason of which the liability of the controlled person is alleged to exist.

15 U.S.C. § 77o(a).

Section 15 creates liability for individuals or entities that control any person liable under

Section 11. See In re Morgan Stanley, 592 F.3d at 358 (stating that “the success of a claim

under section 15 relies, in part, on a plaintiff’s ability to demonstrate primary liability under

section[] 11”); see also In re Initial Pub. Offering Sec. Litig., 241 F. Supp. 2d 281, 352

(S.D.N.Y. 2003) (stating that “[i]n order to establish a prima facie Section 15 claim, a plaintiff

need only establish (1) control, and (2) an underlying violation of Section 11”).

Because the iQIYI Plaintiffs have failed to adequately plead a primary violation of

Section 11, Count IV of the iQIYI SACC must be dismissed.

CONCLUSION

For the reasons set forth above, the motions to dismiss, iQIYI ECF Nos. 156, 157; Baidu

46 In light of the above, the Court need not – and does not – reach the issue of whether Plaintiffs

have standing under Section 11’s damages framework or reach the issue of loss causation.

ECF Nos. 61, 62, are GRANTED and the Operative Complaints, iQIYI ECF No. 175; Baidu

ECF No. 75, are DISMISSED.47

The Clerk of Court is directed to enter judgment in case No. 20-CV-01830 and in case

No. 20-CV-03794 and to close both cases.

SO ORDERED.

/s/ Diane Gujarati __

DIANE GUJARATI

United States District Judge

Dated: September 30, 2024

Brooklyn, New York

47 Dismissal is without leave to further amend. As an initial matter, Plaintiffs do not appear to

seek leave to amend. See generally Pls.’ Supp. Br. Moreover, Plaintiffs were apprised of the

pleading defects by way of Defendants’ motions to dismiss and the oral argument held on

February 26, 2024; Plaintiffs were given an opportunity to amend and availed themselves of

that opportunity; and there is no indication that Plaintiffs could provide additional allegations

that might cure the defects set forth above and lead to a different result. Under these

circumstances, leave to amend is not warranted. See Gallop v. Cheney, 642 F.3d 364, 369-70

(2d Cir. 2011); Gregory, 757 F. App’x at 39.