China's State Administration for Industry and Commerce ("SAIC") gave Alibaba, the Chinese e-commerce company, a warning that the company lacked appropriate internal controls. This warning was not specifically disclosed in Alibaba's disclosure statement for its IPO.
The court sustained Alibaba's motion to dismiss, finding that there was no misrepresentation of material fact. The court found that SAIC's warning was a an "informal and non-binding guidance" under SAIC's own rules, and Alibaba's disclosure that the Chinese regulators are turning their attention to market dominant companies like itself was sufficient to warn the investors. The court also found that the plaintiffs failed to allege scienter.
Given the U.S. courts' general tendency to undercut the securities class action plaintiffs, this ruling is not a huge surprise.