think there's some background noise there but it's scratchy yeah maybe if you move back just a tad a little bit not that maybe not that far ok so this is jason crytzer on behalf of the pollens edward lee and asset management p t limited the st issue that i'd like to discuss with the court are the cheezy one on one transactions and the factual allegations supporting strong inference that those transactions constitute an illicit asset parking arrangement the term asset parking refers to a situation in which one company can base an asset to another company with a pre arranged plan require the asset the most well known example of this is when enron sold an interest in electricity chart charging generating barges to nigeria to merrill lynch with a secret side deal to repurchase which allowed enron to improperly report earnings in connection with the sale even though the risks of ownership never pass in many ways as that parking is now this to revenue round tripping in that form of the transaction may allow companies to satisfy all the formal  revenue recognition or revenue recognition is still proper because it's the substance of the transaction not the form that matters similarly in an acid parking arrangement a company may execute a formal binding contract to sell an asset to education from the call to play and council apart from the contusion that there must have been a side deal is there anything specific in the complaint and any factual support for that or that  evidence that the structure of the deal and the circumstances surrounding what happened afterwards with the transaction support conclusion that that's what happened in this case and so the st thing to look at is the structure and mechanics of transfers and tall claims that it transferred the cheezy want to one business unit to changing education in august two thousand and fifteen in exchange for fifty million dollars of changing education redeemable preferred shares and then reacquired chees to one in november two thousand and sixteen in exchange for cancelling the shares so the net effect of these transactions are that both tall in changing and it up exactly where they were before the transactions except the tall recorded a fifty million dollars gain the only reason the tunnel gave the react was ition was it changing had believed that cheesy one on one no longer fits well with its overall business strategy but tal never explained why it wanted  to determine the purchase price allocation which means that the purchase price internment and your preacher help allocate those the components of that into various categories like goodwill and other and these facts on their face are suspicious just as it would be suspicious if company a sole to keep one billion dollars of consulting services to company be in company b final teeniest we sold fifty million dollars of consulting services to company a and they both recognized fifty million dollars in revenue you know such a transaction could be legitimate it could be perfectly legitimate on its face those facts are suggestive of revenue run tripping and here are these facts the bare mechanics of the transaction are suggestive  you and also teacher contracts and agreements so there was a process affecting the transfer and assets as well as just the ownership and that's it that's a sort of a different kind of a situation seems to me unless you know i think that evidence you know i suppose you could if if there was a scheme it could be part of the scheme but it also could easily indicate that  revenues deferred revenues as a live billet account it's not it's not an asset it's a liability and it relates to the obligation to provide services to students that have already paid and so there's a question of st of all whether or not that the defendant cites it's page one hundred and ninety six of the appendix and what tala says that that page supports it supports the conclusion that paul did in fact transfer the advance payments from cheesy want to want to changing education and that it did transfer the obligation to providing tutoring services to its students but if you look at that that's not that's not what it says it all what it says is that there are amounts due to related parties and it says that as of the date of february th two thousand and sixteen there was still over four million two hundred thousand dollars that was owed to related parties some by the way doesn't specifically mention changing but that was a representation that ptolemy to the district court on the motion to dismiss breaching the that that's what it refer to but it doesn't say anything about actually having transferred any payments and it doesn't say anything about actually having transferred obligations to a reconciliation of tough balance sheet it shows none of the disparate revenues were actually removed from the balance sheet and so this supports the conclusion that what was going on here was that there is this tall was having a separate account we're saying this is the amount still owe you and and it's going to be settled at some future date that's not what would happen in a normal sale in the normal sale of a business unit a company would remove the assets and liabilities the sole business component from its balance sheet but instead sort of help us in the band and also  paul represented the district court that what it was doing that it was offsetting lease payments that it was making so saying we're going to pay a certain amount for your leases again none of this is actually in the financial statements or from representations defendant made and it's court filings but this way of accounting for it which is not to actually remove the liabilities from its balance sheet instead to say we owe this money that's consistent with structuring a transaction in a way to make it easy to revert to tray sickly an iou and then when they require the companies just that out so we think that actually the evidence with respect to the deferred revenue strongly supports the claim that in fact that there was never a real bona fide transfer now i think the other piece of your question yeah yeah so i guess with respect to the disagreements st we have evidence that it least one of the lease agreements was not transferred that something that was obtained from a record to the chinese lawsuit and the defendant acknowledge that that this particular lease was not transferred and they say the reason that this lease was not transferred was that they were legally able to transfer this lease and in addition to that muddy waters interviewed a former manager at changing the learning centers have been transferred defend this attempted to rip but this by introducing three agreements with respect to three of the leases for these learning centers and one of those leases but putting that aside for a moment it soon you accept this there are ten learning centers and so there evidence that they're trying to disprove this allegation was that they transferred one and two of the leases got terminated so the question is what happened to the other seven and based on the allegations that we have where they clearly continue to pay one of the leases where former employees indicated they didn't transfer most these leases the most plausible inference restocked is that they didn't transfer the other seven out of the in the company did you also allege that two teachers said that their salaries continue to be paid by t l during this period as well on that issue that that's correct and again the defendants tried to reply to this by introducing some evidence showing that some of the teacher contracts and again we disputed the authenticity of these the courts it's not accepted ishall notice these documents but assume that you do accept them what what muddy waters was that a number of the staff contracts were transferred over to give this deal the illusion of substance and so that that a handful of teacher contracts were transferred over does rebut the allegations and so what we have here is we have leases that weren't transferred we have teacher contracts we're not transferred salaries with continue to be changing education had created to receive the cheesy one on one christmas and following that the the suppose it failed g s you want to change the education lyndon johnson to i'm sure i'm pronouncing that incorrectly he was a senior and they would have had an incentive to hire this guy because he was you know superstar teacher assume all that who assume that you know ten percent stake was a signing bonus when the company got re can be back to college education when sold his ten percent stake in shoot that for one rand renminbi and so you know he relinquished the signing bonus for nothings that's very suspicious the most plausible interpretation prescott correctly dismissed a plan of cement a complaint with prejudice based on two grounds and of failure to allege any a misstatement or omission in their failure to allege any facts a giving rise to a strong inference i'd like to begin with the falsity prong and plaintiff st claim a fraud which we just heard about which is the talent misled investors by reporting this fifty million it received in exchange for selling its easy to bring business to the changing company the plaintiffs of this is a court do not allege any facts demonstrating that the sale didn't take place or was not fully disclose their entire theory of fraud is predicated on their contention that even complaint demonstrate the talc continued to control this entity after this quale to the contrary several of plaintiffs well pled factual allegations and the documents incorporated by reference a contradict of the of the sale was not legitimate judge walker referred to the fact that tell transferred advanced tuitions payments received from g s e students to the changing outfits demonstrating that change was assuming responsibility or wasn't clear enough but but as as judge prescot correctly help went to a lead there was no evidence of a transfer of deferred revenue we pointed to evidence in the dresser court correctly hell that this disclosure does con particularize facts in support of their claim and the record demonstrates how to numerous other steps reflecting a genuine attempt to transfer the business to changing judge walker alluded to the interference the insurance doesn't have that there was a secret undisclosed agreement for the react with fission all they need to show is that it was not full disclosure sufficient to make what was this well as misleading of the terms of  of the sale and if it was the sale with an understanding that it could be undone and required on the same terms after the fact that's that would be a sufficient for statement  plaintiffs have alleged themselves you don't need to take to distil notice of anything they've alleged themselves certainly sick remits were transferred as does walker pointed out certain employment contracts were transferred as light of themselves concede in their the fact that every single lease on every single contract wasn't immediately transferred does not give rise to an inference of securities fraud the more plausible inference a judge leval is this is a corporate transaction and things like this take time  account just put it putting aside the email the use of email in the contracts for a minute there are some in the air that don't relate to that it would take time to make a transition i want you to address this point about the senior towel executive who got ten percent of the company for fifty cents and then i think was pointed out even if that was some type of you know sent them bonus or something like that got the same amount on his return back to the company can you explain that sure you're jurado would that be as part of the transition to the changing out that was of course is not unusual in any corporate transition not only are assets transferred the people leave and plaintiffs claim with no factual support that he was essentially a secret agent acting for  appeared to be effectuated point was that when he got back he did this highly suspicious thing of giving up a fortune for nothing and why would he do that unless it was pursuant to to a prior agreement that this w pal the equity was worthless and it didn't happen immediately it was it was a it was about a year later so let's step back here what we have is an executive offered incentive compensation ten percent equity then the entity is transferred back so that ten percent is worthless and he gives it back he's not giving up a fortune but your honor these are the actions of rd parties these aren't this isn't my client these are defendants it's not our burden your honor to explain every action that a rd party takes in a corporate transaction and again stepping back i mean what's the benefit to talent here in this knowledge geisha that we continue to pay leases that we continue to pay contracts there's no results if it's not your are even if there were legitimate discrepancy between the chinese regulatory filings of suits and the f c c filings of well which of course are governed by different standards different accounting standards different regulations there's no we're on a case authority and it just goes back to the old nature of the transaction as a whole being suspicious if you have a potential you know what a round trip transaction where you have the yes it going to another entity for a short period of time and then be transferred back that we acquired in the same amount which case which case would you cite where there's been an there has been a transaction of that nature where a district court has dismissed a motion to dismiss not summary judgment on a motion business that even know that transaction itself may have the appearance of a round trip transaction as a parking whatever you want to call it i'm going to miss this case you have a case where that's been done i mean you're her i don't but i'm not aware of a case where a complaint sustained based on just sheer speculation that the fact that a company re acquired identity more than a year later means it was a round trip transaction as the district court correctly held there are all sorts of not culpable inference can be drawn based on the fact that al reacquired the company changing was a mobile mobile based app your honor that matched tutors with prospective pupils this jeezy business was a brick and mortar mortar business as the companies disclose they didn't integrate the business well there's other factors changing economic circumstances changing business needs and you're on to this notion of the fact that it was purchased for the same price i would think it would be more suspicious if it were purchased for a different price  it's only a year and a couple months apart why would it be suspicious that the entity that changing apparently found that it couldn't enter gray properly would want to sell it back for the same price but your honor the p s l are a rule nine b were designed to try to eliminate this pure speculation and just rank conjecture as given rise to a claim for securities fraud and you are that's just on the misstatement wrong they of course have to allege see enter and see answer is a more rigorous standard fraudulent inferences here your honor we think it's clear with respect to this juicy transition that the court concluded the much more plausible inference was that the sale of the business was legitimate but not seeing what it was not without pickups you had you had transfer of certain leases you didn't have transfer of all the leases again that happens in every sport for transactions same with the point contract same with websites same with email addresses all of these allegations could be leveled virtually every time there's a corporate and really are allegations of cmdr are going to rise or fall whether or not we've adequately played that's why we played also you had the strong imprint standard the totality of the factors here it's not any one factor it's not the discrepancy between one of the  form private issue which means that it's exempt from section sixteen of the exchange act which means if there is insider trading going on you defendants or family members it wouldn't there are quite report that so we don't know what's going on with that the factors here support a strong impact in gauging this ass parking ranchman and one thing i want to say is with respect to the need to amend and the only thing i'm going to say about that is that i would strongly encourage the court to take a close look again at literally financing versus wells fargo a court opinion not just a briefing but the court gave an opinion to the plane just before using dismissed and with prejudice we did not have an opportunity to respond to the president's opinion not hav