good morning your honour's may please the court two months before its initial public offering was summoned to an unprecedented meeting where high ranking chinese officials accused the company of rampant legal violations and threatened happened to stock price over the years since then but people have bought and sold since then and under this court's precedents it's clear that what matters is what happens to the stock price when the truth is disclosed at the time of the corrective disclosure what matters to the shareholders i think is  money and if they held it would they be in at least position to that continue thank you ron alibaba barely defends the district court's departures from the motion to dismiss standard the district court refused to credit the critical news reports of the massive financial fines that regulators threatened because those reports quoted anonymous sources but under this court's decision in nowak a complaint is allowed to rely on anonymous sources as long as it alleges facts showing that sources someone in the sources position would have known the facts alleged and that was done here because the news reports themselves and the complaint and both say that the source that reported about these massive financial penalties with which i was threatened were present at the meeting and so we've standard doesn't call upon the court to evaluate the strength of the evidence inference and i couldn't agree more your honor and that's precisely why the district court's opinion here was such a drastic departure from that standard she read the news reports and basically ruled i don't believe that i think the person quoted is speculating but that's just not the function of a district rather than draw equally reasonable inferences that would be discredited and again i couldn't agree more and that's why it's so striking that in this case the district court ignored the hard facts that showed that investors believe that this was incredibly material information that's not only the fact that when the truth came out the stock went down thirteen percent it's the fact that ali baba asked regulators to keep this meeting secret for the precise purpose of concealing it from investors in its  and and without an inaccurate and would have to say there are like this line of questioning but again totally and it's like a ball and it's just another giant departure from the standards on a motion to dismiss and that the district court did this at every turn view the complaint in the allegations as the court was required to on a motion to dismiss it clearly alleges that ali baba's registration statement was misleading because it omitted this unprecedented meeting and this grave threat of financial sanctions alibaba discussed the general regulatory environment in china it discussed the possibility that regulatory actions may be taken but nowhere did the registration statement disclose that just two months alibaba had had this unprecedented meeting with senior chinese government officials where regulators accused it of rampant legal violations and threatened specific and very severe financial sanctions  evidence in the record at this meeting was unprecedented i well this is at the motion to dismiss stage your honor and it is specifically played in the complaint that it's unprecedented and i can draw your attention in particular to paragraph paragraph seven of the complaints which alleges that the meeting was unprecedented because it included the director general of the s a s e's market regulation department together with senior executives from seven provincial and local as the offices and i mean just the fact that when this meeting came to light the stock went down thirteen percent causing thirty billion dollars in investor losses what better evidence is there that this was unprecedented this is not a routine regulatory back and forth meeting this was a high level meeting between senior chinese government officials senior alibaba officials at which a very specific accusations were made about widespread legal violations and that was concealed from investors it was the the the disclosure investigations were sometimes made and i can give you an example from page eight hundred forty four of the appendix where alibaba stated we have from time to time been subject to p r c chinese inquiries and investigations including those related to third party intellectual property infringement and then alibaba states none of those inquiries and investigations has resulted in significant restrictions on our business operations however as we continue to grow we expect unprecedented meeting where they were threatened with crippling massive sanctions for specific findings of legal violations on their marketplaces this is clearly misleading your honour's it's way beyond anything  know completely in line with any number of other cases where courts have made clear that you cannot say one thing in your registration statement make general references to possibilities or or the mere existence of regular regulatory inquiries but then hold back the specific facts that would just cast what happened in a completely different light there was a we have in the past disclosure of an item of information is not required simply because it may be wrong and or of inquiries and investigations from chinese regulators if you choose to address a topic you cannot do it in a misleading fashion and in light of this unprecedented meeting and these massive threats of financial penalties just two years earlier it is completely misleading to for the only thing you tell investors about this to be that from time to time we've been subject to chinese inquiries and investigations but none of them has resulted in any significant restriction on our business operations and other equally vague and nondescript descriptions of just expectations or possibilities of things that may happen in the regulatory environment that's misleading your honour's this is a textbook example of a situation where a company chose to address the topic but did it in a completely misleading fashion because they left out the one key detail that investors absolutely would have cared about and did care about because when that factor did come out it wiped out thirty billion dollars of market value the stock price went down thirteen percent investors obviously did not think that these vegan generic statements sufficiently conveyed the truth about al evolve as regulatory investigation allegations that they were told the meeting to where they need to curtail to stop the life of their business which news counterfeit products yes that that as reported in the white paper that is what they were told but that that too was and that i mean even if they weren't tom even if they had never been even if you were not managed that they would suffer penalties amounting to one percent of daily and the one percent of their volume the allegation is that they were told they had to just discontinue  their business that amounted to a very significant percentage of its profits right and that's also financial material it's really a combination of several different facts that when you put them all together it is just a stark stark difference between the reality of what happened at the meeting alleged to be the percentage of profits resulting from counterfeit business i don't recall that there was a quantitative statement about that there was certainly the descriptions in the complaints about the fact that this was so important to the considered a it's own line of business within the company so it was clearly a substantial part of of their business and and there's some relevant allegations in paragraph one twenty eight and then also on  one forty three and other one cited in the briefs but the point is you know the best evidence of how important this was to investors is what investors did when they found out and when this meeting was revealed analysts reacted with alarm and investors sold off the stock they drove down thirteen percent and that's just honestly the best evidence there is that investors did not think that what they knew about ali baba's regulatory exposure from the registration statement was an accurate account thank you your it please the court i would submit the question here is whether ali baba was required to disclose an informal voluntary meeting called an administrative guidance meeting  that was not an investigation where there were no findings of fact or law and in response to which it agreed to cooperate as of the time of the i p o and through to today it's not been fined or sanction d that it disclosed issues previously relating to this meeting namely concerns about third parties selling counterfeit goods on its websites and similar that it disclosed it was subject to new more let me address that is no legit i would suggest that it does not allege it is as you phrased it your honor let me explain why what the complaint alleges is that at this informal meeting ali baba was threatened with one percent of gross merchandise volume fines per day if it did not affectively do a better job of preventing the sale of counterfeit goods by third parties on its  websites but that's not discontinuing a line of it's business and the white paper which is attached to the complaint doesn't say that language that the third parties sales of counterfeit parties can sell ali baba makes money from advertising it doesn't make more or less money because additional counterfeit goods are or are not sold but i'd i'd like to get back to the novak issue if i can your honor because i think it's a very important issue and i fully embrace what it is that judge mcmahon did on this issue what the court says in novak is that you can only rely on unidentified sources in in two instances and i know judge pool judge of all you were you were both on that decision but first you can rely on unidentified sources if they are corroborated now here what we have is an internet blog relying on unidentified source saying that there was this threat of fines the logical place to look for corroboration would be in the white paper itself the white paper and in fact plaintiffs say this that these finds with the critical issue in this case and yet the white paper is utterly silent on fines or any actions that the that the s a i c intended to take second you can only rely on confidential sources if they're identified with sufficient in disha of reliability here you've got a double confidential statement problem is you've got this blog posted on a website from an unidentified person citing another unidentified source so you've got a double lack of ability to identify the person's now in response the plaintiffs have cited a number of cases saying well you can rely on news articles but i would submit to the court that if you look at those cases in every single one of those cases there was corroboration for what was in those news articles plus this isn't in the of the type that would be a typical news article this is a blog called on the scene identified people are free to post what they want so for all of those reasons i would say that the allegation of fines is not well pled but even if it was your own even if the allegation of fines was well played it remember what else is in the complaint the complaint alleges and the white paper states ali baba except that the guidance that it was given and the s a i c concludes in the white paper that the meeting served its purpose in other words ali baba says ok we hear you we're going to we're going to work with you and that was really again when you read the excerpts of the white paper what they what they are saying is that and  i'll quote from the complaint that the purpose of the meeting was to supervise only group to strengthen itself regulation paragraph two thirty of the complaint that is the nature of administrative guidance that we're dealing with it's an informal process where the very different from the kind of regulation we have here where the government comes to you and says let's informally talk about this because the chinese economy and the chinese government obviously works very differently from what we have so you can compare this to cases like lionsgate in richmond from the southern district where the courts have repeatedly held you don't even have to disclose for example a wells notice from the f c c and here you've got an informal meeting with there was an agreement to first first of all i would say to you your honor that when you read judge mcmahon's opinion while there is a paragraph in which she notes that her entire opinion is based on the white paper what she says she expresses some skepticism about it but she relies on its facts and examines them and the real fulcrum around which her decision turns is not a rejection of the white paper it is not a rejection of the fines allegation it is the following that ali baba made incredibly detailed disclosures stating it expects increased scrutiny it's facing tough new laws it can be subject to declines in revenue or significant fines and also the fact that the complete itself alleges that ali baba accepted the guidance so i think when you look at the opinion itself you will see that while there is an afterthought states it's that by the way it's it's not very reliable in light of the fact that it was withdrawn she goes on in the very next paragraph to say even if the white paper is fully credited there is no false or misleading statement you have to i would submit read the opinion in its to because everything that came out of that meeting was disclosed it anyway is that correct that's correct your honor she calls the disclosure sober and more detailed than usual in fact there were forty four pages of these disclosures that set forth in detail the fact that ali baba for years had been plagued with allegations of third parties selling counterfeit goods that it had taken action to attempt to counteract that that those actions could not necessarily succeed in every instance it specifically disclosed that in multiple instances and that it faced stricter regulation going forward that put it at risk of sanctions or again if well pleaded that there was a threat of fines but counteracted by the fact that ali baba accepted the guidance and thus took fines off the table and as we see there were no fines as of the time of the i p o and no fines today and i'd just bring that up but but getting back to the the question of impact there are no will pleaded allegations in the complaint that ali baba suffered one whit of damage as a result of this july sixteenth meeting point of say oh well they're on the horns of a dilemma they either had to pay huge fines or suffer a major downturn in business there's no allegations that finds wherever assessed or paid in terms couldn't be further off from what that court said novak says you can rely on an anonymous source if you either provide corroboration or provide facts establishing that somebody in the sources position would know the information alleged and that's what was done here because these news reports say that the source was present at the meetings so that's clearly sufficient under novak the district court was required to credit that allegation on a motion to dismiss and that you know these details about about what we quoted out of a website that had a post from another source which they characterize as a crowd crowd sourced online platform first of all that's not what the complaint alleges it's not our understanding but regardless the complaint says that there  multiple media reports that reported these threats of fines and invite the court to look at paragraph seventy five of the complaint which quotes an entirely second independent media source for these threats of financial fine so that issue is really just a sideshow that this regulatory regime in china existed the fact that it might face regulatory actions in the future and then there were some vague references to inquiries and investigations that from time to time may have been involved in general descriptions of the fact that from time to time they get increase and investigations from the chinese government know or did they say that the chinese government these senior officials had come in and said we've combed through your trading patterns on your online platforms and we've found pervasive violations of intellectual property laws and nowhere did they say anything remotely about these threats of massive fines eight million dollars several thousand times a year and so to say that this general reference to regulatory inquiries from time to time adequately alerted investors to what actually happened at this unprecedented meeting you know it's just not true your honor you have to look at the registration statement and it's just worlds apart from the actual threats of serious financial penalties they suffered now they point out that the fines ultimately didn't come down but your honour's the complaint describes in detail that these counterfeit sales were a significant portion of alabama's revenue and invite the court in particular to paragraphs one thirty four and one thirty six and one forty three where there is some quantification of that there's a specific to scription about how this will affect ali baba's advertising revenue going forward if they try to comply with the s a c s order and that's not just from the complaint analysts at the time this news broke said this is a big problem because it's going to negatively impact alibaba as revenue its advertising revenue in order to comply with the s b a c s order so they really were on the horns of a dilemma they faced massive financial penalties or they had to take costly steps to comply that would reduce the revenue and increase their costs and both of those are described in detail at the complaint and should have been credited on the motion to dismiss stage thank you you thank