NQ Letter 1

Case 1:15-cv-06385-NRB Document 34 Filed 01/19/16 Page 1 of 3
S KADDEN , A RPS , S LATE , M EAGHER & F LOM

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January 19, 2016

VIA ECF
Honorable Naomi Reice Buchwald
United States District Court for the
Southern District of New York
500 Pearl Street
New York, New York 10007-1312
RE:
BEIJING
BRUSSELS
FRANKFURT
HONG KONG
LONDON
MOSCOW
MUNICH
PARIS
SO PAULO
SEOUL
SHANGHAI
SINGAPORE
SYDNEY
TOKYO
TORONTO
In re Finocchiaro, et al. v. NQ Mobile, Inc., et al., Case No. 15 Civ. 6385 (NRB)
Dear Judge Buchwald:

We represent Defendants NQ Mobile, Inc. (NQ or the Company) and Matthew
Mathison in the above-captioned action. We and counsel for Defendant Omar Sharif Khan, who
will also submit a separate and supplemental letter, respectfully write pursuant to Section 2.B of
Your Honors Individual Practices to identify the bases for the Defendants anticipated motions
to dismiss, and, alternatively, to strike the Second Amended Class Action Complaint (the
Complaint or SAC) pursuant to Federal Rules of Civil Procedure 8(a), 9(b), 12(b)(6), and
12(f), and the Private Securities Litigation Reform Act (PSLRA), 15 U.S.C. 78u-4, and to
request a pre-motion conference.
Background. Plaintiffs bring claims against NQ, a global provider of mobile internet
services, under Sections 10(b) and 20(a) of the Exchange Act of 1934 and Rule 10b-5
promulgated thereunder, claiming that Defendants made materially false or misleading
statements to investors and seeking to represent a class of individuals that acquired NQ shares
between November 1, 2013 and May 15, 2015. While the Complaint contains a confusing
hodgepodge of objections to NQs alleged business practices, the gravamen of Plaintiffs actual
allegations appears to be that in May 2014, NQ Mobile acquired several small private Chinese
companies and failed to disclose these acquisitions until a 20F filing on October 27, 2014, and
that these acquisitions were deliberate and secretive and led to severe dilution of [NQs]
shares since the Company overpaid for the acquired companies and used NQ equity to pay for
the acquisitions. (SAC at 4-5, 7-9, 44.)1
The Complaint makes other seemingly unrelated allegations regarding NQs business, such as that NQ
shareholders voted to amend the Company bylaws to allow Management to pledge their NQ Mobile shares for
personal loans (SAC at 4, 45); certain Company executives and directors resigned for personal reasons (id.
at 10, 44.); the Company replaced its external auditor when the release of its 2013 Form 20-F was delayed
(id. at 11, 44); the Company declined to accept a certain buyout offer and management asserted generally
that the Company was worth billions (id. at 12); the Company has not yet announced consummation of a
planned sale of its asset FL Mobile (id. at 13); the Company has mostly failed to use the proceeds of a 2013
(cont'd)

January 19, 2016
Page 2
As demonstrated below, however, Plaintiffs have completely failed to comply with the
PSLRAs notice and lead plaintiff procedures, and thus cannot maintain this lawsuit as a class
action. Even more remarkably, the Complaint does not identify a single particular statement by
Defendants that is alleged to be false or misleading, and does not even attempt to allege any facts
supporting an inference that each of the Defendants acted with the requisite scienter.
Plaintiffs Failed to Publish Notice. Plaintiffs lack standing to bring claims on behalf of
a class as they have not complied with the notice and lead plaintiff provisions of the PSLRA.
The PSLRA requires plaintiffs to publish [n]ot later than 20 days after the date on which the
complaint is filed . . . a notice advising members of the purported plaintiff class . . . of the
pendency of the action, the claims asserted therein, and the purported class period. 15 U.S.C.
78u-4(a)(3)(A)(i). Any member of the proposed class then has 60 days to file a motion to be
appointed lead plaintiff, 15 U.S.C. 78u-4(a)(3)(A), and the Court then will appoint as lead
plaintiff the member . . . of the purported plaintiff class that the court determines to be most
capable of adequately representing the interests of class members, 15 U.S.C. 78u4(a)(3)(B)(i). Here, Plaintiffs have failed to publish the requisite notice and apparently intend to
bypass the PSLRAs lead plaintiff procedures altogether, depriving putative class members of
the opportunity to apply to serve as lead plaintiff, and depriving the Court of its statutory power
to appoint the lead plaintiff in this action. Plaintiffs flouting of the PSLRAs requirements
precludes them from bringing claims on behalf of a class whose members have not even
received notice of this lawsuit and further confirms that Plaintiffs are incapable of adequately
representing the interests of the class members. 15 U.S.C. 78u-4(a)(3)(B)(i). This Court
should thus strike the Complaint in its entirety for failing to comply with the PSLRAs notice
requirements. See In re White Elec. Designs Corp. Sec. Litig., 416 F. Supp. 2d 754, 777 (D.
Ariz. 2006) (granting motion to strike a plaintiffs federal securities law claims for lack of
standing to represent the proposed class because plaintiff did not comply with PSLRAs notice
requirement).
No Actionable Misstatement or Omission. The Complaint should be dismissed in its
entirety because it fails to allege, much less with the particularity required by Rule 9(b) and the
PSLRA, any actionable misstatement or omission. While it is difficult to discern any legally
cognizable claim, the Complaint asserts that the Company should have disclosed certain May
2014 acquisitions of small private Chinese companies earlier than it did on October 27, 2014.
However, an omission is not actionable absent a duty to disclose. See Dalberth v. Xerox Corp.,
766 F.3d 172, 183 (2d Cir. 2014) ([A] corporation is not required to disclose a fact merely
because a reasonable investor would very much like to know that fact.). The Complaint fails to
allege such a duty and in fact concedes that disclosures of all aspects of these transactions are
not required. (SAC at 6.) Further, the Complaint does not identify a single statement of
material fact by any of the Defendants that is alleged to be rendered false or misleading by a
failure to disclose these acquisitions. These fundamental deficiencies alone mandate dismissal of
the Complaint. See 15 U.S.C. 78u-4(b)(1)(B) ([T]he complaint shall specify each statement
alleged to have been misleading, [and] the reason or reasons why the statement is misleading.);
Vladimir v. Bioenvision Inc., 606 F. Supp. 2d 473, 490 (S.D.N.Y. 2009) (dismissing Section
10(b) claims where plaintiff fails to identify any statement rendered materially misleading by the
________________________
(cont'd from previous page)
bond offering (id. at 14); and the Company reclassified its core security product business revenues . . .
under a different category after filing its 2013 Form 20-F (id. at 41). None of these allegations is tied to any
particular statement of fact that is alleged to be false or misleading.

January 19, 2016
Page 3
alleged omissions), affd sub nom. Thesling v. Bioenvision, Inc., 374 F. Appx. 141 (2d Cir.
2010); Harborview Master Fund, LP v. LightPath Techs., Inc., 601 F. Supp. 2d 537, 544
(S.D.N.Y. 2009) (plaintiff fails to state a claim where plaintiff alleges no prior public statement
that had been rendered untrue or misleading).
Further, having conceded that the Company did disclose the acquisitions on October 27,
2014, the Complaint fails to explain why the Company was required to disclose the acquisitions
earlier.2 [M]ere allegations that statements in one report should have been made in earlier
reports do not make out a claim of securities fraud. In re UBS AG Sec. Litig., No. 07 Civ.
11225 (RJS), 2012 U.S. Dist. LEXIS 141449, at *102-03 (S.D.N.Y. Sept. 28, 2012) (quoting
Acito v. IMCERA Grp., 47 F.3d 47, 53 (2d Cir. 1995)), affd sub nom. City of Pontiac
Policemens & Firemens Ret. Sys. v. UBS AG, 752 F.3d 173 (2d Cir. 2014). Moreover, in an
earlier Form 20-F filing the Company already had expressly disclosed that it may continue to
pursue acquisitions . . . which may be unsuccessful or may expose us to additional risk. . . .
[A]ny future acquisitions . . . may expose us to new operational, regulatory and market risks, as
well as risks associated with additional capital requirements, including . . . the inability to
generate sufficient revenue to offset the costs and expenses of acquisitions, and potentially
significant loss of investments. (NQ Mobiles Form 20-F of April 19, 2013 at 7.) This explicit
prior disclosure itself forecloses a claim of fraud. See id. at *101 (no duty to make further
disclosures where company previously disclosed general risks associated with alleged conduct).
Failure to Plead Scienter. Finally, the Complaint fails to state with particularity facts
giving rise to a strong inference of scienter, i.e., detailed facts (1) showing that the defendant[]
had both motive and opportunity to commit the fraud or (2) constituting strong circumstantial
evidence of conscious misbehavior or recklessness. ATSI Commcns, Inc. v. Shaar Fund, Ltd.,
493 F.3d 87, 99 (2d Cir. 2007). Indeed, the Complaint does not to allege any facts at all
regarding each Defendants knowledge or state of mind, resorting to boilerplate allegations that
do not contain any concrete facts or even distinguish among the various Defendants. (SAC
49.) See In re UBS AG Sec. Litig., 2012 U.S. Dist. LEXIS 141449, at *28 (complaint must allege
particulari[zed] facts giving rise to a strong inference that each defendant acted with scienter)
(emphasis in original) (internal quotation marks omitted); Sheppard v. Manhattan Club
Timeshare Assn, No. 11 Civ. 4362(PKC), 2012 U.S. Dist. LEXIS 72902, at *10-11 (S.D.N.Y.
May 23, 2012) (Under Rule 9(b), [i]n a case involving multiple defendants, plaintiffs must
plead circumstances providing a factual basis for scienter for each defendant; guilt by association
is impermissible.). If anything, the allegation that the subject acquisitions and other alleged
conduct diluted the value of NQs stock would provide a disincentive for Defendants to commit
the alleged fraud, as they would have been injured to the same extent as the Plaintiffs.3
Respectfully,
/s/ Scott D. Musoff
Scott D. Musoff
cc:
All counsel of record (by ECF)
Plaintiffs alleged a class period between November 1, 2013 and May 15, 2015, which is contradicted by its own
concession that the alleged acquisitions at issue were disclosed no later than October 27, 2014. (SAC at 7.)
Because the claims against the Company fail, Plaintiffs claims under Section 20(a) of the Exchange Act against
the individual Defendants fail as well. See Rombach v. Chang, 355 F.3d 164, 177-78 (2d Cir. 2004).
Defendants respectfully reserve the right to assert additional arguments in their motions to dismiss based on
continued evaluation of the Complaint.

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Case 1:15-cv-06385-NRB Document 34 Filed 01/19/16 Page 1 of 3

S KADDEN , A RPS , S LATE , M EAGHER & F LOM

TEL: (212) 735-3000

January 19, 2016

Dear Judge Buchwald:

Case 1:15-cv-06385-NRB Document 34 Filed 01/19/16 Page 2 of 3

Case 1:15-cv-06385-NRB Document 34 Filed 01/19/16 Page 3 of 3

All counsel of record (by ECF)

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