b'reports can be unreliable and that Uxin denied the proved the companys B2B segment must have had J Capital report allegations, the court held that thisa returns policy that Netshoes failed to disclose in its was a question of fact that could not be decided at thisOffering Documents, resulting in misstated financial phase. The court further supported this decision bystatements and contradicting representations that adopting plaintiffs position advanced in its oppositionsuch financials complied with IFRS. The court granted papers that certain of Uxins own later disclosuresdefendants motion to dismiss, with leave to amend, tended to corroborate claims made in the J Capitalruling that plaintiff failed to plead contemporaneous report regarding Uxins inflated sales volumes.facts to support that Netshoes income was overstated In March 2020, defendants filed a notice of appealand instead relied on a fraud-by-hindsight theory, regarding the surviving claims. In May 2020, plaintiffs filedpositing the existence of an undisclosed policy based a notice of cross-appeal regarding the dismissed claims.on the post-IPO write-downs.The appeal has been adjourned until the SeptemberPlaintiff filed a second amended complaint based on term because the parties have agreed to a settlement inthe same claims and theories, but added more specific principle of all claims, and are awaiting court approval. allegations that Netshoes negotiated rights of return on purported sales to businesses such that the sales were wholly contingent on the customers resale of the In re Netshoes Securities Litigation, Casegoods to end-user consumers. Plaintiff supported this No. 157435/2018, 126 N.Y.S. 3d 856 (N.Y.claim with various new factual allegations, including Sup. Ct. June 2, 2020)statements from a sworn declaration of an executive Improper Revenue Recognitionof a Netshoes distributor filed in separate litigation, Spurs Write-Downs stating that, in 2016, Netshoes representatives directly negotiated special terms such as deferred payment Netshoes Cayman Limited (Netshoes) is a Brazilian- and the right to return any product that did not sell in a based online retailer focused on the sports, fashion,timely manner with its B2B customers. The executive and beauty ecommerce markets. On April 12, 2017,further attested that Netshoes negotiated those terms Netshoes successfully completed an IPO, issuingin exchange for its clients agreement to take increased approximately 8.25 million shares of common stockdeliveries on products. Thus, plaintiff alleged, the at $18 per share and raising approximately $148.5Offering Documents financial statements, analysis and million in gross proceeds. The Registration Statementprojections relied on misstated revenue and accounts and Prospectus filed in conjunction with the IPO (thereceivable that was improper under IFRS. Defendants Offering Documents) contained financial projectionsagain moved to dismiss, though this time the court and Netshoes 2016 financial statements anddenied the motion. represented that they were prepared in accordance with the International Financial Reporting Standards (IFRS). The Offering Documents also promoted Netshoes new business-to-business (B2B) The court further held that the financial strategyselling and distributing nutritionprojections in the Offering Documents were supplements and vitamins to drugstores and supermarkets in Brazilas a growth vehicle. Betweennot protected forward looking statements, August 2017 and May 2018, the company reportedbecause, based on plaintiffs allegations, issues with its B2B segment each quarter. For instance, on August 14, 2017, the company reported that netthey were based on an improper factual sales, gross profit, and EBITDA were negativelypredicate and thus did not actually depend impacted by significant returns recorded in its B2B segment. On November 13, 2017, the company reportedon any future events. that net sales were once again adversely impacted by, among other things, returns in the B2B business. And on May 14, 2018, Netshoes posted an increased operating loss with nearly half coming from B2B returns.After determining that the heightened pleading The next day, the companys stock dropped 44%. standard does not apply to plaintiffs 1933 Act claims An investor filed a putative class action againstbecause they sound in negligence rather than fraud, the company, its officers and its directors, allegingthe court held that, unlike the conjecture in the prior that the companys Offering Documents includedcomplaint, plaintiff now sufficiently alleged falsity. misrepresentations and omissions in violation ofThe court explained that allegations that Netshoes Sections 11, 12, and 15 of the 1933 Act. Specifically,representatives negotiated rights of return prior to the plaintiff alleged that Netshoes post-IPO write-downsIPO, if true, supported plaintiffs theory that defendants 80'