Section 11 of the Securities Act of 1933 (“the 1933 Act”) imposes three independent bases of liability for issuers of securities offerings. Issuers of security offerings are liable for (1) misrepresenting a material fact in offering documents, (2) omitting to state a material fact whose disclosure is legally required, or (3) omitting to state a material fact that is necessary to prevent disclosures from becoming misleading.[1] A recurring question that arises is how courts must evaluate whether a statement in a security offering is false or misleading. Recently, the Commercial Division of the New York Supreme Court granted a motion to dismiss with prejudice in the case of Lorenzo v BlueCity Holdings Ltd., 76 Misc. 3d 1226(A), 175 N.Y.S.3d 717 (N.Y. Sup. Ct. 2022) that addressed this issue. The court reiterated the well-established principle that issuers of securities offerings are liable under Section 11 of the 1933 Act for making statements that were false or misleading at the time of the issuance. Absent such a contemporaneous falsehood, no cause of action will be available under Section 11.


BlueCity Holdings Ltd. (“BlueCity”) operated a location-based dating app called “Blued” for LGBTQ individuals across China, India, Korea, Thailand, and Vietnam. On July 8, 2020, BlueCity completed an Initial Public Offering (IPO) in which it offered 5.3 million American Depositary Shares (“ADS”) at the price of $16 per ADS.[2] By March 24, 2021, BlueCity’s ADS were trading at just $8.92 because the company had failed to meet its revenue targets and repeatedly disclosed increased administrative expenses. Investors brought a class action against BlueCity for various causes of action under the 1933 Act.

The Court’s Decision

The investors’ Amended Complaint (“AC”) alleged that the statements in BlueCity’s July 2020 IPO were materially misleading because the company failed to disclose in its offerings it would discontinue an affiliated family planning business called “Bluedbaby” in March 2021 and would terminate a related social networking app called “LESDO” in November 2021.[3] The investors also claimed that BlueCity had overstated its ability to become profitable following the IPO because of (i) larger-than-expected revenue outflows, in particular the large bonuses paid out at the end of the fourth quarter of 2020, and (ii) the company’s plans to shift its consumer base.[4] Id. Finally, the investors claimed that BlueCity failed to disclose that the regulatory landscape in China was growing increasingly unfavorable to the company’s business.[5] The Commercial Division held that none of these allegations were sufficient to state a claim for material misrepresentation under Section 11 based on the lack of contemporaneity.[6] First, the Court found that the business decisions to discontinue “Bluedbaby” and terminate “LESDO” were each taken several months after the IPO. Specifically, the Court noted that the only allegation on which the plaintiffs relied to establish that these decisions were contemplated prior to the IPO was a statement the defendant issued several months after the IPO indicating that the decision to discontinue these programs had been “approved.”[7] The Court found that the AC “does not allege any facts which support the theory that the Offering Documents were therefore materially misleading when issued with respect to the discontinuance of these two businesses.”[8] Second, the Court held that the AC had not “allege[d] any facts which support the notion that [at the time of the IPO], the Company knew what it intended to pay in the 4th quarter — i.e., year-end bonuses.”[9] Third, the Court, as a factual matter, disagreed with the investors that BlueCity attempted to shift its consumer base after the IPO because the only allegation made in support of this theory was a statement from the defendant that the new strategy complemented its existing programs. Therefore, the Court declined to draw an inference that BlueCity had decided to change its existing customer base, instead concluded that it had decided to expand that base.[10] Finally, the Court held the changes in the regulatory landscape in China “were not finalized and implemented until November 2020 — i.e., approximately four months after the IPO.”[11] (emphasis in original). The Court found it “significant[]” that “the Plaintiffs fail[ed] to allege” that BlueCity specifically had knowledge of the proposed changes in the Chinese regulatory landscape in order to make the necessary risk disclosures about how those regulations might impact the company’s business model.[12]


The Court’s recent decision confirms the well-established principle that a cause of action under the 1933 Act does not arise “unless an alleged material misstatement was false at the time it was made.In re Lululemon Sec. Litig., 14 F. Supp. 3d 553, 571 (S.D.N.Y. 2014), aff'd, 604 F. App'x 62 (2d Cir. 2015) (emphasis in original). In order to survive a motion to dismiss for failure to state a claim under the 1933 Act, plaintiffs must allege that statements made by issuers were false or misleading at the time that those statements were made. “Put another way, without contemporaneous falsity, there can be no fraud.” In re Lululemon, supra, 571 (emphasis in original).