Labaton Sucharow LLP, a nationally ranked and award winning investor rights law firm, announces it is developing a proprietary investigation concerning potential securities claims on behalf of shareholders of JOYY INC (NASDAQ: YY) resulting from allegations that YY may have issued materially misleading business information to the investing public.
On November 18, 2020, Muddy Waters announced that it is short JOYY (NASDAQ: YY), calling it fraudulent.
Muddy Waters report notes: We are short JOYY Inc. (YY) because we conclude that YY is a multibillion-dollar fraud.
We conclude that YY’s component businesses are a fraction of the size it reports, and that the company’s reported user metrics, revenues, and cash balances are predominantly fraudulent. Our conclusions apply not only to the legacy YY Live business, but also to Bigo, YY’s online dating business, and really everything these people have touched. Approximately 84% of YY’s reported consolidated revenue appears to be fraudulent. Changing our base case assumptions to more company-favorable / conservative assumptions yields consolidated fraudulent revenue of approximately 73%. We have observed three primary methods through which YY commits fraud: o Paying User (“PU”) bots from YY’s own servers – in our data sample, gifts associated with YY’s own servers, disguised as PUs, constituted roughly half of the total value of all gifts sent. Performers whose gifts are recycled into the system through alter ego PU accounts. We understand that the top performers, who purportedly earn tens of millions of RMB per year, are in fact often-on fixed salaries paying them no more than 2.5 million RMB per year (~$350,000). Channel owners, which manage performers, are part of the scheme. The large channel owners are primarily owned by former YY employees who are clearly “in on” the scam. PRC credit bureau report financial statements for the five largest channel owners show combined 2018 revenue of only ~15% of what YY claims. We conclude that YY Live, Bigo, and YY’s online dating business are substantially fraudulent: We conclude that ~90% of YY Live’s livestreaming revenue is fraudulent. Livestreaming accounts for ~95.8% of purported Q3 2020 YY Live revenue. We conclude that ~80% of YY Live’s online dating revenue is fraudulent. Online dating accounts for ~20% of purported YY Live revenue. o We estimate that ~80% of Bigo revenue is fraudulent. Using more company-favorable assumptions yields a fraudulent revenue contribution of ~60%. Bigo’s Singapore parent changed auditors three times in its first four years. Bigo also received three consecutive going concern opinions from its auditor in 2016-2018. Bigo made a major restatement of its 2017 financials in August of 2019, months after the acquisition by YY was complete.
These fact patterns support our conclusion that Bigo is also substantially fraudulent. Page 3 of 71 o Bigo’s rot stems from its inception. YY claims that it purchased Bigo from Chairman David Li. This is a lie that enabled Chairman Li to take at least $156.1 million of real money from YY shareholders and for YY to fraudulently report remeasurement gains in its profits. In reality, YY founded Bigo – not Chairman Li. o Bigo consolidates a significant amount of revenue from Mainland China. Bigo tacked on a mainland China business Hello that we believe to be almost entirely fake, per our primary diligence and discussions with former Bigo employees. As of Q3 2020, we estimate this overwhelmingly fraudulent PRC unit was still 13.4% of Bigo’s reported revenues. We researched YY’s businesses for more than one year, taking a two-prong approach. The first prong was macro data collection and analysis through automated means of 115.6 million transactions. The second prong was traditional Muddy Waters techniques of reviewing filings and accounts, undercover fieldwork, and human sourcing.
On this news, YY is down over 20% on extraordinary volume.
If you are a shareholder or option holder that suffered losses in YY, and wish to participate, learn more, or discuss the issues surrounding the investigation, please contact David J. Schwartz using the toll free number (800) 321-0476 or via email at dschwartz@labaton.com
About the Firm
Labaton Sucharow LLP is one of the world’s leading complex litigation firms representing clients in securities, antitrust, corporate governance and shareholder rights, and consumer cybersecurity and data privacy litigation. Labaton Sucharow has been recognized for its excellence by the courts and peers, and it is consistently ranked in leading industry publications. Offices are located in New York, NY, Wilmington, DE, and Washington, D.C. More information about Labaton Sucharow is available at www.labaton.com.
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Contacts:
(800) 321-0476
dschwartz@labaton.com
