According to the Complaint, as of September 2017, Sogou was China’s fourth largest Internet company based on MAU. By mobile queries, the Company’s Sogou Search engine is the second largest search engine in China.
The Complaint alleges that Defendants made materially false and misleading statements regarding the Company’s business, operational and compliance policies. The Complaint alleges that specifically, Defendants made false and/or misleading statements and/or failed to disclose that: (i) Chinese regulators were analyzing Sogou for regulatory action because of an increase Sogou merchants’ sales of counterfeit goods; (ii) Chinese regulators were analyzing Sogou for regulatory action because Sogou’s existing software, advertising procedures, personnel, and audit procedures were insufficient to safeguard against compliance violations with governing Chinese regulations, and would need to be updated, enhanced, and strengthened, thus resulting in increased expenses; (iii) Sogou’s cost of revenues were skyrocketing primarily because of significant increases in Traffic Acquisition Cost, which is a primary driver of Sogou’s cost of revenues, as Sogou was dealing with significant price inflation from increased competition; (iv) Sogou was going to alter its strategy concerning smart hardware and push the Company’s AI capabilities to increase product competitiveness; (v) as a result of altering its smart hardware strategy, Sogou had already decided to phase out non-AI-enabled hardware products, such as legacy models of Teemo Smart Watch, and transition to use products integrating AI technologies, which Sogou hoped would reduce its hardware revenues in the second half of 2018; and (vi) as a result of the foregoing, Sogou’s public statements were materially false and misleading at all relevant times.
On April 2, 2019, the Court issued an Order appointing Lead Plaintiff and Co-Lead Counsel. Lead Plaintiff filed an amended Complaint on August 8. On September 12, Lead Plaintiff filed a second amended Complaint.