Reid Collins Defeats Motions to Dismiss in In re Renren, Inc. Derivative Litigation Involving Billion Dollar Sham “Spin-Off”
On May 20, 2020 Reid Collins defeated five motions to dismiss filed by defendants in a suit involving an alleged scheme by Renren insiders to squeeze out minority shareholders and take the company’s billion-dollar investment portfolio for themselves. The New York Supreme Court for New York County today entered a 71-page order denying all of the motions filed by insiders and others involved in the transaction.
The defendants – Joseph Chen, David Chao and related DCM Investments funds, Oak Pacific Interactive (“OPI”), and Duff & Phelps, LLC – had moved to dismiss, asserting lack of personal jurisdiction and that Reid Collins’ clients, including Renren shareholders Heng Ren Silk Road Investments LLC and Oasis Investments II Master Fund Ltd., lacked derivative standing under Cayman law to pursue the claims.
The suit arises out of Mr. Chen’s and Mr. Chao’s alleged scheme to take Renren’s billion-dollar investment portfolio for themselves and their associates through a sham transaction in which Renren’s investment portfolio was transferred to an entity (OPI) that was then divested from Renren. Unlike a normal spin-off, Renren’s minority shareholders did not receive shares of OPI, but instead received an artificially low cash dividend based on a deflated value for OPI and its assets, including a $560+ million interest in renowned fintech company Social Finance, Inc. The valuation on which the cash dividend was based undervalued the investment portfolio by hundreds of millions of dollars. Renren had originally obtained the investment portfolio at issue with the proceeds of its initial public offering of American depository shares on the New York Stock Exchange.
Justice Andrew Borrok rejected the defendants’ arguments that New York courts could not exercise specific personal jurisdiction. Justice Borrok similarly rejected the defendants’ arguments that the claims at issue did not give rise to derivative standing under Cayman law’s “fraud on the minority” exception.
See Story Here.
See Decision Here.
Prior results do not guarantee a similar outcome.