Judge Finds Singularity Future Technology and CEO Liable for Misleading Investors on Joint Ventures
On Tuesday, December 17, 2024, the US District Court for the Eastern District of New York issued a memorandum decision regarding a putative class action lawsuit filed by Piero Crivellaro and other plaintiffs against Singularity Future Technology Ltd. and several related defendants. The plaintiffs alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act, focusing on claims of securities fraud.
The court addressed motions to dismiss filed by seven defendants, including Singularity and its CEO, Yang Jie. While the court found many of the motions to be well-founded, it determined that the amended complaint sufficiently stated a claim under Section 10(b) against Singularity and Jie related to misleading statements about two transactions the company engaged in. As a result, the court partially denied the motions from Singularity and Jie but granted the remaining motions.
The background of the case reveals that Singularity, which had operated as a shipping and logistics company under the name Sino-Global Shipping America, Ltd. for two decades, faced a significant decline in business by 2021. This downturn prompted the company to announce plans to enhance its traditional logistics services by expanding into Bitcoin mining, as disclosed in a February 2021 Form 8-K. To facilitate this new venture, Singularity raised over $28 million through securities purchase agreements and acquired digital currency operation servers.
In addition to purchasing servers, Singularity entered into two joint ventures. The first was with HighSharp (Shenzhen Gaorui) Electronic Technology Co., Ltd., aimed at developing and selling Bitcoin mining machines through a new entity called Thor Miner, Inc. Singularity announced a lucrative sales contract with SOS Information Technology New York Inc. for $200 million worth of cryptocurrency mining hardware and other equipment.
The second joint venture involved Golden Mainland Inc., an American electricity provider, with plans to invest up to $250 million in building a mining facility with capacity for 300,000 Bitcoin miners across several states. Singularity also sought to reverse its declining business through investments in other companies, including over $3 million in Rich Trading Co., Ltd. USA, which claimed to deal in high-tech computer parts.
Despite a temporary recovery—Singularity’s stock price rose from around $5 to nearly $20 per share following the announcements—this resurgence proved short-lived. By late April 2022, the stock price plummeted to approximately $6 amid reports from short sellers questioning the legitimacy of Singularity’s operations and the character of its executives. Reports implicated Jie in past fraudulent activities and doubted the authenticity of the company’s mining operations and joint ventures.
In response to the allegations, Singularity’s stock experienced a sharp decline, closing at $4.80 after the short sellers’ reports were published. This was followed by further declines, which continued until the stock price fell to just $0.60 per share by the end of the class period in 2023.
The plaintiffs, shareholders of Singularity, filed the current lawsuit seeking to hold the defendants accountable for various misstatements and omissions made during the class period. The amended complaint alleged seven categories of fraudulent conduct, although the court found that only the representations regarding the Golden Mainland joint venture and the Rich Trading investment could sustain a claim under Section 10(b).
In its analysis, the court emphasized the necessity for plaintiffs to demonstrate specific facts to support claims of securities fraud. For a Rule 10b-5 claim, the plaintiffs were required to show that a material misrepresentation or omission occurred, that the defendants acted with scienter, and that there was a causal connection to economic loss.
The court found that Singularity’s claims regarding Golden Mainland’s status as a large-scale energy provider lacked credibility, given the company’s recent formation and questionable operational capacity. Similarly, the allegations surrounding Rich Trading indicated that it may have been a vehicle for transferring assets rather than a legitimate trading entity.
Regarding the scienter requirement, the court ruled that sufficient evidence pointed to Jie’s knowledge or access to information that would have indicated the misleading nature of the public statements. As a result, the court concluded that Jie could be held liable for the misstatements made regarding both the Golden Mainland and Rich Trading ventures.
Finally, the court addressed the issue of loss causation, finding that the plaintiffs had adequately established a connection between the decline in stock price and the alleged fraudulent disclosures.
In summary, the court’s decision allows portions of the plaintiffs’ claims to proceed, particularly those centered on the misstatements about the Golden Mainland and Rich Trading transactions.
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