Case 1:15-cv-08956-AJN Document 68 Filed 10/10/16 Page 1 of 122 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ) In re EROS INTERNATIONAL SECURITIES ) Master File No. 15 Civ. 8956 (AJN) LITIGATION ) _________________________________________ ) AMENDED CONSOLIDATED ) CLASS ACTION COMPLAINT This Document Relates To: ALL ACTIONS ) FOR VIOLATIONS OF THE ) FEDERAL SECURITIES LAWS ) ) Jury Trial Demanded ) Michael W. Stocker David J. Goldsmith Barry Michael Okun Alfred L. Fatale III LABATON SUCHAROW LLP 140 Broadway New York, New York 10005 Tel.: (212) 907-0700 Fax: (212) 818-0477 Attorneys for Lead Plaintiffs Fred Eisner and Strahinja Ivoševič and Lead Counsel for the Class Case 1:15-cv-08956-AJN Document 68 Filed 10/10/16 Page 2 of 122 TABLE OF CONTENTS I. NATURE OF THE ACTION ............................................................................................. 1 II. JURISDICTION AND VENUE ......................................................................................... 9 III. PARTIES .......................................................................................................................... 10 IV. FACTUAL BACKGROUND AND SUBSTANTIVE ALLEGATIONS .................................................................................. 13 A. Company Background .......................................................................................... 13 B. The Lulla Family’s Extensive Related-Party Transactions ................................................................................... 14 C. Eros Goes Public ................................................................................................... 19 D. Eros Now’s Streaming Movies-On-Demand Service ................................................................................ 20 E. Eros Now Was Viewed as the Key Driver of the Company’s Future Growth and Revenue ........................................................ 21 F. Eros Acquires Techzone to Gain Access to Millions of Potential Users ................................................................... 22 G. Defendants Overstated the Eros Now User Base .................................................. 26 1. The Technological Landscape in India During the Class Period ............................................................... 26 2. The Company’s Systematic Deception Regarding Eros Now “Registered Users” ................................................. 28 (a) WAP Usage ................................................................................... 29 (b) Mobile App Usage ........................................................................ 29 (c) Mobile HTML Website Usage ...................................................... 33 (d) Information from a Confidential Witness Supports the Facts Shown By the Industry Data .......................... 36 H. Defendants Misrepresented the Size of Eros’s Film Library and Film Release Dates ........................................................ 38 V. THE TRUTH BEGINS TO EMERGE ............................................................................. 52 Case 1:15-cv-08956-AJN Document 68 Filed 10/10/16 Page 3 of 122 VI. POST-CLASS PERIOD ALLEGATIONS ....................................................................... 59 VII. ADDITIONAL INDICIA OF SCIENTER ....................................................................... 61 A. Each of the Individual Defendants Received Periodic “Dashboard” Reports Concerning Eros Now Users ............................................. 61 B. Eros Is a Family Business With a Tightly Held Management Structure and Culture ............................................................. 63 C. Eros’s Film Library and Eros Now Are Core Operations of the Company .................................................................. 65 D. Defendants Deshpande and Parameswaran Signed Sarbanes-Oxley Certifications .................................................................. 66 E. Corporate Scienter ................................................................................................ 66 VIII. DEFENDANTS’ MATERIALLY FALSE AND MISLEADING STATEMENTS AND OMISSIONS OF MATERIAL FACT .................................................................... 67 IX. LOSS CAUSATION ....................................................................................................... 101 X. THE STATUTORY SAFE HARBOR AND BESPEAKS CAUTION DOCTRINE ARE INAPPLICABLE ........................................................... 102 XI. CLASS ACTION ALLEGATIONS ............................................................................... 103 XII. LEAD PLAINTIFFS AND CLASS MEMBERS ARE ENTITLED TO A PRESUMPTION OF RELIANCE ................................................... 106 XIII. CAUSES OF ACTION ................................................................................................... 108 COUNT I Asserted Against Defendant Eros for Violations of Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 Promulgated Thereunder ........................................... 108 COUNT II Asserted Against the Individual Defendants for Violations of Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 Promulgated Thereunder ........................................... 111 - ii - Case 1:15-cv-08956-AJN Document 68 Filed 10/10/16 Page 4 of 122 COUNT III Asserted Against the Individual Defendants for Violations of Section 20(a) of the Securities Exchange Act of 1934 ............................................... 116 XIV. PRAYER FOR RELIEF ................................................................................................. 117 XV. JURY DEMAND ............................................................................................................ 117 - iii - Case 1:15-cv-08956-AJN Document 68 Filed 10/10/16 Page 5 of 122 Court-appointed Lead Plaintiffs Fred Eisner (“Eisner”) and Strahinja Ivoševič (“Ivoševič,” and together with Eisner, “Lead Plaintiffs”), individually and on behalf of a class of similarly situated persons and entities (collectively, “Plaintiffs”), by and through their undersigned counsel, for their Amended Consolidated Class Action Complaint for Violations of the Federal Securities Laws asserting claims against Eros International Plc (“Eros” or the “Company”) and the Individual Defendants named below, allege the following upon information and belief, except as to those allegations concerning Lead Plaintiffs, which are alleged upon personal knowledge. Lead Plaintiffs’ information and belief concerning matters other than themselves and their own acts is based upon the investigation of their counsel, which included review and analysis of regulatory reports filed by Eros with the United States Securities and Exchange Commission (“SEC”) and the Bombay Stock Exchange and National Stock Exchange of India; press releases and other public statements issued by Eros and the Individual Defendants; securities analysts’ reports about Eros; media and news reports related to Eros; third-party industry data related to the Company’s Eros Now streaming media service; public data and other information concerning Eros securities; other publicly available information concerning the Company and the Individual Defendants; interviews of former Eros employees and other knowledgeable persons who have come forward on a confidential basis; and discussions with consulting experts. Lead Plaintiffs believe that substantial additional evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery. I. NATURE OF THE ACTION 1. Lead Plaintiffs bring this securities class action on behalf of themselves and all persons or entities that, between November 12, 2013 and November 12, 2015, inclusive (the Case 1:15-cv-08956-AJN Document 68 Filed 10/10/16 Page 6 of 122 “Class Period”), purchased or otherwise acquired the publicly traded common stock of Eros and were damaged thereby (the “Class”). 2. Eros is an Indian film entertainment, or “Bollywood,” company that produces, acquires, and distributes Indian-language films in theatrical, television, and digital formats worldwide. The Company’s operations cater to different genres, budgets, and Indian languages throughout the Indian subcontinent and the worldwide Indian diaspora. 3. What is now the Company’s main subsidiary, Eros International Media Ltd. (“EIM”), was founded in 1977 by Arjun Lulla and is based in Mumbai, India. In June 2006, after Arjun Lulla transferred control to his son Kishore Lulla, Eros was formed as a parent company of EIM and its affiliates. Since its inception, the Company has been run by and for the benefit of the Lulla family as a vehicle for the transfer of money to relatives and associates through extensive and systematic related-party transactions that generated personal wealth for them, but limited corporate profits. 4. By the early 2000s, the members of the Lulla family were looking for an opportunity to increase the economic benefits they derived from their relationships with the Company without having to create organic growth. They could do this by accessing the public capital markets, but only if they could convince investors that Eros had genuine opportunities to expand its business in the highly competitive and rapidly developing media market. 5. In August 2012, Eros launched Eros Now, a streaming media service whereby users and subscribers access films and other content on demand through mobile phones and other internet-enabled devices. Eros