Sogou Inc. (SOGO)

NEW YORK, January 11, 2019 - The complaint alleges that Defendants made materially false and misleading statements regarding the Company's business, operational and compliance policies. 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. In June and July 2018, Chinese media sources reported that Chinese authorities had ordered Sogou to remove illegal content from its search engine. On July 30, 2018, Sogou announced its financial and operating results for the second quarter of 2018. The Company revised guidance for its third quarter 2018 financial results, citing an investigation by Chinese regulatory authorities and the implementation of "remedial measures", which included a ten-day suspension of part of its advertising business. Following this announcement, the price of Sogou ADSs fell $0.78, or 7.55%, to close at $9.55 on July 30, 2018. On October 25, 2018, Sogou announced its financial and operating results for the third quarter of 2018, advising investors that revenues had fallen short of guidance by $5.24 million and disclosing disappointing guidance for 2019. Following this news, the price of Sogou ADSs fell $0.25, or 4.35%, over the following three trading sessions, closing at $5.50 on October 30, 2018.