Securities Snapshot September 11, 2018

The Southern District of New York Rejects a Securities Class Action Against Individual Defendants Stemming From FCPA Claims


The Southern District of New York rejects a securities class action against individual defendants stemming from FCPA claims; the Northern District of California rejects a securities class action based on electric car company’s optimistic statements about production; the Northern District of California rejects a class action based on alleged misrepresentations regarding corporate culture; the Southern District of New York denies class certification for foreign exchange currency traders; and the Delaware Chancery Court rejects arguments to keep sale documents confidential absent a showing of harm.


On August 30, 2018, the U.S. District Court for the Southern District of New York, in In re Veon Ltd. Securities Litigation, dismissed a putative class action against four former senior executives of Veon Ltd., brought by stockholders of the Dutch company, alleging that the company and the former executives defrauded investors by failing to disclose millions of dollars in bribe payments made in Uzbekistan to curry favor for its telecommunication business. In bringing suit, plaintiffs substantially relied upon a 2016 Deferred Prosecution Agreement between Veon (which was then called VimpelCom, Ltd.) and the U.S. Department of Justice, and consent agreements with the Securities and Exchange Commission and Dutch law enforcement authorities, all related to the illegal bribe payments to Uzbek officials over a number of years, as well as the company’s efforts to conceal that illegal activity, among other things. Plaintiffs alleged that Veon’s SEC filings in the years preceding the DPA–between December 2010 and November 2015–contained material misstatements and omissions related to the company’s financial success in Uzbekistan, because Veon failed to disclose that the success resulted from the bribes. Plaintiffs pointed to the executives’ positions as C-suite executives, the existence of complaints regarding potential FCPA violations by unnamed employees, and the executives’ resignations during the relevant time period as evidence that they knew “specific contradictory information” or facts “suggesting that their public statements were inaccurate” and thus had the requisite scienter to be held liable. The court had previously denied a motion to dismiss in part against Veon, finding that plaintiffs had made adequate allegations regarding alleged material misstatements to “sufficiently place the reasons for growth in Uzbekistan at issue to make further disclosure necessary.”

As to the claims dismissed against the individual defendants, the court first found plaintiffs had adequately alleged minimum contacts by the Veon executives within the United States to trigger personal jurisdiction through the executives’ signing of specific SEC filings, but that plaintiffs’ service of process on two of the executives was nevertheless improper as untimely. Where several of plaintiffs’ claims against the individual defendants were brought under the “group pleading” doctrine–by virtue of signing the Company’s public filings–the court found that plaintiffs had failed to plead that the executives knew the statements were misleading when they signed the filings, and plaintiffs had thus inadequately pled scienter, finding that the senior executives could not be held liable “in the absence of specific allegations that the named defendant actually received information about the fraud.” This decision demonstrates that vague allegations regarding an executive’s senior position or general allegations about an official’s resignation are not sufficient to constitute “strong circumstantial evidence of conscious misbehavior or recklessness” to sustain a securities class action for fraud against an individual defendant.


The U.S. District Court for the Northern District of California, in Gregory Wochos v. Tesla, Inc., et al., dismissed with leave to amend a Tesla shareholder’s proposed class action complaint on August 24, 2018. The complaint alleged that Tesla’s representations regarding its progress towards production goals for its Model 3 vehicle were misleading because the stated goals were impossible to achieve. The court took judicial notice of ten documents filed by Tesla with the Securities and Exchange Commission and also of the company’s statements during an earnings call, explaining that it was considering the documents and statements “for the sole purpose of determining what representations Tesla made to the market” and not for “the truth of any of the facts asserted.” After comparing what plaintiff alleged to be the “true state of affairs” at Tesla’s production plants with the judicially-noticed public statements, the court held that plaintiff failed to state a claim because the company’s statements fell within the PSLRA’s safe harbor for forward-looking statements accompanied by meaningful cautionary language. Specifically, the court rejected plaintiff’s argument that Tesla’s statements that its Model 3 production was “on track” constituted misrepresentations of a “then-current state of affairs,” finding that plaintiff’s theory would effectively collapse the distinction between present and forward-looking statements, because “every future projection depends on the current state of affairs.” The court also found that Tesla had provided sufficient cautionary statements to accompany its forward-looking guidance, pointing to Tesla’s repeated public statements emphasizing the difficulties in predicting production timelines. Finally, the court found that plaintiff’s allegations that Tesla knew the impossibility of reaching its goals were merely conclusory and could not be taken as true at the motion to dismiss stage. This decision is noteworthy as it helps define the kind of forward looking statements that fall within the PSLRA’s safe harbor provision.


On August 31, 2018, the Northern District of California, in Irving Firemen’s Relief and Retirement Fund et al. v. Uber Technologies et al., dismissed a putative class action, with leave to amend, brought on behalf of stockholders of Uber who alleged that Uber and its former CEO made misleading statements and omissions regarding its business practices with respect to corporate culture, technology, and data security. After hearing oral argument in April 2018, the court had issued a stay of discovery pending its ruling on defendants’ motion to dismiss.

As an initial matter, the court dismissed claims based upon certain statements that were made outside the alleged class period, finding that such statements were not actionable because any alleged impropriety was “not performed in connection with the purchase or sale of securities,” particularly for the state securities claims brought under California law, which limits actionable claims to buyers or sellers of securities. The court also found that the alleged misleading statements regarding Uber’s growth constituted puffery or “positive forecasts.” In particular, the court found that statements about Uber’s ability to grow sustainably being “mostly unprecedented,” “incredibly rare,” “remarkable,” and “gangbusters” were not “objectively verifiable.” Where plaintiff failed to allege that defendants “did not hold the belief they professed and that belief was objectively untrue,” the court held that this rendered defendants’ statements not actionable. The court characterized plaintiff’s “broad-brush approach to the pleadings” as amounting to a “laundry list” of alleged false statements without any accompanying facts to indicate why those statements were false, and deemed such pleadings to be “unacceptable.” In addition, the court found that plaintiff had failed to adequately plead loss causation, stating that “the majority of [d]efendants’ alleged ‘fraudulent’ conduct comprises practices that have not in fact been proven unlawful, but are instead currently under investigation,” a symptom of plaintiff’s failure to plead falsity in defendants’ statements. This decision highlights that a plaintiff’s reliance on optimistic and subjective statements by a company regarding its business activity, without pleading facts that such statements were objectively verifiable; or that the speaker knew the statements to be false when made, are insufficient to maintain a securities class action claim for fraud.


The Southern District of New York, in Axiom Investment Advisors, LLC, et al. v. Deutsche Bank AG, denied class certification sought by plaintiffs Axiom Investment Advisors, LLC and Axiom Investment Company, LLC, who had alleged that Deutsche Bank’s “Last Look” practice of allegedly delaying execution of electronically matched currency trade orders in the foreign exchange market from buy-side traders caused traders substantial losses. The Last Look was allegedly employed by Deutsche Bank (and several other banks) to extend the time between when the bank received a trade instruction and when it determined whether to accept or reject the trade. Within this fraction-of-a-second delay, Deutsche Bank allegedly utilized algorithms to compare a customer’s requested price against the last indicative price to verify that the transaction fell within the bank’s predetermined tolerance for that customer, and thus whether to accept or reject the trade offer. Axiom alleged that the Last Look, which Deutsche Bank allegedly began employing in 2010 to defend against predatory trade execution practices, was supposedly employed to execute profitable trades and reject unprofitable trades, allegedly constituting a breach of Deutsche Bank’s express and implied agreements with traders such as the plaintiffs.

The court refused to certify the two proposed classes, which encompassed (i) individuals who had entered into express contracts for use of Deutsche Bank’s electronic trading networks and had trades rejected; and (ii) individuals who had trades rejected on Deutsche Bank electronic trading networks, in the absence of an express contract. The court found that class certification was inappropriate for both categories of plaintiffs, because they had failed to prove that the legal and factual issues of either proposed class could be shown through generalized proof. The court explained that each proposed class member would need to provide extrinsic evidence to show (1) that the alleged Last Look practice was prohibited by their agreements with Deutsche Bank; and (2) that they were unaware of the alleged practice. The court highlighted that significant evidence indicated many of Deutsche Bank’s trading clients were aware of the Last Look practice, as it had been broadly and publicly discussed since its implementation and because Deutsche Bank offered traders a platform to make trades based on their measurements of the Last Look’s impact on trade price. This case demonstrates that viable challenges can be mounted to class certification where (as in this case) class action plaintiffs’ claims arise from alleged facts that may well turn on the terms of an individual contract, or an individual plaintiff’s knowledge of a financial institution’s policies and practices.


On August 30, 2018, in In Re Appraisal of Columbia Pipeline Group Inc., the Delaware Court of Chancery denied Columbia Pipeline Group Inc.’s attempt to keep documents related to its $13 billion sale to TransCanada out of the public domain, including documents produced during discovery during an appraisal action, which were filed as part of the court record by nearly a dozen funds owning shares in Columbia Pipeline, hoping to increase the consideration for their shares. Where Columbia Pipeline failed to originally assert that the documents were confidential within the meaning of Court of Chancery Rule 5.1–which governs public access to records presented to the court–the court determined that this was “the end of the matter,” but went on to assess Columbia Pipeline’s arguments on the merits. The court found that Columbia Pipeline failed to show a particularized harm that would result from the documents’ disclosure, other than potential “collateral economic consequences,” which the court determined did not rise to the level of “good cause” required to prevent disclosure of documents filed with the court, which were “presumptively public.” The court also specifically rejected Columbia Pipeline’s public policy argument that the documents should be protected because its adversary intended to use the information in an unrelated litigation, finding that this motivation did not overcome the public’s presumptive right under the First Amendment to the judicial records at issue. The court held public policy actually weighed against finding an exception to the confidentiality rules when publication of judicial records might lead to their use in separate litigation, because a producing party might otherwise be permitted to “transform a confidentiality order . . . into a non-disclosure agreement” in an effort to “escape accountability for potential wrongdoing.” The Chancery Court’s decision underscores the importance of properly designating documents as confidential at the outset of a litigation, but also emphasizes the limited circumstances under which the court will determine “good cause” to keep court records under seal. In particular, this case emphasizes the Chancery Court’s view that it is in keeping with public policy to allow a party to access court documents filed in one action, even if the party’s sole motivation is to bolster their claims in an unrelated litigation.