675 F.Supp.3d 273
E.D.N.Y.2023Background
- Lead Plaintiff Boston Retirement System filed a securities class action alleging Ericsson and three executives made false/misleading statements about Ericsson’s Middle East growth, compliance program, and resolution of DOJ/SEC FCPA investigations, concealing corruption and payments (including alleged payments involving ISIS) tied to Iraqi contracts.
- Claims brought under Section 10(b) and Rule 10b-5 (and a Section 20(a) control-person claim); class period April 27, 2017–March 1, 2022.
- Key factual predicates: a 2019 internal Iraq report (allegedly showing bribery and payments to ISIS), Ericsson’s December 2019 DPA resolving FCPA violations in other countries, and public statements (SEC filings, earnings calls, press releases) describing growth, anti-corruption programs, and the DPA’s resolution.
- Plaintiff alleged the public statements were materially false or misleading because they omitted the illegal sources of Middle East growth, overstated the effectiveness of compliance controls, and mischaracterized the DPA’s finality.
- Defendants moved to dismiss under Rules 12(b)(6) and 9(b)/PSLRA, arguing the statements were not false or material (many were generic/puffery or accompanied by cautionary language), and scienter was not pleaded with the particularity required by Tellabs/PSLRA.
- The District Court granted the motion and dismissed the Amended Complaint with prejudice for failure to plead actionable misstatements and scienter; the Section 20(a) claim also failed because there was no primary violation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Actionability of statements about Middle East growth | Ericsson touted regional growth but omitted that growth was driven by illegal conduct in Iraq (bribes, kickbacks, payments to ISIS). | Statements were generic regional statements about "growth" and contributing factors and did not single out Iraq or specific projects; no duty to disclose unadjudicated wrongdoing. | Court: statements too vague/sweeping to be misleading; distinguishable from Braskem/Veon. Dismissed. |
| Actionability of anti‑corruption / compliance statements | Statements about codes, vetting, and zero‑tolerance were detailed assurances investors relied on. | These were generic policy statements/puffery; company also warned compliance might fail. | Court: statements immaterial as a matter of law (generic corporate‑speak and accompanied by cautionary language). Dismissed. |
| Statements re: DPA, resolution of investigations, and internal Iraq report (including analyst Q&A) | December 2019 statements and later comments misled investors into believing investigations were concluded and risks mitigated; defendants concealed internal Iraq probe. | DPA and public filings expressly warned of remaining risks/monitoring; analyst question concerned regulatory investigations, not internal probes; statements therefore not false/misleading. | Court: context (DPA, explicit warnings, filings) negates misleading inference; Dedullen’s comment addressed regulators and was not false. Dismissed. |
| Scienter (required PSLRA particularity) | Senior executives had motive, access, internal reports, CW statements, and DPA obligations—supporting a strong inference of conscious recklessness. | Allegations are generalized, conclusory, or post‑hoc; CW allegations do not show execs knew specific falsifying facts; investigations and remedial efforts cut against scienter. | Court: plaintiff failed to plead a cogent, compelling inference of scienter; allegations insufficient even holistically. Dismissed. |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility standard for complaints)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard)
- Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S. 308 (2007) (PSLRA scienter: inference must be cogent and at least as compelling as nonfraudulent inference)
- Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (2011) (elements of securities fraud claim)
- Singh v. Cigna Corp., 918 F.3d 57 (2d Cir. 2019) (distinguishing generic compliance statements from actionable assurances)
- ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (Rule 9(b) particularity in securities fraud)
- Plumber & Steamfitters Loc. 773 Pension Fund v. Danske Bank A/S, 11 F.4th 90 (2d Cir. 2021) (accurately reported financials do not become misleading by nondisclosure of suspected misconduct)
- Rombach v. Chang, 355 F.3d 164 (2d Cir. 2004) (puffery and generalized statements not actionable)
- Lentell v. Merrill Lynch & Co., 396 F.3d 161 (2d Cir. 2005) (loss causation requirement)
- Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 575 U.S. 175 (2015) (standards for falsity of opinion statements)