11 F.4th 90
2d Cir.2021Background
- Danske Bank acquired its Estonian branch (via Sampo) and operated a Non-Resident Portfolio (NRP) that generated a large share of branch profits but posed AML red flags.
- From 2007–2015, suspicious transactions flowed through the Estonian branch; internal audits and a 2013 whistleblower (Howard Wilkinson) flagged failures in AML/KYC controls.
- Danske began winding down the NRP in 2014–2016, recorded goodwill impairments in late 2014, and the DFSA publicly reprimanded and fined the Bank in 2016 for AML shortcomings.
- Media and regulatory disclosures in 2017–2018 revealed the scandal’s far greater scale; the 2018 B&H report disclosed over $200 billion in suspect transactions and led to CEO Borgen’s resignation.
- Three pension funds bought Danske ADRs in 2018 and filed a securities class action in 2019 alleging misleading statements/omissions and scheme liability; the district court dismissed under Rule 12(b)(6) and this panel affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether routine financial statements were misleading for failing to disclose suspected money laundering | Funds: financial reports incorporated revenue from illicit activity and should have disclosed AML suspicions | Danske: accurate historical financials need not disclose uncharged, unadjudicated wrongdoing | Held: Not actionable — accurate financial statements are not rendered misleading by nondisclosure of suspected wrongdoing (City of Pontiac rule) |
| Whether 2014 goodwill-impairment statements were materially misleading | Funds: describing the impairment as "technical" misrepresented that it was unrelated to NRP winding down | Danske: impairment was a technical accounting matter tied to macro assumptions; even if related, the 2014 statement was stale by 2018 | Held: Not actionable — any inaccuracy was immaterial to 2018 purchasers given intervening disclosures and time lapse |
| Whether 2015 statement about three whistleblower cases was misleading | Funds: later B&H report shows Wilkinson’s complaint mishandled, so statement implied effective whistleblower system | Danske: the statement referred to three anonymous-system reports, not Wilkinson’s direct emails; statement was factually correct and stale by 2018 | Held: Not actionable — statement was accurate in context and, in any event, too remote to affect 2018 purchasers |
| Whether corporate responsibility / AML statements were actionable | Funds: generic AML/compliance assurances misled about actual controls in Estonia | Danske: such statements are aspirational/puffery or too vague to induce reliance | Held: Not actionable — generalized compliance statements are puffery and not materially misleading absent specific, detailed claims |
| Whether July 2018 footnote claiming no expected material financial effect was misleading | Funds: Bank knew the scope was larger and thus the footnote was false | Danske: statement was made after Funds’ last purchase; cannot have inflated price paid earlier | Held: Not actionable for these plaintiffs — plaintiffs cannot rely on statements issued after their final purchase (Denny rule) |
| Whether Rule 10b-5(a)/(c) scheme liability adequately pleaded | Funds: pervasive concealment and course of conduct inflated ADR prices | Danske: complaint fails to identify specific deceptive acts, timing, actors, or connection to securities purchases | Held: Not actionable — scheme claim fails Rule 9(b) for lack of particularized allegations of deceptive acts in connection with securities trades |
Key Cases Cited
- City of Pontiac Policemen’s and Firemen’s Ret. Sys. v. UBS AG, 752 F.3d 173 (2d Cir. 2014) (no duty to disclose uncharged, unadjudicated wrongdoing)
- Basic Inc. v. Levinson, 485 U.S. 224 (1988) (materiality standard: whether statement altered the total mix of information)
- Denny v. Barber, 576 F.2d 465 (2d Cir. 1978) (post-purchase statements cannot form basis for claims by that purchaser)
- ECA & Loc. 134 IBEW Joint Pension Tr. of Chi. v. JP Morgan Chase Co., 553 F.3d 187 (2d Cir. 2009) (general corporate puffery is not actionable)
- TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438 (1976) (materiality is a fact-specific inquiry but can be decided on dismissal if no reasonable mind would differ)
- Singh v. Cigna Corp., 918 F.3d 57 (2d Cir. 2019) (detailed compliance statements may be actionable; generic ones are not)
- In re Time Warner Inc. Sec. Litig., 9 F.3d 259 (2d Cir. 1993) (statements must be false when made to be actionable)
- Lorenzo v. SEC, 139 S. Ct. 1094 (2019) (scheme liability can reach deceptive conduct distinct from misstatements)
- In re Sofamor Danek Grp., Inc., 123 F.3d 394 (6th Cir. 1997) (accurate historical data disclosures do not by themselves give rise to securities fraud)