IN RE NOKIA CORPORATION SECURITIES LITIGATION
Master File No. 19-cv-3509
No. 19-cv-3982
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
03/29/2021
ANDREW L. CARTER, JR., District Judge
OPINION & ORDER; CLASS ACTION
ANDREW L. CARTER, JR., District Judge:
Lead Plaintiff Clyde W. Waite (“Mr. Waite” or “Plaintiff“) brings this putative class action against Nokia Corporation (“Nokia” or the “Company“) and Rajeev Suri, former CEO of Nokia (collectively, “Defendants“), alleging that Defendants committed securities fraud in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act“) and Securities and Exchange Commission (“SEC“) Rule 10(b)-5.
Defendants moved to dismiss the complaint pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6) and the Private Securities Litigation Reform Act of 1995 (the “PSLRA“),
BACKGROUND
I. Factual Background
The following facts are taken from the allegations contained in the Second Consolidated Amended Complaint (“SCAC“), ECF No. 47, which are presumed to be true for purposes of this motion to dismiss. The Court also considers facts drawn from news releases, financial reports, and transcripts of earnings calls which Plaintiff quotes from extensively in the SCAC and are
A. The Parties
Defendant Nokia is a network and technology company incorporated in Finland with its principal executive offices in Espoo, Finland. SCAC ¶ 15.
Defendant Rajeev Suri, served as Nokia‘s President and Chief Executive Officer (“CEO“) throughout the period of April 27, 2017 until October 23, 2019 (the alleged “Class Period“). Id. ¶¶ 1, 16.
Plaintiff Clyde W. Waite seeks to represent all purchasers of Nokia American Depository Shares (“ADSs“)1 during the Class Period, and who were damaged thereby. See id. ¶¶ 14, 144.
B. The Acquisition of Alcatel-Lucent
On April 15, 2015, Nokia announced plans to purchase Alcatel-Lucent (“Alcatel“). Id. ¶ 17. According to Nokia at the time, “the combined company will be in a position to accelerate development of future technologies including 5G.” Press Release, Nokia, Nokia and Alcatel-Lucent to Combine to Create an Innovation Leader in Next Generation Technology and Services for an IP Connected World (Apr. 15, 2015). Indeed, Plaintiff alleges that the Nokia-Alcatel transaction was “intended to enable the Company to compete in 5G.” SCAC ¶ 18.2 While Nokia had been “historically focused on wireless service,” 5G would require a “combination of wireless capabilities with physical networking capabilities and infrastructure that Nokia did not have.” Id. ¶ 19. Alcatel had the capabilities and infrastructure that Nokia was lacking. Id. Thus, this
According to Plaintiff, this acquisition raised “significant concerns” about the Company‘s ability to integrate Alcatel into Nokia‘s operations. Id. ¶ 21. These concerns were heightened due to the companies’ past failures in “successfully and timely” integrating acquisitions and joint ventures. Id.3 However, Defendant Suri was “determined” to avoid these same problems. Id. ¶ 22. He “acknowledged these concerns directly” at Nokia‘s Annual General Meeting on May 5, 2015:
Those of you who have been following the transaction news have, I am sure, seen people raise concerns about execution risk. Given the issues associated with similar transactions in the past, that is a very fair concern. But, I do believe that this time can be different.
Id. The difference would largely be a result of Defendant Suri‘s management methodology known as the “Nokia Business System” (“NBS“). Id. ¶ 23. This system included “focused M&A and integration practices.” Id. In line with NBS, on April 17, 2015 Nokia announced the creation of an Integration Steering Board that would “provide the structure, processes and working team needed to set up the required plans for the combined company.” Id. ¶ 24. The head of the Integration Steering Board was to report directly to Defendant Suri. Id. An “Integration and Transformation Board” (“Integration Board“), an exclusive team dedicated to the Alcatel
Plaintiff alleges that Defendant Suri required the Integration Board to carry out the Alcatel integration in “an exceptionally rapid time-frame.” Id. ¶ 27. The Company also established compensation incentives for Defendant Suri and members of Nokia‘s Group Leadership Team, which included the Company‘s most senior executives (including the CEO, Chief Financial Officer (“CFO“), Chief Operating Officer (“COO“), and Chief Legal Officer (“CLO“), among others). Id. ¶ 28. The compensation incentives were in the form of restricted stock units that were “tied specifically to the success of the Alcatel integration.” Id. ¶ 29; see also id. (“tied expressly to targets related to the smooth and speedy integration of Alcatel“). Defendant Suri received 208,700 restricted shares, worth € 986,942 when granted, while the rest of the Group Leadership Team received a total of 1,015,100 restricted shares, valued at €4,800,408 when granted. Id. These shares were set to vest in three equal tranches on October 1st of 2017, 2018 and 2019. Id.
On January 14, 2016, Nokia announced that Nokia and Alcatel had begun operations as a single company. Id. ¶ 30. At the same time, Defendant Suri as well as other Nokia senior executives joined the Alcatel board of directors. Id. Nokia and Alcatel also adopted a Master Services Agreement and Framework Agreement (together, the “MSA“) which “established Nokia‘s complete control over Alcatel, its operations, and, most importantly, its compliance processes.” Id. ¶ 31. On November 2, 2016, Nokia announced that it had completed the Alcatel transaction. Id. ¶ 32. A couple of weeks later at its Capital Markets Day conference for investors and analysts, Defendant Suri explained the role that NBS had played in the integration and noted that he was “a permanent attendee” of the Integration Board sessions. Id. ¶¶ 33-34. At a
C. Defendants’ Statements About the Alcatel Integration and 5G-Readiness During the Class Period
1. 2017
On the first day of the Class Period, April 27, 2017, the Company held their Q1 2017 earnings call wherein Defendant Suri stated that “Nokia‘s first quarter results showed . . . that we are effectively moving beyond the integration effort for 2016 to making 2017 a year of execution and performance.” Id. ¶ 40 (emphasis added). Later on he stated that they were pleased with their performance in Q1 but that they were “not complacent” and knew they had “some challenges in select business groups.” Id. Defendant Suri emphasized that they were “very focused on addressing those issues” and expressed that he was “confident that [they could] get those businesses back on track.” Id. “With the integration of Alcatel-Lucent behind us, we are committed to building on that platform and to making 2017 a year of execution and performance.” Id.
At the beginning of the call, Matt Shimao, Head of Investor Relations, stated that “[d]uring this call, we‘ll be making forward-looking statements regarding the future business and financial performance of Nokia. . . .” Saltzstein Decl. Ex. 7 at 4.5 He emphasized that:
These statements are predictions that involve risks and uncertainties. Actual results may therefore differ materially from the results we currently expect. . . We have identified such risks in more detail on Pages 67 through 85 of our 2016 Annual Report on Form 20-F, our interim report for Q1 2017 issued today as well as our other filings with the [SEC].
We have identified material weaknesses in our internal control over financial reporting following the Acquisition of Alcatel Lucent which, if not remediated, could have a material adverse effect on us.
Our integration activities in connection with the Acquisition of Alcatel Lucent are ongoing. In connection with the preparation of our consolidated financial statements for the year ended December 31, 2016, our management identified two material weaknesses in the effectiveness of our internal control over financial reporting related to (1) the accounting for income taxes at a former Alcatel Lucent entity in the United States and (2) the accounting and control functions at a former Alcatel Lucent subsidiary in China.
As permitted by applicable regulations and accounting rules, Nokia‘s internal controls effectiveness assessment in 2016 did not include Alcatel Lucent‘s legacy operations. Our operating subsidiaries or our joint ventures’ failure, or a failure to integrate the Alcatel Lucent legacy operations into our internal controls framework, could adversely affect the accuracy and timeliness of our financial reporting, which could result, for instance, in loss of confidence in us or in the accuracy and completeness of our financial reports, or otherwise in the imposition of fines or other regulatory measures, which could have a material adverse effect on us. Moreover, we may identify further control deficiencies that are material weaknesses in the future.
Ex. 1 at 76 (emphasis added). The 2016 20-F also disclosed historic compliance issues at Alcatel and warned that Nokia “may also be subject to claims, fines, investigations or assessments for conduct that we failed to or were unable to discover or identify in the course of performing our due diligence investigations of Alcatel Lucent prior to the acquisition.” Id. at 79. The 2016 20-F further warned that “failure to integrate Alcatel Lucent or to achieve the expected synergies or other benefits . . . could materially and adversely affect our business, financial condition and results of operations.” Id. at 67. They emphasized that “[d]espite our progress in the integration, there can be no assurance that the overall integration of Alcatel Lucent will be successful or yield expected benefits and results,” and that discovery of compliance issues remained a potential challenge they could encounter. Id. at 67-68.6
[A]s Rajeev discussed in his remarks, we have today provided some new commentary on the drivers for our full year outlook for our networks business. These include uncertainties related to the timing of completions and acceptances of certain projects, particularly in the second half, 2017 as well as the level of R&D investment needed to maintain product competitiveness and accelerate 5G. We believe that we can manage through these headwinds and risks in 2017 with a relatively small impact on our targets for the full year.
Id. ¶ 45 (emphasis added). In response to a question regarding the timing of completions and acceptances of certain projects, Defendant Suri stated that they were
seeing a bigger than expected workload on the radio mobile networks division, one due to platform migration . . . [W]e‘re also seeing advancement of some features by customers and now we are seeing acceleration of 5G. So when you put these three things together, there is even more pressure on workload and product road maps, particularly in the Radio team. So this leads to a slight elevation of risk that in certain projects -- and I want to say that the operative word is really certain that there could be some timing impact on acceptances and this could affect our revenues. Now I wanted to clear, this is not broad based and we are talking just about certain projects and we expect to be confident to manage through this as Kristian said.
Id. ¶ 46.
As I said last quarter however, we believe that 5G will come faster than originally expected, starting in 2019. As that happens, Nokia is well positioned. It is important to remember that unlike earlier technologies, 5G solutions require much more than radio. . . And Nokia is one of the very few companies that is able to meet all those needs.
After addressing market conditions, Defendant Suri went on to address the issues specific to Nokia‘s Mobile Networks business:
When we spoke last quarter, I noted that our R&D team in Mobile Networks has faced an extraordinarily high workload . . . With this pressure, we have seen some issues with the time it has taken to converge a limited set of products, and that has unfortunately impacted a small number of customers. We‘re having to change out more products with more repeat site visits than originally planned. As a result, Mobile Networks has experienced both revenue pressure and an increase in expected network equipment swap costs . . . The product migration challenges have also caused some near-term deal delays in some of our other Networks businesses. Id.
He then noted that there was good news in that “[f]ield deployments of our new AirScale products were ramping up in all geographies.” Id. “This is an activity that will result in our latest 5G-ready AirScale products in wide use with considerable future upsell opportunities.” Id. at 7.
During this call, Mr. Pullola also expanded on the “network equipment swap outs.” Id. at 10. He explained that “[i]t has taken extended time to converge a limited set of products and, as a
In response to an analyst question regarding the timing of completions and acceptances of certain projects extending into the first half of 2018, Defendant Suri noted that
that [was] to do with -- the extensive R&D workload [with] relate [sic] to migration . . . . And so that has a risk with those customers, where there is the element of network equipment swaps related to the portfolio migration. And so it‘s contained to less than a handful of customers, but we see a risk that it could last until [the] first half of 2018 . . . . [T]he good part is that we are now in full deployment mode, and that of course, is helpful.
SCAC ¶ 50; Ex. 5 at 13. In response to another analyst question regarding what the engineering issues associated with migrating platforms were and what had changed in the past few months (since they were previously not made aware of these issues), Defendant Suri stated:
[N]umber one, we did say there will be network equipment swaps . . . but they will be mitigated by the use of technology, which we have done. . . I think it isn‘t about a particular hardware issue or software [issue] per se. It is just the feature requirements in particular customers with former Alcatel-Lucent footprint, have been greater than we‘ve originally expected. . . And then the second thing is at the same time . . . there have [sic] been feature creep in the market due to competitive pressure. . . And then as things would happen sometimes, that 5G also got accelerated in 2020 and 2019. So it‘s really about getting the quality right when you ship the software. I think the good news is that the software is now shipped, i.e. the software release is now available. The AirScale hardware is now available, and it is now moving into this full deployment phase . . . . So the heavy lifting is over. It‘s down to a few projects, less than a handful. And we‘re in bulk deployment phase.
SCAC ¶ 51.
2. 2018
On February 1, 2018, Nokia held its Q4 2017 earnings call. SCAC ¶ 53. Defendant Suri dug into “some issues related to product integration challenges in Mobile Networks” that he had “flagged” on past calls. Id. He stated that “[l]ooking at the situation today, I think it is safe to say that we are coming back very fast. Recent software releases have been at our highest quality
Nokia delivered well in the fourth quarter and ended the full year with improved group-level performance compared to the previous year. We are moving fast and successfully to put the portfolio integration challenges in Mobile Networks behind us. We have a highly competitive set of products and services ideally suited to the world of 5G. We expect 2018 to be challenging from a market perspective and due to the acceleration of near-term 5G investments. We expect those investments to pay off. And in 2020, we believe we will be positioned to deliver strong financial performance, including significant EPS growth.
Id. ¶ 55 (emphasis added); Ex. 9 at 7. Defendant Suri concluded the call by saying that he was “pleased with where Nokia landed in Q4 and closed the year“:
The fact that we were able to turn-around the net working capital issues that we experienced in the third quarter demonstrates the execution power of Nokia, as does the speed at which we have addressed the portfolio integration challenges in Mobile Networks. 2018 will be another challenging year, and tapping the opportunity of 5G requires additional near-term investment. I am confident, however, that our investment will deliver the right future results. . . [W]e believe [] value is there to be created and have a high degree of confidence that the guidance we gave for 2020 is achievable.
Id. (emphasis added); Ex. 9 at 18.
On March 22, 2018, Nokia filed its 2017 Annual Report on Form 20-F with the SEC (“2017 20-F“). SCAC ¶ 57. In the 2017 20-F, Nokia noted that one of the “major achievement[s]” of that year was “the closing of our agreement with our Chinese partner, which resulted in the formation of the joint venture—Nokia Shanghai Bell. This was the last major
The 2017 20-F also contained specific risk disclosures. For example:
Potential challenges that we may encounter regarding the [Alcatel] integration process and operation as a combined company include claims, fines, investigations or assessments for conduct that we failed to or were unable to discover or identify in the course of performing our due diligence investigations of Alcatel Lucent prior to the acquisition, including unknown or unasserted liabilities.
Ex. 2 (“2017 20-F“) at 77-78. The Company once again warned that the integration might not be successful, potentially as a result of discovering compliance issues. Id. The 2017 20-F also identified as a risk their “ability to correctly estimate technological developments, including the impending turn to 5G, or adapt successfully to such developments.” Id. at 73-74.
On April 26, 2018, Nokia held its Q1 2018 earnings call where Defendant Suri stated that Nokia was “in a very strong position for 5G” and noting that “[r]ecent software releases are at the highest quality levels ever and the roadmap issues which we saw last year are largely behind us, even if there is plenty of heavy R&D lifting still to come in the sprint to 5G.” SCAC ¶ 59 (emphasis added). In response to an analyst question regarding the ReefShark chipset and how margins might be impacted when the new product shipped, Defendant Suri stated that “[c]ustomer feedback is fantastic, both on [ReefShark] as well as the new chipset in optical, PSE-3. . . . It will improve the cost structure over the long term.” Id. ¶ 60 (emphasis added). The
On July 26, 2018, Nokia held its Q2 2018 earnings call where Defendant Suri commented on the progress they were making in “the execution of [their] strategy“:
The good news here is that we see no change to the overall dynamics driving the acceleration of 5G. Nokia and its competitors are all hard at work, as there‘s been a radical shift in the time from the release of standards to the expectation of trial systems from around 12 months for 3G and 4G to just a few months for 5G. With that intensity, if any company tells you they have everything done and dusted for 5G, well, I would approach that claim with more than a little skepticism. We all face some risks as we push to get 5G products to market. Time is tight and development teams are stretched. But despite the high pressure, the Mobile Networks team is making solid progress on its roadmaps.
Id. ¶ 61. On that call he also addressed reports that “Nokia lost a small number of markets in Verizon to a competitor,” which he acknowledged was “true” and “unfortunate.” Id. ¶ 62; Ex. 15 at 6. However, he also said that the Company was
not losing any footprint in North America . . . and any suggestion that Nokia is losing share as a result of some fundamental issue of product competitiveness is simply incorrect. It might make for interesting competitor-fueled speculation, but it does not reflect reality. When I look at our performance in the first half of the year and our backlog in the second half, I see no reason for concern about our market share position beyond normal execution challenges.
SCAC ¶ 62; Ex. 15 at 6. In answering an analyst question regarding the mix of new products and its impact on revenue and gross margin, Defendant Suri stated that with the “ramping up” of AirScale in their Mobile portfolio, they did expect “enhancements to product cost. And so we see product cost erosion, and therefore we will see also a benefit from that.” SCAC ¶ 63; Ex. 15 at 12. The accompanying earnings report explained that results may be influenced by “the timing of completions and acceptances of certain projects, particularly related to 5G.” Ex. 17 at 2.
That same day, Nokia held their Q3 2018 earnings call. Id. ¶ 66. In response to an analyst question regarding whether the “swaps that you were doing in the first half of the year completely over,” Mr. Pullola responded that he thought they “still have some swaps to do.” Id. He continued by saying that Nokia
expect[ed] that the cost of executing those swaps will be somewhat lower than what we originally anticipated. But there‘s really no kind of correlation between that and revenues. Of course, getting out of the swap phase will enable us to fully focus our delivery capacity on the 5G project in North America, and that will help. But I think one should not kind of see that as being a source of revenue upside going forward.
Id. In response to a different question regarding Nokia‘s new structuring plan and associated cost cuts, Mr. Pullola stated that on the one hand they were “making structural changes that will enable us to execute quicker on our strategy and to enhance our customer focus.” Id. ¶ 67. On the other hand, he noted that Nokia was “also taking cost actions. . . We have now gone through . . .
On November 12, 2018, Defendant Suri gave a presentation at the UBS Global Technology Conference titled “Creating Value in the 5G Era.” SCAC ¶ 68. At the end of the presentation Defendant Suri answered questions including on execution challenges related to the Alcatel transaction. Id. He recognized that they had “some issues regarding [] swaps” in Q3 of the previous year, more specifically, that they had “some delays on the swaps . . . with a few customers, especially here in North America” which “hurt” Nokia “to some extent.” Id. He noted that the following quarter was “actually pretty decent,” but that they had seen “some regional mix issues and product mix issues” in the first half of 2018. Id. He continued by saying that they had seen some of those problems “reverse” in Q3, and that he “believe[d] from here on, things are starting to improve. . . .” Id. He also answered another question about competition within the industry, specifically regarding “competitive intensity” and “competitive strategy differences between [Nokia] and some of [their] competitors over the next year or [two].” Id. ¶ 69. Defendant Suri stated that “competitive intensity [was] unchanged” because out of fourteen operators in the lead countries they were the only ones who worked with all of them, “[s]o it‘s a good position to be in right at the beginning of the outset of 5G.” Id.
During that conference, Defendant Suri also answered questions regarding the successes and challenges of the Alcatel transaction. Defendant Suri touted that they had been able to “bring
And then we were able to use the next 1.5 years to swap all that former Alcatel Lucent portfolio fairly well. Even though we had a hiccup in Q3 last year, we recovered very nicely from that. . . . [I]t‘s 95% . . . done and the rest will be done by the end of this year, which is quite remarkable . . . . So that rationalization has been positive. Inevitably, there are hiccups, but it‘s been positive. . . . The cultural integration worked very well because that can go really badly but that actually went beautifully.
Id. In a follow-up exchange regarding cultural integration, Defendant Suri stated that they were ”through most of that.” Id. ¶ 71 (emphasis added). He stated that he thought they were “in a good place now” and that he‘d “say that integration is over at the end of this year. Cultural integration is 80% over. . . . It‘s a journey, so it‘s never over. . . But I think most of the heavy lifting is over.” Id.
3. 2019
On January 31, 2019, the Company held its Q4 2018 earnings call where Defendant Suri referenced the “risks” largely related to “project timings and product deliveries” discussed on the previous earnings call. Id. ¶ 73.
Some of those risks did in fact materialize in the fourth quarter . . . Looking ahead I expect those risks to carry over into at least the first half of 2019. To be clear, I have absolutely no doubt that a fast and meaningful shift to 5G is underway. But there are several factors that point to 2019 being very second half loaded similar to what we saw in 2018.
Id. (emphasis added). The first factor was “the staggered nature of 5G rollouts;” the second, that “the 5G ecosystem . . . is still in its early days;” and finally, “while Nokia has a massive amount of 5G-ready hardware already deployed and we ended 2018 with a backlog considerably larger than the previous year, conversion of orders and backlog to sales could be somewhat slower than normal.” Id. With regards to the second factor, Nokia “expect[ed] this to stabilize in the coming months,” but noted that this meant that “development and testing are operating under
On March 21, 2019, the Company filed their 2018 Annual Report on Form 20-F with the SEC (“2018 20-F“). The 2018 20-F stated that Nokia “took steps during 2018 to accelerate the execution of [their] strategy and position [their] business for 5G leadership” given the “considerable momentum of [their] strategy,” and “the successful Alcatel Lucent integration” and completion of the “associated cost-saving program.” Id. ¶ 75. Nokia also touted its R&D capabilities, stating that it was “one of the industry‘s largest R&D investors in information communication technology” that “drive[s] innovations across telecommunications and vertical industries to meet the needs of a digitally connected world,” with “[p]roduct development [] continually underway.” Id. ¶ 76. They also highlighted that they “continue[d] to develop [their] 5G portfolio according to the latest 3GPP specifications . . . [and] continue[d] to invest significantly in [their] ReefShark processor family for baseband and RF.” Id. ¶ 77. The Company noted that they “ha[d] a global installed base that is expected to provide [Nokia] with the platform for success in 5G.” Id. More specifically, “they ha[d] more than 400 customers in 4G/LTE and a robust AirScale platform, which can be upgraded from 4G to 5G.” Id. The 2018 20-F also stated that “[u]pon completion of the Alcatel Lucent integration as of the end of 2018, we are now moving to the next phase of restructuring, where we will focus on optimization and ensuring that we are lean in every part of our business.” Id. ¶ 78. The 2018 20-F also identified
On April 25, 2019, Nokia held its Q1 2019 earnings call where Defendant Suri “openly address[ed] the question of Nokia mobile radio road maps.” Id. ¶ 79. He stated that they did “have some short-term issues, weeks and, at most, a few months in some select cases.” Id. He continued:
But these need to be understood in the context of a technology cycle that will last well over the next decade and that is still in the process of maturing. . . As a proof point that the ecosystem is still maturing, we have found software defects and instability in the consumer device chipsets in the process of testing our 5G base station software. It seems reasonable to believe that if we were significantly behind our competition as some have suggested, such defects and stability issues would have already been found and then fixed by the chipset makers. I do not find these gaps particularly surprising, given the speed at which things have been and are continuing to move . . . .
Id. The contemporaneous earnings release identified as a risk factor the “timing of the deliveries of our products and services, including our short term and longer term expectations around the rollout of 5G and our ability to capitalize on such rollout, and the overall readiness of the 5G ecosystem.” Ex. 23 at 14.
On May 30, 2019, Nokia participated in Cowen‘s 47th Annual Technology, Media and Telecommunications conference, which included a fireside chat with Marcus Weldon, Chief Technology Officer and President of Nokia‘s Bell Labs to discuss the future of 5G. SCAC. ¶ 80. In this chat, Mr. Weldon stated that they had “500,000 [] SKL platform base stations [that] have been deployed that are 5G-ready and 3.8 million 5G-ready radios.” Id. He went on to say that they had “sort of put the foundation in, but then the releases have to go in those, the actual features have to be built on those sort of 5G, and that‘s going to be years.” Id. (emphasis added).
Nokia has a solid position in the early stages of 5G with our win rates and deployments[;] our 4G performance and deep customer base give us confidence about the opportunities to come and given the expected timing of large scale deployments as 5G moves beyond the lead countries, Nokia will be ready to support our customers at scale.
Id. ¶ 82. In response to an analyst question regarding the software issues that needed to be resolved and chipset development being “on track,” Defendant Suri said that they “were a few weeks delayed, and that‘s why [they] couldn‘t get that revenue recognition in Q1.” Id. ¶ 84. He clarified that they now had “general availability,” and had “9 live commercial networks” with a “fantastic” conversion rate from 4G to 5G, as a result of the 45 deals they had. Id. He noted that ”there is still some work to do . . . perhaps in some features which have to come later in the year.” Id. (emphasis added). With regards to the 5G chipset development, Defendant Suri stated that it was “on track for both radio and baseband” with the ReefShark family of products “starting to come out during ‘19 and ‘20.” Id. The accompanying earnings report identified as a risk Nokia‘s ability to capitalize on the rollout of 5G. Ex. 25 at 14.
D. Nokia‘s Code of Conduct
Nokia also had a Code of Conduct which was published on the Company‘s website and disclosed to the investing public at all times during the Class Period. Id. ¶ 86; id. ¶ 86 n.8. This Code of Conduct “outline[d] [Nokia‘s] commitment to act compliantly and ethically in [their] business activities.” Id. ¶ 87. It emphasized that “Nokia managers and leaders are compliance stewards for their organizations: they own the culture of compliance.” Id. ¶ 89. The Code of Conduct laid out a number of compliance responsibilities for managers. Id. It also required that all Nokia employees “[p]romptly raise any and all compliance concerns through one of the channels provided by the business” and described “these thorough reporting procedures.” Id.
E. Nokia‘s “Corrective” Disclosures
Nokia‘s 2018 20-F, filed on March 21, 2019, disclosed that “[d]uring the course of the ongoing integration process, [they] [had] been made aware of certain practices relating to compliance issues at the former Alcatel Lucent business that have raised concerns.” Id. ¶ 93. It noted that Nokia had “initiated an internal investigation and voluntarily reported the matter to the relevant regulatory authorities, with whom [they] [we]re cooperating with a view to resolving the matter.” Id. Nokia warned that “[t]he resolution of this matter could result in potential criminal or civil penalties, including the possibility of monetary fines, which could have a material adverse effect on [their] business, brand, reputation or financial position.” Id. The Company‘s ADSs fell from a previous close of $6.26 per share to $5.88 per share the next day, a 6% decline in a single day of “unusually heavy trading volume.” Id. ¶ 94.
In an after-hours press release issued on March 22, 2019, Nokia stated that “given the market reaction and inquiries related to a disclosure in [their 2018 20-F], the [C]ompany issues this statement to clarify that the specified investigation is not expected to have a material impact on Nokia.” Id. ¶ 96. According to the press release, they had “seen no evidence that would suggest that criminal penalties would apply in this case,” and “believe[d] it [was] highly likely that any penalties that might apply would be limited and immaterial.” Id. Nokia emphasized that “the disclosure does not reflect Nokia‘s assessment of the expected or likely impact of the investigation on Nokia.” Id. Nokia‘s securities continued to decline over the next few trading
On October 24, 2019, the Company filed their third quarter earnings report which stated that
some of the risks that we flagged previously related to the initial phase of 5G are now materializing. In particular, our Q3 gross margin was impacted by product mix; a high cost level associated with our first generation 5G products; profitability challenges in China; pricing pressure in early 5G deals; and uncertainty related to the announced operator merger in North America.
We expect that we will be able to progressively mitigate these issues over the course of next year. To do so, we will increase investment in 5G in order to accelerate product roadmaps and product cost reductions, and in the digitalization of internal processes to improve overall productivity. We will also continue to invest in our enterprise and software businesses, which are developing rapidly and performing well. Given these investments and the risks we see materializing, we are adjusting our targets for full-year 2019 and 2020; and we expect our recovery to drive improvement in our 2021 financial performance relative to 2020.
Ex. 11 at 1-2. This report also announced a suspension of Nokia‘s dividend and a decrease in 2019 and 2020‘s financial guidance. Id. at 4; see also SCAC ¶ 99. The price of Nokia‘s ADSs subsequently fell 23.7% on the New York Stock Exchange, closing at $3.90 per ADS on October 24, 2019 (down from $5.11 per ADS the day before), on an “unusually high trading volume” of more than 250 million shares traded. SCAC ¶ 104.
II. Procedural Background
On April 19, 2019, Plaintiff Tanner Tom, individually and on behalf of all others similarly situated, brought this suit against Defendants for securities fraud. ECF No. 1. On May 3, 2019, Plaintiff J. Phillip Max filed a class action complaint against Defendants that alleged substantially similar violations of the securities laws. See 19-cv-3982, ECF No. 1. On June 18, 2019 multiple plaintiffs (including Mr. Waite) moved to serve as lead plaintiff and to consolidate both actions. ECF Nos. 5, 8, 12, 14. On June 27, 2019, the Court consolidated this case and
III. Allegations in the Complaint
Plaintiff alleges that the statements made during the Class Period regarding 5G and the integration were “materially false and misleading when made, and omitted to disclose material information necessary to make those statements not misleading” because (1) “they falsely conveyed that the risks associated with the Company‘s integration efforts were behind it” when they had “learned of material compliance issues at Alcatel,” SCAC ¶ 42; and (2) they “created (and were intended to create) the false and misleading impression that Nokia‘s integration with Alcatel was complete and successful and that the Company was fully prepared for the 5G transition” and “omitted to disclose material information concerning significant problems . . . that were necessary to make Nokia‘s statements concerning 5G readiness and the progress of the integration not materially false and misleading,” id. ¶¶ 52, 72, 85. According to Plaintiff, the statements in and regarding Nokia‘s Code of Conduct were also “materially false and misleading
Plaintiff also asserts that Defendants’ scienter is demonstrated by several facts including: (1) Defendant Suri‘s “personal involvement” in the Alcatel integration process, id. ¶¶ 107, 111-117; (2) Nokia‘s implementation of “a detailed reporting and personnel infrastructure to monitor Alcatel‘s operations and the status of the integration” which “reported to Defendant Suri and other Nokia senior executives,” id. ¶¶ 108, 118-127; (3) the existence of compensation arrangements tied to the integration which “created a strong incentive for [Defendant] Suri and his direct reports to misrepresent the status and progress of the integration and to conceal or disregard negative information concerning the Alcatel integration or the related transition to 5G,” id. ¶¶ 109, 128-131; and (4) the status of the Alcatel integration as “the single most important operational priority for Nokia during (and in the period leading up to) the Class Period,” id. ¶¶ 110, 132-135.
I. Motions to Dismiss Under Fed. R. Civ. P. 12(b)(6)
To survive a motion to dismiss pursuant to
In considering a motion to dismiss, the court accepts as true all factual allegations in the complaint and draws all reasonable inferences in the plaintiff‘s favor. See Goldstein v. Pataki, 516 F.3d 50, 56 (2d Cir.), cert. denied, 554 U.S. 930 (2008). However, the court need not credit “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 555); see also id. at 681. Instead, the complaint must provide factual allegations sufficient “to give the defendant fair notice of what the claim is and the grounds upon which it rests.” Port Dock & Stone Corp. v. Oldcastle Ne., Inc., 507 F.3d 117, 121 (2d Cir. 2007) (citing Twombly, 550 U.S. at 555). In addition to the factual allegations in the complaint, the court also may consider “the documents attached to the complaint as exhibits, and any documents incorporated in the complaint by
II. Motions to Dismiss Under Fed. R. Civ. P. 9(b) and the PSLRA
When a plaintiff has alleged fraud claims under
The PSLRA holds private securities plaintiffs to an even more stringent pleading standard. Under the PSLRA, a plaintiff must “(1) specify each statement alleged to have been misleading [and] the reason or reasons why the statement is misleading” and “(2) state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 321 (2007) (internal citations and quotation marks omitted) (quoting
Defendants assert that the SCAC fails to state a claim for securities fraud for four principal reasons. First, Defendants argue that the SCAC does not adequately allege that any of the challenged statements were false or misleading at the time they were made, especially when considered in the context of Nokia‘s numerous disclosures regarding the Alcatel integration and their 5G progress. Second, Defendants contend that the bulk of the challenged statements are non-actionable statements of puffery and/or opinion. Third, Defendants assert that many of the challenged statements are protected forward-looking statements, thus immunized from liability by the PSLRA safe harbor. Lastly, Defendants argue that Plaintiff‘s allegations are not sufficient to raise a “strong inference” of scienter.
I. Section 10(b) of the Securities Exchange Act and SEC Rule 10b-5
Plaintiff asserts a securities fraud claim against Defendants under
A. Plaintiff Has Not Adequately Alleged That Defendants’ Statements Were False or Misleading at the Time They Were Made
Defendants’ principal argument is that Plaintiff has failed to identify any false or misleading statements and thus, Plaintiff‘s § 10(b) and Rule 10b-5 claims must fail. The Court agrees.
First, “Plaintiff[‘s] use of large block quotes . . . followed by generalized explanations of how the statements were false or misleading are not sufficient to satisfy the heightened pleading requirements.” See, e.g., Tabor v. Bodisen Biotech, Inc., 579 F. Supp. 2d 438, 452-53 (S.D.N.Y. 2008) (dismissing claims regarding particular statements where plaintiffs had “not alleged exactly which statements . . . were false nor explained how the statements were false, but instead rel[ied] on vague and conclusory statements that [were] not supported by any specific factual allegations“); Boca Raton Firefighters & Police Pension Fund v. Bahash, 506 F. App‘x 32, 37-38 (2d Cir. 2012) (summary order).
Second, Plaintiff has failed to identify any statements that were false or misleading when made. The challenged statements can be grouped into three categories: (1) references to the progress of the Alcatel integration; (2) statements concerning Nokia‘s 5G progress; and
1. Statements Concerning the Alcatel Integration
Plaintiff contends that Defendants made materially false and misleading statements regarding the Alcatel integration such as “[w]ith the integration of Alcatel-Lucent behind us,” SCAC ¶ 40 (Q1 2017 earnings call); describing the formation of Nokia Shangai Bell as the “last major organizational step in [the] Nokia and Alcatel Lucent integration,” id. ¶ 57 (2017 20-F); “[w]ith the successful Alcatel-Lucent integration and cost-saving program soon to be behind us,” id. ¶ 64, and “[s]ince the acquisition closed . . .,” id. ¶ 65 (Q3 2018 Earnings Report); the “cultural integration . . . went beautifully,” id. ¶ 70, and the “[c]ultural integration is 80% over,” id. ¶ 71 (UBS Global Technology Conference on Nov. 12, 2018).
Assuming, without deciding, that these statements are actionable, the Court concludes that Plaintiff has not sufficiently alleged that these statements were false or misleading when made. Plaintiff attempts to capitalize on Nokia‘s March 2019 disclosure regarding Alcatel‘s compliance issues, id. ¶ 93, to suggest that all of Nokia‘s prior statements regarding the Alcatel integration were false and misleading, instead of demonstrating with “specificity” why that was so. However, considering the challenged statements in their full context, the Court declines to find that these statements were false or misleading. See, e.g., In re IAC/InterActiveCorp Sec. Litig., 478 F. Supp. 2d 574, 585 (S.D.N.Y. 2007) (“[A] court [should not] accept allegations that are contradicted or undermined by other more specific allegations in the complaint or by written materials properly before the court.” (citations omitted)).
First, an “omission is actionable under the securities laws only when the corporation is subject to a duty to disclose the omitted facts.” In re Optionable Sec. Litig., 577 F. Supp. 2d 681, 692 (S.D.N.Y. 2008) (citation omitted). “Such a duty may arise when there is . . . a corporate statement that would otherwise be ‘inaccurate, incomplete, or misleading.‘” Stratte-McClure v. Morgan Stanley, 776 F.3d 94, 101 (2d Cir. 2015) (citations omitted). And a statement is “materially misleading” where “defendants’ representations, taken together and in context, would have misled a reasonable investor.” Rombach, 355 F.3d at 172 n. 7 (citation and internal quotation marks omitted) (emphasis added).
Plaintiff appears to argue that Defendants had a “duty to disclose [] omitted facts” because the challenged statements would otherwise be misleading to a reasonable investor.12 However, this argument ignores the disclosures that Nokia made regarding the Alcatel integration, including that their “integration activities in connection with the Acquisition of Alcatel Lucent [were] ongoing,” 2016 20-F at 76, and that “Nokia and its businesses [were] exposed to various risks and uncertainties . . . including . . . those regarding . . . [their] ability to integrate Alcatel Lucent into [their] operations and achieve the targeted business plans and benefits,” Ex. 3 at 15 (Q1 2017 Earnings Report).13 These risks were referenced at the beginning
In support of Plaintiff‘s argument that the challenged statements were misleading, Plaintiff cites to numerous securities analysts who concluded that “post-Alcatel indigestion issues had more severe knock-on effects . . . than management had realized” and that the Company had been “bogged down in an all-consuming post-merger integration process with Alcatel-Lucent.” SCAC ¶ 102; see also id. ¶ 103 (citing to analyst report concluding that a “confluence of factors seemed to have caused this issue for Nokia,” and that “[t]he key factor was no doubt the company‘s merger with Alcatel-Lucent and the complexity of aligning both companies 4G and 5G roadmaps“); Pl. Opp. at 17-18, 20-23. Plaintiff asserts that the Complaint‘s “allegations of falsity are consistent with multiple analysts’ conclusions, which ‘underscore the plausibility and reasonableness’ of Lead Plaintiff‘s allegation that Defendants’ statements were ‘misleading to a reasonable investor.‘” Pl. Opp. at 18-19 (quoting In re STEC Inc. Sec. Litig., No. SACV 09-1304, 2011 WL 2669217, at *8 (C.D. Cal. June 17, 2011)).
Even if the Court were to conclude that Plaintiff had alleged facts sufficient to plead the falsity of the challenged statements, Nokia‘s statements touting the progress of the integration
2. Statements Concerning Nokia‘s 5G Progress
Plaintiff contends that Defendants made materially false and misleading statements regarding Nokia‘s 5G progress including that Nokia was “5G ready” and that its 5G products were “ready for full deployment.” See, e.g., SCAC ¶ 38; cf. id. ¶ 49 (“Nokia‘s products were ‘5G ready’ and ‘ready for full deployment.‘” (emphasis added)). Nokia made various statements regarding their 5G progress including that “Nokia is well positioned . . . [a]nd Nokia is one of the
Assuming, without deciding, that these statements are actionable, and taking into account the legal principles elucidated above, the Court concludes that Plaintiff has not sufficiently alleged that these statements were false or misleading when made. Plaintiff highlights several statements regarding Nokia‘s 5G progress that are allegedly false or misleading because Nokia did not disclose “significant problems” with the Alcatel integration. Although the Alcatel integration was “crucial” for Nokia to prepare for the approaching 5G transition, id. ¶ 114, the Court cannot reasonably infer that Nokia‘s alleged difficulties with the Alcatel integration were sufficient on their own to cause Nokia to issue the October 2019 “corrective” disclosure, such that Nokia‘s statements regarding their progress in 5G would be “untrue outright.” See In re Vivendi, S.A. Sec. Litig., 838 F.3d 223, 239 (2d Cir. 2016); see also In re Fed Ex Corp. Sec. Litig., 2021 WL 396423, at *10. Indeed, even securities analysts recognized that “a confluence of factors seemed to have caused this issue for
Reviewing the challenged statements in their full context reveals that Nokia did in fact disclose the 5G challenges they were encountering, including those in relation to the Alcatel integration. See S.C. Ret. Sys. Grp. Tr. v. Eaton Corp. PLC, 791 F. App‘x 230, 234 (2d Cir. 2019) (summary order) (“Considering [the statement] in full—rather than considering the edited version that plaintiff provides . . . —no misrepresentation or omission occurred.“). For example, on their Q2 2017 earnings call, they noted that they believed that moving up the roadmap for the 5G rollout to meet market demands “create[d] some near term risk, as it makes the timing of
Nokia also provided written disclosures in connection with their SEC filings. See, e.g., 2017 20-F at 73-74 (identifying as a risk Nokia‘s “ability to correctly estimate technological developments, including the impending turn to 5G, or adapt successfully to such developments“); Ex. 20 at 15 (Q4 2018 Earnings Report) (identifying as a risk factor “timing of the deliveries of our products and services, including our short term and longer term expectations around the rollout of 5G and our ability to capitalize on such a rollout; and the overall readiness of the 5G ecosystem“); Ex. 23 at 14 (Q1 2019 Earnings Report) (same). Indeed, when Nokia made its October 2019 “corrective” disclosure, it stated that “some of the risks that we flagged previously related to the initial phase of 5G are now materializing.” Ex. 11 at 1 (emphasis added).19
Even if the Court were to conclude that Plaintiff had alleged facts sufficient to plead the falsity of the challenged statements, the majority of these statements would not be actionable under PSLRA‘s safe-harbor protections. The PSLRA provides that a defendant “shall not be liable with respect to any forward-looking statement” if (1) the forward-looking statement is “identified” as such and is “accompanied by meaningful cautionary statements,” or (2) the
“To fall within the ‘meaningful cautionary statements’ prong of the safe harbor, the cautionary language must convey substantive information about factors that realistically could cause results to differ materially from those projected in the forward-looking statements.” In re Philip Morris, 437 F. Supp. 3d at 355 (quoting Slayton v. Am. Exp. Co., 604 F.3d 758, 771 (2d Cir. 2010)) (internal quotation marks omitted). Put another way, “defendants must demonstrate that their cautionary language was not boilerplate and conveyed substantive information.” Id. (quoting Slayton, 604 F.3d at 772) (internal quotation marks omitted); see also In re Salix Pharm., Ltd., 2016 WL 1629341, at *11 (“Vague disclosures of general risks will not protect defendants from liability.” (citations omitted)); Lopez v. Ctpartners Exec. Search Inc., 173 F. Supp. 3d 12, 25 (S.D.N.Y. 2016) (“Plaintiffs may establish that cautionary language is not meaningful by showing, for example, that the cautionary
The vast majority of the challenged statements regarding Nokia‘s 5G progress are plainly forward-looking statements and fall within the first prong of the safe harbor as they were accompanied by “meaningful cautionary statements” expressly warning and directly relating to the risk that brought about Plaintiff‘s loss.20 As discussed above, Nokia made robust disclosures in connection with their statements concerning their 5G progress.
3. Statements Concerning Compliance
In the Complaint, Plaintiff asserts that the “statements . . . regarding Nokia‘s Code of Conduct were materially false and misleading when made, and omitted to disclose material information necessary to make those statements not misleading because they falsely conveyed that Alcatel had been fully integrated into the Company‘s Code of Conduct and compliance mechanisms.” SCAC ¶ 92. These statements included an emphasis on the “culture of compliance” and an express “commitment to act compliantly and ethically;” “[w]e follow the laws of the countries where we do business;” and “[w]e hold each other accountable to this Code.” SCAC ¶¶ 86-92.
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Because the Court concludes that Plaintiff has failed to allege the challenged statements were materially false or misleading, the Court need not consider the remainder of the parties’ arguments regarding scienter. Thus, the Court grants Defendants’ motion to dismiss Plaintiff‘s § 10(b) and Rule 10b-5 claims.
As Plaintiff has failed to adequately allege his § 10(b) claim, his claim under
III. Plaintiff Will Not Be Granted Leave to Amend
Plaintiff requests leave to amend the Complaint in the event that the Court determines that any part of the Complaint is deficient. Pl. Opp. at 40 n. 23. While the Second Circuit has recognized that “it is the usual practice upon granting a motion to dismiss to allow leave to replead,” Cruz v. TD Bank, N.A., 742 F.3d 520, 523 (2d Cir. 2013) (citation omitted), the Second Circuit has also recognized that “[l]eave to amend may properly be denied if the amendment would be futile.” Anderson News, L.L.C. v. Am. Media, Inc., 680 F.3d 162, 185 (2d Cir. 2012) (citation omitted).
The Court concludes that amending the Complaint would be futile. Given Nokia‘s numerous and continuous disclosures regarding the Alcatel integration and 5G progress, it is not plausible that the challenged statements were misleading to a reasonable investor. See In re Fed Ex, 2021 WL 396423, at *17. Leave to amend is therefore denied as futile.21
For the reasons herein, Defendants’ motion to dismiss Plaintiff‘s complaint is GRANTED with prejudice. The Clerk of Court is directed to terminate ECF No. 61 and close this case.
SO ORDERED.
Dated: March 29, 2021
New York, New York
ANDREW L. CARTER, JR.
United States District Judge