Last week, Judge Rakoff granted Pricewaterhouse Coopers’ motion to dismiss Section 10(b) claims brought as part of the ongoing class action over an alleged bribery and kickback scheme at Brazilian oil giant Petrobras. PwC’s Brazilian member firm had served as Petrobras’ independent auditor. PwC argued that the fourth amended complaint had failed to properly allege scienter, and Judge Rakoff agreed, noting that “mere receipt of compensation and the maintenance of a profitable professional business relationship for auditing services does not constitute a sufficient motive for purposes of pleading scienter.” Plaintiffs also failed to allege any facts connecting PwC’s auditing services to “red flags” of fraud at Petrobras.
Continue Reading Judge Rakoff Dismisses 10(b) Claims Against PwC for Alleged Petrobras Bribery Scheme, But Allows Section 11 Claims to Proceed Despite Omnicare
Section 10(b)
SEC Moves to Reinstate Fraud Claims Against Goldman Trader Fabrice Tourre
Yesterday, the SEC asked Judge Barbara Jones to reinstate certain securities fraud claims against Goldman Sachs trader Fabrice Tourre relating to the sale of CDO notes to IKB, a German financing bank. Judge Jones dismissed these claims last June because the transaction was not a “domestic securities transaction” under the Supreme Court’s 2010 decision in Morrison v. National Australia Bank Limited, 130 S. Ct. 2869 (2010). It fell outside Section 10(b) of the Exchange Act. The SEC asserts in its motion that a recent Second Circuit case adopted a “broader” definition of “domestic securities transaction” than Judge Jones and that under that broader definition, the sale is a “domestic securities transaction” subject to U.S. law. According to the SEC, in Absolute Activist Master Fund Limited v. Ficeto, 672 F.3d 143 (2d Cir. 2012), the Second Circuit held that a transfer of title to securities within the United States is sufficient to satisfy the “domestic securities transaction” test. The SEC claims that the closing of the CDO transaction took place in New York and that title to the notes also transferred in New York. Based on the alleged transfer of title within the U.S., the SEC contends that it should be allowed to pursue its fraud claims against Tourre arising from the sale of the notes.
Continue Reading SEC Moves to Reinstate Fraud Claims Against Goldman Trader Fabrice Tourre
Judge Rakoff Explains Denial of Ex-Citigroup Executive’s Motion to Dismiss SEC Action
Last Wednesday, Judge Rakoff explained why, back in February, he denied ex-Citigroup executive Brian Stoker’s motion to dismiss the SEC’s enforcement action against him. As we previously blogged, the SEC has charged Stoker with securities fraud in connection with a CDO that he allegedly helped to create and market. The SEC contends that Stoker failed to disclose to investors that Citigroup influenced the selection of the CDO’s assets and then shorted those assets. Judge Rakoff’s decision is significant in two respects. First, it holds that to state a claim under Section 17(a)(2) of the Securities Act of 1933, the SEC is required to allege only that a defendant “obtained money or property for his employer while acting as its agent” or, alternatively, that the defendant “personally obtained money indirectly from the fraud.” While acknowledging that the case law is “surprisingly sparse, and inconclusive” on this point, Judge Rakoff rejected Stoker’s argument that Section 17(a)(2) requires that a defendant must have personally obtained money or property by means of the alleged misleading statements or omissions.
Continue Reading Judge Rakoff Explains Denial of Ex-Citigroup Executive’s Motion to Dismiss SEC Action