In 2011, Tenaris S.A. (a company headquartered in Luxembourg with American Depository Receipts listed on the New York Stock Exchange) resolved an approximate $9 million Foreign Corrupt Practices Act enforcement action regarding conduct in Uzbekistan (see here for the prior post).
The company’s shares remain traded on the NYSE and in connection with an alleged Argentine bribery scheme the company (along with various executives) were sued by plaintiff shareholders alleging securities fraud.
This post summarizes the allegations in connection with the Argentine bribery scheme as well as a recent decision in the E.D. of N.Y. dismissing certain securities fraud claims against the company while allowing certain claims to proceed. (See 2020 WL 6018919)
As summarized in the opinion:
“According to the Amended Complaint, late in 2005 and again in 2006, at meetings attended by [Paolo] Rocca [Tenaris Chariman and CEO], Argentine President Nestor Kirchner, First Lady Cristina Kirchner, Argentine cabinet ministers, and sub-cabinet aides, Rocca sought the Argentine government’s help in convincing Venezuelan President Hugo Chavez not to nationalize the Venezuelan assets of SIDOR, a Tenaris subsidiary. After the 2006 meeting, an Argentine Planning Ministry aide was dispatched to tell Techint Group executives to “fork it over” if they wanted the Argentine government’s help. One year later, in February 2007, a Planning Ministry aide personally asked Rocca and Techint director Luiz Betnaza to “increase Techint Group’s financial support for the Argentine government.” After another solicitation from the Planning Ministry aide, Betnaza began passing bribes to the Kirchners via the Planning Ministry aide in $100,0000 installments totaling $600,000 to $700,000.
On April 9, 2008, Venezuela announced its intention to nationalize SIDOR’s Venezuelan assets. But negotiations between Venezuelan officials and Techint Group executives over SIDOR’s valuation continued for months. During these negotiations, Techint executive Hector Zabaleta allegedly paid at least $1 million to Argentine officials in exchange for further efforts to lobby Venezuelan officials. Id.
This bribery scheme remained out of public view for about a decade until 2018 when it burst into the open as part of the sprawling corruption allegations known as “The Notebooks Case.” Faced with these accusations, Rocca allegedly admitted to Argentine investigators that Techint Group executives bribed Argentine officials but denied contemporaneously knowing that bribery was afoot. On November 27, 2018, the press reported that an Argentine judge charged Rocca with graft and bribery. After news of the charges against Rocca broke, Tenaris stock fell approximately 10 percent in one day. The following month, Tenaris stock fell another 5 percent after the press reported that Argentine prosecutors requested that Rocca be detained. However, in April 2019, an Argentine court “revoke[d]” the charges against Rocca for insufficient evidence but called on prosecutors to continue their investigation.”
Based on this alleged bribery scheme, plaintiffs claim that five Tenaris annual reports filed with the SEC (Form 20-F’s), its Code of Conduct, and its Code of Ethics were materially misleading.
The court held that the company’s Code of Ethics were not actionable because they are “but a generalized aspirational statement about how Tenaris ‘expects’ its employees to comport themselves.” As stated by the court:
“It is not tethered to any context that would cause a reasonable investor to interpret it as a specific assurance about how Tenaris conducts business. And it contains no representation of historical fact and makes no guarantee that it would never be broken. For these reasons, it is immaterial to a reasonable investor and not rendered misleading by a Tenaris executive allegedly violating its terms.”
However, the court concluded that Tenaris’s Code of Conduct and the statements referencing the Code of Conduct in Tenaris’s Form 20-Fs were actionable. As stated by the court:
“First, because of the context in which they were made, these statements are not immaterial as a matter of law. The SEC DPA required Tenaris to “review annually and update, as appropriate, the Code of Conduct beginning on February 2, 2012;” and “require[d] that each director, officer, and management-level employee certify compliance with the Code of Conduct on an annual basis beginning on February 1, 2011.” Reasonable investors likely knew about the SEC DPA— according to the Amended Complaint, the SEC issued a press release about the DPA and Tenaris referenced it in its FY 2013 Form 20-F. That the SEC DPA required Tenaris to update and review its Code of Conduct significantly increased the importance of the Code of Conduct in the mind of a reasonable investor. The reasonable investor, perhaps doubtful in the wake of the SEC DPA that Tenaris conducted its business in accordance with the law, may have sought to allay these concerns by looking to the Code of Conduct’s anti-bribery provision to evaluate Tenaris’s commitment to conducting its business in accordance with the law and its efforts to police its own employees. Viewed in this light, the Code of Conduct and the references in the Form 20- Fs to the Code of Conduct could be material.
Second, Plaintiffs adequately plead that the Code of Conduct and the references to the Code of Conduct are misleading. Defendants argue that these statements are forward looking, so they cannot be rendered misleading by the prior alleged bribery. But these statements are not exclusively forward looking. The Code of Conduct says Tenaris will not “condone … bribery.” “Condone” means “To regard or treat (something bad or blameworthy) as acceptable, forgivable, or harmless.” And the Form 20-Fs state that the Code of Conduct is “applicable” to Tenaris executives. Taken together, these statements could leave a reasonable investor with the impression that Tenaris does not accept or forgive any instance of bribery among its executives. But according to the Amended Complaint, this impression would be false. Rocca allegedly participated in bribing Argentine officials and there is no indication he faced any internal repercussions under the Code of Conduct. Plaintiffs have, therefore, met the pleading standard for the Code of Conduct and the references thereto in the Form 20-Fs.”
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