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FCPA Related Securities Fraud Action Against Ericsson Dismissed


This prior post covered the 2019 Foreign Corrupt Practices Act enforcement action against Ericsson. The enforcement action concerned conduct in Djibouti, China, Vietnam, Kuwait, Indonesia, and Saudi Arabia and included a DOJ and SEC component. The DOJ matter involved a one count criminal information against Ericsson subsidiary Ericsson Egypt Ltd. charging conspiracy to violate the FCPA’s anti-bribery provisions resolved through a plea agreement and a criminal information against Ericsson charging conspiracies to violate the FCPA’s anti-bribery, books and records, and internal controls provisions resolved through a deferred prosecution agreement. The DOJ matter was resolved through payment of a $520 million criminal penalty.

As highlighted in this prior post, in 2021 the DOJ suggested that Ericsson was in breach of its DPA obligations and in March 2023 the DOJ announced that “Ericsson has agreed to plead guilty and pay a criminal penalty of more than $206 million after breaching a 2019 Deferred Prosecution Agreement (DPA).” (See here for the prior post).

In between, reports suggested that “Ericsson may have made payments to the ISIS terror organization to gain access to certain transport routes in Iraq.” (See here for the prior post).

As sure as the sun rises in the east and dogs bark, investors brought a securities fraud class action in related to the above events.

Recently, Judge William Kuntz (E.D.N.Y.) dismissed the complaint.

As summarized in the opinion, the lead plaintiff Boston Retirement System (BRS) alleged that Ericsson and the Individual Defendants (various company executives during the relevant time period) misled investors regarding (1) the source of Ericsson’s growth in the Middle East; (2) the strength of Ericsson’s compliance policies and anti-corruption controls; and (3) the resolution of the DOJ and SEC investigations and the risk of future enforcement actions.

As to the first category:

“BRS … alleges Defendants misled investors regarding the source of the Company’s growth in the Middle East. According to BRS, Ericsson attributed its growth to “major mobile broadband projects in the Middle East,” when, in reality, the success of these projects hinged on “illegal conduct including bid rigging, bribery, and slush fund payments” and “transporting equipment and materials into the country” which itself “was made possible, in part, by making illegal ‘protection payments’ to ISIS.”

As to the second category:

“BRS .. alleges Defendants misled investors by “touting the purported robustness” of the Company’s compliance and enhanced anti-corruption programs. BRS argues these programs failed to identify “Ericsson’s business in Iraq was sustained by obtaining contracts through illegal bribes, kickbacks, and bid rigging practices” and that “[Ericsson’s] ability to complete projects depended upon the paid assistance of ISIS for access to key transportation routes and cities.” Defendants also allegedly knew Ericsson failed to properly implement steps to improve its anti-corruption program and that the Company’s third-party “vetting process did not identify the Company’s illegal relationships with ISIS.”

As to the third category:

“BRS alleges Defendants misled investors regarding the purported resolution of DOJ’s investigation into the company’s business practices. BRS argues Defendants misrepresented the company’s compliance with the DPA and the risk of future enforcement actions. In particular, BRS argues “(a) Ericsson knowingly violated the DPA’s ongoing disclosure requirements by concealing the known illegal conduct in Iraq; (b) the strength of Ericsson’s compliance systems were unchanged because the illegal conduct in Iraq continued to be concealed; and (c) the risks of future government enforcement action for the same misconduct were not mitigated or reduced in any way.”

Judge Kuntz next set forth the relevant legal standards applicable to private securities fraud actions and then summarized the parties positions regarding the first category (the source of Ericsson’s growth in the Middle East) as follows.

“Defendants argue the Middle East statements are not actionable because, in the Second Circuit, “companies do not have a duty to disclose uncharged, unadjudicated wrongdoing.”


Defendants argue BRS cannot turn Defendants’ general statements about Ericsson’s growth in the Middle East into actionable securities fraud claims by pointing to purported corruption in Ericsson’s Iraqi operations.

On the other hand, BRS argues while companies do not have a duty to disclose unadjudicated wrongdoing “in certain narrow circumstances,” such is not the case here. Rather, BRS argues “when a company puts the source of its financial success at issue, they ‘must disclose information concerning the source of its success, including illegal sources.’”


According to BRS, Defendants placed the source of Ericsson’s growth in the Middle East at issue and thereby misled investors by failing to mention the corrupt conduct involved in securing and executing the company’s contracts in Iraq.”

Judge Kuntz concluded:

“No such level of specificity exists in Defendants’ statements […]. Notably, none of Defendants’ statements refer to Iraq in particular. Instead, each alleged misstatement refers to growth in a region where Ericsson operated in multiple countries including, but not limited to, Iraq. […] As such, Defendants did not put the source of their growth in Iraq in particular at issue […].

The sources of growth cited in Defendants’ statements also lack the specificity necessary for actionability. For instance, sources Defendants identified as contributing to Ericsson’s regional growth include “some major mobile broadband projects,” “multiple customers in multiple countries,” “many contributing parts,” and “investments in R&D.” These are “far too generic to be actionable under the securities laws.”

Judge Kuntz next addressed the second category (the strength of Ericsson’s compliance policies and anti-corruption controls) as stated as follows.

“… Defendants argue alleged misstatements… are immaterial as a matter of law. They claim these remarks are “general statements about reputation, integrity, and compliance with ethical norms,” and are thus “too general to cause a reasonable investor to rely on them.” BRS, on the other hand, contests this characterization, arguing Defendants’ compliance- and policy-related statements were “detailed and served as confident assurances that investors relied on.” Defendants counter by arguing BRS cannot avoid controlling precedent that consistently finds policy statements like those made by Defendants to be unactionable.

The Court agrees with Defendants. [The] alleged misstatements … endorse the importance of compliance and anti-corruption measures in broad terms. The statements in this category note the existence of “internal rules” meant to “ensure compliance with legal and regulatory requirements,” such as a code of business ethics, group steering documents including group policies and directives, and a code of conduct.


Despite BRS’s contentions, these statements are “simple and generic assertions” regarding Ericsson’s commitment to regulatory compliance and anti-corruption measures. Defendants’ statements regarding the importance of legal and ethical conduct are far from the detailed “assurances of actual compliance” required to trigger further disclosure.


Moreover, as Defendants highlight, Defendants went so far as to warn investors perfect compliance might not be possible. For instance, in the same 2017 20-F Form containing [an] alleged misstatement, Ericsson expressly warned investors “we cannot provide any assurances that violations [of Ericsson’s policies, directives, and Code of Conduct] will not occur” and “[w]e may fail to comply with our corporate governance standards, which could negatively affect our business, operating results, financial condition, reputation and brand.”  That Ericsson raised the possibility it might fail to comply with its own anticorruption policy in the very document describing that policy further undermines the actionability of Defendants’ statements.

Ultimately, Defendants’ compliance- and policy-related statements are unactionable both because of their generality and because Defendants never promised perfect compliance.”

Judge Kuntz next addressed the third category (the resolution of the DOJ and SEC investigations and the risk of future enforcement actions) as stated as follows.

“Finally, BRS alleges Defendants made nine misstatements relating to Ericsson’s entry into the DPA with DOJ, Ericsson’s purportedly enhanced post-DPA compliance program, and the risk of additional FCPA investigations. Each of these alleged misstatements is unactionable for various reasons.


Most of the alleged misstatements related to the DPA and FCPA investigations are unactionable because Ericsson gave ubiquitous warnings to investors regarding the possibility of future compliance failures and investigations. These warnings came “both before and after [the Company] enter[ed] into the DPA.” Defendants thus “suggest[ed] caution (rather than confidence) regarding the extent of [Defendants’] compliance” with laws and regulations, including the terms of the DPA. Considering these explicit warnings, no reasonable investor would have understood Defendants’ statements regarding the resolution of the FCPA investigations and improvements to Ericsson’s compliance program to contain “assurances of actual compliance.”

First, the DPA’s very requirements cut against BRS’s claim that Defendants misled investors in December 2019 regarding the supposed improvements Ericsson made to its compliance program and the risk that the Company would fail to comply in the future. Defendants’ alleged misstatements … occurred soon after Ericsson entered the DPA, which imposed an independent compliance monitorship on Ericsson. Since these statements came in the wake of Ericsson’s DPA announcement, BRS argues Defendants attempted to frame the DPA as marking the end of the FCPA investigations into Ericsson. However, by its own terms, the DPA suggested the possibility of future compliance failures. The Agreement imposed a monitor requirement because the Government determined Ericsson “ha[d] not yet fully implemented or tested its compliance program.” The Agreement described the monitorship’s purpose as “reduc[ing] the risk of misconduct”—rather than framing the monitor as a failsafe measure to prevent misconduct— illustrating the prospect Ericsson might continue to violate its compliance requirements.

Further, the DPA included findings that would prevent a reasonable investor from interpreting Defendants’ alleged misstatements as “assurances of actual compliance.” For example, the DPA noted “the Company has been enhancing and has committed to continuing to enhance its compliance program and internal accounting controls.” That Ericsson needed to “continu[e] to enhance” its compliance efforts indicates the Company’s extant compliance framework was insufficient.

Moreover, Defendants proactively and repeatedly warned investors about the possibility of compliance failures and enforcement penalties. In fact, Defendants issued some of these warnings in the very same documents containing Defendants’ alleged misstatements. Since Defendants continuously warned investors Ericsson might fail to comply with regulations and could be the target of future investigations, [the] alleged misstatements … —which relate to either Ericsson’s purportedly enhanced compliance framework or the resolution of the FCPA investigations—were not misleading.”


Given the numerous warnings the Company made regarding its possible compliance failures, which it repeatedly disclosed in public filings, the Court finds Defendants’ DPA-related statements were not misleading.”

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