Top Menu

Yet Another FCPA-Related Securities Fraud Lawsuit Dismissed


It is as predictable as the sun rising in the east and dogs barking.

In the aftermath of a Foreign Corrupt Practices Act enforcement action (or mere instances of FCPA scrutiny), plaintiffs’ lawyers representing shareholders on a contingent fee basis file securities fraud claims against the company and/or certain officers or directors. Such FCPA-related claims are frequently dismissed, but the claims nevertheless continue to be filed.

In the latest example, U.S. District Court Judge William Bertelsman (E.D. KY) recently granted a motion to dismiss filed by General Cable (and various individual defendants) disposing of Section 10(b) and Rule 10-b5  claims. As highlighted in prior posts here and here, in late 2016 General Cable agreed to pay approximately $76 million to resolve an FCPA enforcement action concerning conduct in Angola, Bangladesh, Indonesia, Thailand, China, and Egypt.

As stated by the court:

“Plaintiff identifies three categories of allegedly false and misleading statements:

First, Defendants falsely assured investors that General Cable (GC) had implemented policies and procedures designed to ensure compliance with the FCPA. Second, Defendants misleadingly discussed the risks posed to the Company’s operations in overseas markets where, unbeknownst to investors, widespread FCPA violations were occurring. Third, Defendants falsely represented that the Company’s internal controls over financial reporting were effective.”

As to the first category, the court held that “GC’s statement regarding its compliance program is not actionable since it made no assurances that the system was effective and merely stated that it had a program, which is not false or misleading.” In pertinent part, the court stated:

“Plaintiff’s claim is essentially that GC’s very general statement regarding all applicable laws and regulations was rendered false and misleading because of a very specific problem related to the FCPA. While the effects of this problem created large issues for GC, that does not change the nature of what GC actually said. Further, “[u]nder plaintiff’s theory of its case, any company that has a compliance program and discloses that program in even the most austere terms would be required, ipso facto, to disclose any possible deviation that came to its attention.” Because GC made no assurances beyond saying that it had programs designed to ensure compliance with laws, this statement is not objectively false or misleading and is not actionable under § 10(b).”

As to the second category, the court held that “because GC did not know that its overseas operations would fail if it could not rely on corrupt practices, it did not have a duty to disclose this as a risk.” In pertinent part, the court stated:

“Plaintiff has connected the dots and inferred that, because GC announced it was ending these operations
after it had to stop making corrupt payments, it must have depended upon those corrupt payments in order to sustain those operations. However, when GC announced it was exiting these divisions, it said it was doing so in order to focus on “core strategic operations in North America, Latin America and Europe.” Plaintiff has offered only his own inference as to why that was not true—he has not alleged any facts that GC actually  closed its operations because they were unsustainable without corruption. More importantly, though, Plaintiff alleged no facts that GC knew that it would have to shut down these operations if it could not continue engaging in corrupt practices. Similar to Zaluski, Plaintiff has not alleged facts that reveal GC knew more than it said. Because this was soft information, Plaintiff has to meet the actual-knowledge standard and Plaintiff has altogether failed to do so. For this reason, GC did not have to disclose the alleged risk that was omitted.”

As to the third category, the court held that “Plaintiff has failed to adequately plead that GC acted with the requisite scienter” and stated in pertinent part:

“To summarize, GC knew that a very specific facet of its internal controls had failed and was inadequate. GC knew that it did not have controls that provided a sufficient framework for dealing with third-parties in the identified subsidiaries and GC knew that this allowed it to violate the FCPA in particular countries. But this does not mean that GC knew its overall internal controls over financial reporting were not effective, nor does it mean that GC knew its SOX certifications—which do not specifically relate to the FCPA—were false. Moreover, none of these facts alleged establish that GC acted with scienter when issuing these statements, even viewed collectively. The facts do not change the nature of what was said – that, generally, GC believed its financial controls were effective and designed to ensure material information was reported.”

In conclusion the court stated:

“GC has admitted that it committed FCPA violations in several countries that allowed it to incur substantial profits. GC has also paid for those violations through disgorgements of millions in profits. While GC’s disclosures regarding its FCPA violations hurt investors’ share prices, that does not necessarily mean that GC acted to deceive its investors through statements it made. The reasons for that are explained at length above. For these reasons, Plaintiff’s § 10(b) claim against all defendants is dismissed.”

FCPA Institute - Zoom (May 16-18, 2023)

Elevate your FCPA knowledge and practical skills. Nine hours of integrated and cohesive instruction led by Professor Koehler (an FCPA expert with teaching experience). Learn more, spend less. Professional credential available.

Learn More and Register

Powered by WordPress. Designed by WooThemes