Wednesday, April 4, 2018

Embraer Wins Dismissal In Foreign Corrupt Practices Act-Related Class Action Case

Law360 (April 2, 2018, 9:02 PM EDT) -- A New York federal judge has dismissed a proposed securities fraud class action suit brought against Brazilian aerospace conglomerate Embraer SA alleging the company hid a “brazen and sprawling” corruption scheme, finding that Embraer disclosed everything it legally needed to in connection with an ongoing investigation into potential Foreign Corrupt Practices Act violations.

The ruling issued Friday by U.S. District Judge Richard M. Berman dismissed with prejudice the claims of lead plaintiff, the Employees Retirement System of the city of Providence, Rhode Island, that Embraer committed fraud by disclosing only that investigations into allegations of corruption were underway, but failing to disclose to investors the scope and potential financial ramifications of the corruption that was ultimately revealed.

“The court finds that Embraer complied with its disclosure obligations,” the ruling states.

Specifically, the judge found in favor of an argument made by Embraer’s attorneys in a motion to dismiss, which held that statements made by Embraer executives related to ongoing investigations by the U.S. Department of Justice and the U.S. Securities and Exchange Commission into potential corruption by Embraer officials “were not actionable” because companies are not required by law to disclose “uncharged, unadjudicated wrongdoing.”

In effect, the judge ruled that the plaintiffs’ claims should be dismissed in part because the disclosure apparently sought by the plaintiffs would have required Embraer to essentially acknowledge guilt for alleged crimes that were still under investigation.

“Defendants persuasively argue that ‘the amended complaint is premised on the faulty notion that Embraer was required to disclose details of the FCPA violations and admit that it had engaged in wrongdoing before it had even been charged and before the investigations were even complete,” Judge Berman wrote. “However, the Second Circuit has held that disclosure is not a rite of confession and companies do not have a duty to disclose uncharged, unadjudicated wrongdoing."

The judge also said the plaintiffs’ allegations in support of their claim that Embraer's internal controls failed are not “sufficiently particularized to survive” Embraer’s motion to dismiss. “Where plaintiffs allege that internal controls are deficient, courts have consistently required plaintiffs to ‘allege specific facts concerning the purportedly deficient internal controls, including how they were deficient, when and why,’” the judge wrote.

In addition, the judge agreed with Embraer’s attorneys that the company's statements included in financial documents filed with regulators concerning its code of conduct, which prohibits the type of misconduct alleged in the complaint, also did not amount to fraud because "the statements are precisely the kind of vague, generalized aspirational statements courts have held to be immaterial as a matter of law."

The judge, citing an earlier ruling, wrote, “Because ‘a code of ethics is inherently aspirational, it simply cannot be that every time a violation of that code occurs, a company is liable under federal law for having chosen to adopt the code at all.’”

Moreover, securities laws do not “allow investors to second-guess inherently subjective and uncertain assessments,” the judge wrote, adding, “they are not, in other words, an invitation to Monday morning quarterback [a company’s] opinions."'

According to the investors, Embraer was obligated to tell shareholders the whole truth about the existence of the bribery scheme once the company chose to bring up the investigations into it. The suit took specific issue with Embraer’s failure to disclose any broader knowledge of the scheme, not its failure to disclose the investigations, the investors said.

“As defendants opted to speak about the regulatory investigations into potential FCPA violations, they cannot hide behind incomplete disclosures simply because the omissions concern uncharged illegal conduct,” investors had told the court in an earlier court filing.

Jeremy A. Lieberman of Pomerantz LLP, lead counsel for the investors, said in August that the investors' allegations met Private Securities Litigation Reform Act standards.

"The complaint alleges defendants’ persistent failure to disclose an international bribery scheme which resulted in over $400 million in revenues and $83 million in profits for Embraer," Lieberman told Law360 in an email. "These allegations easily comport with the PSLRA’s pleading requirements."

The investors’ suit was first filed in August 2016, little more than a week after the company announced it was recognizing a $200 million loss contingency in light of significant progress in settlement negotiations with U.S. authorities.

Under the terms of a settlement announced by the U.S. Securities and Exchange Commission and the U.S. Department of Justice in October 2016, Embraer agreed to pay $205 million to resolve the agencies’ allegations that the company used bribes paid through its U.S. subsidiary to secure contracts with the Dominican Air Force and state-owned entities in Saudi Arabia and Mozambique. The jet maker also concealed questionable payments connected to sales to the Indian military, the agencies said.

Counsel for Embraer and the plaintiffs did not respond to requests for comment. An Embraer spokeswoman also did not respond to a request for comment.

Embraer was represented by Jay B. Kasner, Scott D. Musoff, Christopher P. Malloy, Nicholas A. Ickovic, Amanda Raymond Kalantirsky, and Sao Paulo-based partner Julie B├ędard of Skadden Arps Slate Meagher & Flom LLP.

The investors are represented by Jeremy A. Lieberman, Tamar A. Weinrib, Justin S. Nematzadeh and Patrick V. Dahlstrom of Pomerantz LLP.

The case is Employees Retirement System of the City of Providence v. Embraer SA et al., case number 1:16-cv-06277, in the U.S. District Court for the Southern District of New York.

Original article can be found here ➤ https://www.law360.com

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