UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW … · Case 1:15-cv-08672-ALC Document 85...
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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK –––––––––––––––––––––––––––––––––––––––——–x
No.: 15-cv-08672 (ALC)
In re VEON, Ltd. Securities Litigation
: : : :
––––––––––––––––––––––––––––––––––––––––––––x
MEMORANDUM OF LAW IN SUPPORT OF
MOTION TO DISMISS WITH PREJUDICE THE CLAIMS AGAINST DEFENDANTS JEAN-YVES CHARLIER AND ANDREW MARK DAVIES
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TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES .......................................................................................................... ii
PRELIMINARY STATEMENT .....................................................................................................1
BACKGROUND .............................................................................................................................3
A. Plaintiff’s Sole Allegation Against Mr. Charlier Concerns His CEO Title ....................4
B. Plaintiff’s Sparse Allegations Against Mr. Davies Are Of No Legal Moment ...............4
C. Other Non-Actionable Allegations In The Complaint ....................................................7
D. The Court’s September 19, 2017 Order ..........................................................................8
ARGUMENT ...................................................................................................................................9
I. DISMISSAL IS WARRANTED BECAUSE THIS COURT LACKS PERSONAL JURISDICTION OVER MESSRS. CHARLIER AND DAVIES ...........................................9
II. PLAINTIFF HAS NOT STATED A CLAIM FOR VIOLATION OF § 10(b) AND RULE 10b-5 AGAINST MESSRS. CHARLIER AND DAVIES .........................................13
A. Plaintiff Has Not Pled Any Actionable Misstatement or Omission By Either Mr. Charlier or Mr. Davies ............................................................................................14
B. Plaintiff Has Not Properly Alleged That Mr. Charlier Or Mr. Davies Acted with Scienter ..................................................................................................................16
C. Plaintiff Has Not Alleged That Mr. Charlier Or Mr. Davies Caused Its Purported Losses ...........................................................................................................20
III. THE COMPLAINT FAILS TO STATE A CLAIM AGAINST MESSRS. CHARLIER AND DAVIES UNDER § 20(A) OF THE EXCHANGE ACT .......................21
IV. THE COMPLAINT SHOULD BE DISMISSED WITH PREJUDICE AGAINST MESSRS. CHARLIER AND DAVIES .................................................................................24
CONCLUSION ..............................................................................................................................24
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TABLE OF AUTHORITIES
Page(s)
Cases
Asahi Metal Indus. Co. v. Super. Ct., 480 U.S. 102 (1987) .................................................................................................................10
In re AstraZeneca Sec. Litig., 559 F. Supp. 2d 453 (S.D.N.Y.2008), aff’d sub nom., State Univ. Ret. Sys. v. Astrazeneca PLC, 334 F. App’x 404 (2d Cir. 2009) .................................................................................................................9, 10, 12
Barrett v. PJT Partners Inc., No. 16-CV-2841 (VEC), 2017 WL 3995606 (S.D.N.Y. Sept. 8, 2017) ............................15, 18
Bayerische Landesbank v. Barclays Capital, Inc., 902 F. Supp. 2d 471 (S.D.N.Y. 2012) ......................................................................................23
Bd. of Trustees of Ft. Lauderdale Gen. Emps.’ Ret. Sys v. Oao, 811 F. Supp. 2d 853 (S.D.N.Y. 2011) ......................................................................................19
In re Braskem S.A. Sec. Litig., 246 F. Supp. 3d 731 (S.D.N.Y. 2017) ......................................................................................22
Campo v. Sears Holdings Corp., 371 F. App’x 212 (2d Cir. 2010) .............................................................................................17
City of Monroe Emps. Ret. Sys. v. Bridgestone Corp., 399 F.3d 651 (6th Cir. 2005) ...................................................................................................13
City of Monroe Emps. Ret. Sys. v. Hartford Fin. Servs. Grp., No. 10 Civ. 2835 (NRB), 2011 WL 4357368 (S.D.N.Y. Sept. 19, 2011) ...............................17
Cont’l Indus. Grp. v. Equate Petrochem. Co., 586 F. App’x 768 (2d Cir. 2014) ...............................................................................................9
Dura Pharms., Inc. v. Broudo, 544 U.S. 336 (2005) .................................................................................................................20
ECA Local 134 IBEW Joint Pension Trust v. JP Morgan Chase Co., 553 F.3d 187 (2d Cir. 2009)...............................................................................................13, 14
In re EZCorp, Inc. Sec. Litig., 181 F. Supp. 3d 197 (S.D.N.Y. 2016) ..............................................................................23 n.12
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In re Gentiva Sec. Litig., 932 F. Supp. 2d 352 (E.D.N.Y. 2013) .....................................................................................16
In re Global Crossing, Ltd. Sec. Litig., No. 02 Civ. 902 (GEL), 2005 WL 1881514 (S.D.N.Y. Aug. 5, 2005) ....................................22
Goldberg v. Gray, No. 5:15-CV-0538, 2016 WL 4099189 (N.D.N.Y. Aug. 2, 2016) ..........................................23
Gurfein v. Ameritrade, Inc., 411 F. Supp. 2d 416 (S.D.N.Y. 2006) ......................................................................................19
Harbinger Capital Partners LLC v. Deere & Co., 632 F. App’x 653 (2d Cir. 2015) .......................................................................................21, 22
Hutchinson v. Perez, No. 12 Civ. 1073 (HB), 2012 WL 5451258 (S.D.N.Y. Nov. 8, 2012) ....................................18
Int’l Ass’n of Heat v. IBM, 205 F. Supp. 3d 527 (S.D.N.Y. 2016) ......................................................................................18
Janus Capital Grp. v. First Derivative Traders, 564 U.S. 135 (2011) .................................................................................................................14
Keeton v. Hustler Magazine, Inc., 465 U.S. 770 (1984) .................................................................................................................10
LaChapelle v. Torres, 1 F. Supp. 3d 163 (S.D.N.Y. 2014) ............................................................................................9
Levinsohn, Lerner, Berger & Langsam v. Med. Taping Sys., Inc., 10 F. Supp. 2d 334 (S.D.N.Y. 1998) ........................................................................................11
Lewy v. SkyPeople Fruit Juice, Inc., No. 11-cv-2700, 2012 WL 3957916 (S.D.N.Y. Sept. 10, 2012) .............................................22
Licci v. Lebanese Canadian Bank, 673 F.3d 50 (2d Cir. 2012).........................................................................................................9
In re Livent, Inc. Sec. Litig., 78 F. Supp. 2d 194 (S.D.N.Y. 1999) ........................................................................................23
MacDermid, Inc. v. Deiter, 702 F.3d 725 (2d Cir. 2012).......................................................................................................9
Metro. Life Ins. Co. v. Robertson–Ceco Corp., 84 F.3d 560 (2d Cir. 1996).................................................................................................10, 13
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N. Collier Fire Control & Rescue Dist. Firefighter Pension Plan v. MDC Partners, Inc., No. 15 Civ. 6034 (RJS), 2016 WL 5794774 (S.D.N.Y. Sept. 30, 2016) .................................19
In re PetroChina Co. Sec. Litig., 120 F. Supp. 3d 340 (S.D.N.Y. 2015), aff’d, 644 F. App’x 13 (2d Cir. 2016) .................................................................. 16, & n.10, 17
In re PXRE Grp. Sec. Litig., 600 F. Supp. 2d 510 (S.D.N.Y.), aff’d, 357 F. App’x 393 (2d Cir. 2009) ....................................................................................17
In re Rhodia S.A. Sec. Litig., 531 F. Supp. 2d 527 (S.D.N.Y. 2007) ..........................................................................10, 11, 19
Rok v. Identiv, Inc., No. 15-CV-5775-CRB, 2017 WL 35496 (N.D. Cal. Jan. 4, 2017)....................................14, 15
Ross v. Lloyds Banking Grp., PLC, 546 F. App’x 5 (2d Cir. 2013) .................................................................................................22
In re Royal Ahold N.V. Sec. & ERISA Litig., 351 F. Supp. 2d 334 (D. Md. 2004) .......................................................................10 n.8, 11, 12
RSM Prod. Corp. v. Fridman, 643 F. Supp. 2d 382 (S.D.N.Y. 2009), aff’d, 387 F. App’x 72 (2d Cir. 2010) ......................................................................................11
In re Sanofi Sec. Litig., 87 F. Supp. 3d 510 (S.D.N.Y. 2015), aff’d sub nom., Tongue v. Sanofi, 816 F.3d 199 (2d Cir. 2016) ..............................................24
SEC v. Unifund SAL, 910 F.2d 1028 (2d Cir. 1990).....................................................................................................9
Shostack v. Diller, No. 15-CV-2255 (GBD) (JLC), 2015 WL 5535808 (S.D.N.Y. Sept. 16, 2015) .....................11
Slayton v. Am. Express Co., 604 F.3d 758 (2d Cir. 2010).......................................................................................................8
Special Situations Fund III QP, L.P. v. Deloitte Touche Tohmatsu CPA, Ltd., 33 F. Supp. 3d 401 (S.D.N.Y. 2014), aff’d, 645 F. App’x 72 (2d Cir. Apr. 8, 2016) .................................................................23 n.12
In re UBS AG Sec. Litig., No. 07 CIV. 11225 RJS, 2012 WL 4471265 (S.D.N.Y. Sept. 28, 2012), aff’d sub nom., City of Pontiac Policemen’s & Firemen’s Ret. Sys. v. UBS AG, 752 F.3d 173 (2d Cir. 2014)...................................................................................14, 17, 20, 21
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In re Vale S.A. Sec. Litig., No. 1:15-cv-9539-GHW, 2017 WL 1102666 (S.D.N.Y. Mar. 23, 2017) ........................23 n.12
In re VEON Ltd. Sec. Litig., No. 15-CV-08672 (ALC), 2017 WL 4162342 (S.D.N.Y. Sept. 19, 2017) ...................... passim
Statutes
Fed. R. Civ. P. 9(b) ........................................................................................................................13
Fed. R. Civ. P. 12(b)(2)....................................................................................................................1
Fed. R. Civ. P. 12(b)(6)....................................................................................................................1
15 U.S.C. § 20(a) ................................................................................................................... passim
15 U.S.C. § 78aa ..............................................................................................................................9
15 U.S.C. § 78u-4(b)(2)(A)............................................................................................................16
Private Securities Litigation Reform Act of 1995 ................................................................. passim
Securities Exchange Act of 1934 § 10(b) .............................................................................. passim
Securities Exchange Act Rule 10b-5 ..................................................................................... passim
Securities Exchange Act Rules 13a-15(f) and 15d-15(f) .................................................................8
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Individual Defendants Jean-Yves Charlier and Andrew Mark Davies respectfully
submit this memorandum of law in support of their motion, pursuant to Fed. R. Civ. P. 12(b)(2),
12(b)(6), and 9(b) and the heightened pleading standards of the Private Securities Litigation
Reform Act of 1995 (“PSLRA”), to dismiss with prejudice the claims lodged against them in the
Amended Complaint of Lead Plaintiff Westway Alliance Corp. (“Westway” or “Plaintiff”).1
PRELIMINARY STATEMENT
The Court has ruled that Plaintiff’s 74-page, 189-paragraph Complaint has
sufficiently pleaded a securities fraud claim against VimpelCom, Ltd. [D.E. 63 (“Order”)].2
This motion is brought by two individual defendants who are fleetingly mentioned in that
Complaint – and against whom Plaintiff’s claims are patently defective on multiple grounds.
Jean-Yves Charlier is identified in one paragraph, and the lone “allegation”
concerning him is nothing more than the accurate but non-actionable biographical statement that
he “has served as [VimpelCom’s] Chief Executive Officer (‘CEO’) since April 2015.” (¶12).3
Mr. Charlier’s employment at the Company thus began years after the last improper payment in
2012 and over a year after VimpelCom first made alleged corrective disclosures in March 2014
concerning its operations in Uzbekistan. There is not a single allegation in the Complaint – not
one – linking Mr. Charlier to the improper payments, the Company’s operations in Uzbekistan,
1 Messrs. Charlier and Davies adopt by reference all arguments made by the other Individual Defendants in their motions to dismiss, with the exception of Mr. Izosimov’s arguments on service and statute of limitations which do not apply here.
2 During this litigation, VimpelCom, Ltd. (“VimpelCom” or the “Company”) changed its name to VEON, Ltd. See ECF No. 51. VimpelCom is referenced in the Amended Complaint and the various statements alleged therein and that name is used where appropriate in this motion.
3 All references to “¶_” are to the Amended Complaint (“Complaint”). All references to “Ex. _” are to exhibits attached to the Declaration of John P. Coffey, dated February 9, 2018, submitted herewith.
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or any of the alleged misstatements in the Complaint. Indeed, in light of the Court’s Order,
every one of the actionable misstatements that remain in this action was made before Mr.
Charlier became CEO.
Similarly, Andrew Mark Davies is identified in a mere three paragraphs of no
particular moment. Plaintiff alleges that Mr. Davies “served as the Company’s Chief Financial
Officer (‘CFO’) since November 2013” (¶15) – nearly a year after the last improper payment
described in the Complaint. Plaintiff also alleges that Mr. Davies signed a SOX certification on
behalf of VimpelCom in the Company’s 2013 Form 20-F (¶155), but notably fails to allege that
such certification was false or misleading. Finally, Plaintiff alleges that Mr. Davies signed a
false SOX certification on behalf of VimpelCom in the Company’s 2014 Form 20-F (¶165). But
that form was filed more than a year after VimpelCom had disclosed the investigations
concerning its Uzbekistan operations and the form itself disclosed those investigations (again)
and stated that the results of such investigations could impact “the assessment of our internal
controls.” (¶163).
The paltry allegations concerning either Mr. Charlier or Mr. Davies are manifestly
insufficient to plead a violation of § 10(b) of the Securities Exchange Act of 1934 (“Exchange
Act”) and Rule 10b-5. The Complaint fails to plead any actionable misstatement, scienter or loss
causation from any statement (if any) made by either of them. Nor does the Complaint plead a
claim for “control person” liability under § 20(a) of the Exchange Act. Because the Complaint
does not allege (nor could it) that either Messrs. Charlier or Davies controlled VimpelCom at the
time of the alleged misstatements or any had any culpable participation in the alleged fraud, the
claim for control person liability fails.
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As a threshold matter, however, the claims against Messrs. Charlier and Davies
should be dismissed for lack of personal jurisdiction. There are no allegations that either
individual lived or worked in the United States while employed by VimpelCom, or traveled to
the United States in connection with any of the conduct alleged in the Complaint. As to Mr.
Charlier, there are no allegations that he took any action whatsoever related to the alleged
scheme in the United States. And the mere signing of a SOX certification by Mr. Davies for a
financial disclosure that specifically disclosed the investigations is simply not enough to confer
jurisdiction over the conduct alleged in the Complaint. Accordingly, there are no allegations of
the necessary minimum contacts sufficient to comport with due process and give rise to personal
jurisdiction.
BACKGROUND4
The Complaint purports to assert Exchange Act claims against VimpelCom and
five of its current and former employees (the “Individual Defendants”) on behalf of a putative
class of purchasers of VimpelCom securities between December 4, 2010 and November 3, 2015.
(¶1).5 Plaintiff claims that VimpelCom’s public statements beginning on December 2, 2010
were false and misleading because they failed to disclose VimpelCom’s improper payments in
Uzbekistan and its failure to follow internal controls. (¶¶96-148). The Complaint alleges that
“the truth emerge[d]” on March 12, 2014, when VimpelCom reported that it was subject to
government investigations regarding its operations in Uzbekistan. (¶149).
4 For purposes of this motion, we provide only the background relevant to the claims against Messrs. Davies and Charlier. A more fulsome description of the Complaint is set forth in the September 19, 2017 Order and in VimpelCom’s motion to dismiss. [Dkt. No. 47]
5 In the September 19, 2017 Order, this Court excluded from the purported class any individual who sold his or her shares prior to March 12, 2014. In re VEON Ltd. Sec. Litig., No. 15-CV-08672 (ALC), 2017 WL 4162342, at *12 (S.D.N.Y. Sept. 19, 2017).
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A. Plaintiff’s Sole Allegation Against Mr. Charlier Concerns His CEO Title
The Complaint’s factual allegations against Mr. Charlier are remarkably sparse,
limited to a single paragraph which says merely that Mr. Charlier has served as the Company’s
CEO since April 2015. (¶12). Mr. Charlier is not alleged to have made any alleged
misstatement, nor is he alleged to have been involved in the Company’s disclosures at issue.
Based on the Court’s holdings in the Order, Mr. Charlier was not employed by VimpelCom
when any of the actionable disclosures were made. He should be dismissed forthwith.
The Complaint also lacks allegations tying Mr. Charlier to the United States.
VimpelCom is headquartered in the Netherlands and incorporated in Bermuda. (¶11). It was at
his place of business in the Netherlands that Mr. Charlier was served with a copy of the
Summons and Amended Complaint pursuant to the Hague Convention of 1965 on Service
Abroad. See ECF Dkt. No. 53. The improper payments described in the Complaint took place
entirely in Uzbekistan. (¶¶31-89). There are no allegations concerning Mr. Charlier’s residency
or principal place of business, or that he took any action related to the alleged scheme in the
United States.
B. Plaintiff’s Sparse Allegations Against Mr. Davies Are Of No Legal Moment
The Complaint similarly does not allege that Mr. Davies was involved in
VimpelCom’s operations in Uzbekistan or that he was aware of the improper payments. The
Complaint only references Mr. Davies in three paragraphs. He is identified as VimpelCom’s
CFO since 2013, and he is alleged to have signed SOX certifications on behalf of VimpelCom in
the 2013 Form 20-F and the 2014 Form 20-F. (¶¶15, 155, 165).6 The 2013 Form 20-F contained
6 Mr. Davies stepped down from CFO on November 9, 2017 and is no longer at VEON. https://veon.com/media-center/Press-releases/2017/Trond-Westlie-to-join-VEON-as-Group-CFO-Andrew-Davies-to-step-down-after-four-years/.
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a detailed disclosure that VimpelCom was subject to investigations by the SEC, DOJ and the
Dutch authorities concerning its activities in Uzbekistan. (¶154). Plaintiff does not contend that
Mr. Davies’ SOX certification in the 2013 Form 20-F was false or misleading. (¶155).
The only allegedly false statement that Plaintiff contends Mr. Davies made was
his signed SOX certification in the 2014 Form 20-F. (¶¶165-66). However, the 2014 Form 20-F
was filed on March 24, 2015, a year after VimpelCom had already disclosed the government
investigations. (¶¶149, 163). The 2014 Form 20-F contained its own lengthy disclosure that
VimpelCom was subject to investigations by the SEC, DOJ and the Dutch authorities concerning
allegations of bribery connected with its activities in Uzbekistan. (¶163). That form stated, inter
alia, that a special committee was investigating whether there was any conduct in VimpelCom’s
operations in Uzbekistan which “may have violated the anti-bribery provisions of the FCPA, the
FCPA’s books and records and internal controls provisions, applicable local laws and/or our own
internal policies.” Id. The 2014 Form 20-F disclosed that the Company was exploring the
prospect of resolving its potential liabilities arising from the facts established in the
investigations, and noted that the results of these investigations could impact VimpelCom’s
business, results of operations, financial condition, or “the assessment of internal controls.” Id.
In light of that disclosure, Mr. Davies signed a SOX certification, which certified
that “based on [his] knowledge” the financial information for 2014 was accurately disclosed in
the 2014 Form 20-F. In relevant part, the SOX certification stated:
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
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in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
The company’s other certifying officer and I . . . have . . . [e]valuated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and [d]isclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting . . .
See Ex. A, at Exhibit 12.2 (emphasis added). Mr. Davies also certified that he had disclosed all
significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting to the Company’s auditors. Id.7
Plaintiff does not allege that Mr. Davies himself failed to evaluate the internal
controls over financial reporting that he certified, that he failed to disclose to VimpelCom’s
auditors the possibility of bribery that the Form 20-F disclosed, or that he knew facts or had
access to information suggesting that his certification was inaccurate. (See ¶166). While the
Complaint alleges that the Company (though not Mr. Davies) failed to monitor its internal
controls (id.), it further alleges that the last improper payments and false recordings occurred in
2012, nearly one year before Mr. Davies became CFO and over two years before Mr. Davies
signed the SOX certification (¶¶88-89).
7 The Court may take judicial notice of the 2014 Form 20-F and other of VimpelCom’s public filings, which Plaintiff quotes from at length in the Complaint. In re VEON Ltd. Sec. Litig., 2017 WL 4162342, at *1 (citing ATSI Comm’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007)).
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In addition, there are no allegations concerning Mr. Davies’ residency or principal
place of business or any allegations suggesting that he has any contacts in the United States.
Like Mr. Charlier, Mr. Davies also was served with a copy of the Summons and Amended
Complaint at his office in the Netherlands. See ECF Dkt. No. 53.
C. Other Non-Actionable Allegations In The Complaint
Plaintiff also has included Messrs. Charlier and Davies in the defined term
“Individual Defendants.” (¶16). There is only one conclusory paragraph in the entire Complaint
that refers to the Individual Defendants:
The Individual Defendants acted as controlling persons of VimpelCom within the meaning of § 20(a) of the 1934 Act. By virtue of their positions with the Company, and ownership of VimpelCom securities, the Individual Defendants had the power and authority to cause VimpelCom to engage in the wrongful conduct complained of herein. VimpelCom controlled the Individual Defendants and all of its employees. By reason of such conduct, Defendants are liable pursuant to § 20(a) of the 1934 Act.
(¶189). Neither paragraph 189 nor any other allegation details the purported “ownership of
VimpelCom securities” held by Mr. Charlier or Mr. Davies or provides any facts to demonstrate
the “power and authority” they purportedly possessed to cause VimpelCom to engage in the
wrongful conduct alleged in the Complaint; nor could it since that conduct took place years
before they were even employed by VimpelCom.
To the extent the Complaint does identify the participants in the Uzbekistan
improper payments scheme, those allegations conspicuously omit any references to either
Messrs. Davies or Charlier. For example, the Complaint cites emails and telephone
conversations between “Executive 1” and “Executive 2”, but none of those allegations is tied in
any way to Messrs. Charlier and Davies. (E.g., ¶¶60, 64, 72, 73). The Complaint contains
allegations concerning Board discussions in 2005 and 2006 about a possible FCPA risk, but
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those discussions again would have taken place nearly a decade before either Mr. Charlier or Mr.
Davies worked at VimpelCom. (¶¶32, 34, 36).
D. The Court’s September 19, 2017 Order
In the Order, the Court granted in part and denied in part VimpelCom’s motion to
dismiss the Amended Complaint. In re VEON Ltd. Sec. Litig., No. 15-CV-08672 (ALC), 2017
WL 4162342 (S.D.N.Y. Sept. 19, 2017). In relevant part, the Court dismissed Plaintiff’s claims
that were based on VimpelCom’s May 14, 2015 Form 6-K, and the August 6, 2015 Form 6-K.
Id. at *6. Thus, there are no actionable allegations during Mr. Charlier’s tenure at VimpelCom.
As to the disclosures and certifications regarding “financial reporting,” this Court
explained that “VEON's disclosures regarding internal controls over financial reporting relate to
Exchange Act Rules 13a-15(f) and 15d-15(f).” Id. at *8. This Court held that “[w]ith one
exception, those rules do not cover the types of due diligence and conflict of interest review that
Plaintiffs identify as lacking and regarding which VEON made admissions in the DPA.” Id. at
*12. The Court found that “[f]alsely recording a bribe as the acquisition of an asset or consulting
services, see Am. Compl. ¶¶88-90, would seem to violate policies or procedures that ‘[p]ertain to
the maintenance of records that in reasonable detail accurately and fairly reflect the transactions
... of the issuer.’” Id. (quoting 17 C.F.R. 240.13a-15(f)(1)). Notably, the paragraphs of the
Complaint referenced by the Court list false recordings on VimpelCom’s books and records
between January 2006 and May 2012. (¶¶88-89). There are no allegations in the Complaint
concerning false entries on VimpelCom’s books after 2012 or, importantly, during Mr. Davies’
tenure as CFO.
Finally, the Order excluded from the prospective class any individual who sold
shares prior to March 12, 2014. In re VEON Ltd. Sec. Litig., 2017 WL 4162342, at *12. As the
Court explained, VimpelCom’s corrective disclosures began on March 12, 2014, when the
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various government investigations were disclosed, and thus only “those members of the putative
class who purchased their shares prior to March 12, 2014 did so at an artificially inflated price
and lost money when the disclosures VEON subsequently made regarding the bribes and related
government investigations caused its share price to decline.” Id. at *11.
ARGUMENT
I. DISMISSAL IS WARRANTED BECAUSE THIS COURT LACKS PERSONAL JURISDICTION OVER MESSRS. CHARLIER AND DAVIES
On this motion, Plaintiff bears the burden of establishing personal jurisdiction.
See MacDermid, Inc. v. Deiter, 702 F.3d 725, 727 (2d Cir. 2012). To meet its burden, Plaintiff
“must make a prima facie showing that jurisdiction exists.” LaChapelle v. Torres, 1 F. Supp. 3d
163, 167 (S.D.N.Y. 2014) (citing Licci v. Lebanese Canadian Bank, 673 F.3d 50, 59 (2d Cir.
2012)). This prima facie showing “must include an averment of facts that, if credited by the
ultimate trier of fact, would suffice to establish jurisdiction over the defendant.” Licci ex rel.
Licci v. Lebanese Canadian Bank, 673 F.3d 50, 59 (2d Cir. 2012). Conclusory allegations are
inadequate. See Cont’l Indus. Grp. v. Equate Petrochem. Co., 586 F. App’x 768, 769 (2d Cir.
2014).
In cases involving securities listed on domestic exchanges, Section 27 of the
Exchange Act, 15 U.S.C. § 78aa, establishes the exclusive basis for personal jurisdiction.
Because Section 27 “permits the exercise of personal jurisdiction to the limit of the Due Process
Clause of the Fifth Amendment, . . . the personal jurisdiction challenge raised by [Defendants]
must be tested against due process standards.” SEC v. Unifund SAL, 910 F.2d 1028, 1033 (2d
Cir. 1990) (citations omitted). To comport with due process standards, the defendant must have
“minimum contacts” with the forum, and the exercise of personal jurisdiction must be
reasonable. In re AstraZeneca Sec. Litig., 559 F. Supp. 2d 453, 466–67 (S.D.N.Y.2008), aff'd
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sub nom., State Univ. Ret. Sys. v. Astrazeneca PLC, 334 F. App’x 404, 406 (2d Cir. 2009) (citing
Metro. Life Ins. Co. v. Robertson–Ceco Corp., 84 F.3d 560, 567 (2d Cir. 1996)). “Great care and
reserve should be exercised when extending our notions of personal jurisdiction into the
international field.” Asahi Metal Indus. Co. v. Super. Ct., 480 U.S. 102, 115 (1987) (citation
omitted). If minimum contacts are present, a defendant may still defeat jurisdiction by showing
that jurisdiction is unreasonable. Metro. Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560,
569 (2d Cir. 1996). The weaker the contacts, the less likely that jurisdiction is reasonable. Id. 8
While there is no dispute that the Court has jurisdiction over VimpelCom (now
VEON), it is well established that “jurisdiction over an employee does not automatically follow
from jurisdiction over the corporation which employs him.” Keeton v. Hustler Magazine, Inc.,
465 U.S. 770, 781, n.13 (1984). That Messrs. Charlier and Davies were executives of
VimpelCom does not, without more, amount to sufficient contacts with this forum. In re Rhodia
S.A. Sec. Litig., 531 F. Supp. 2d 527, 542 (S.D.N.Y. 2007) (dismissing for lack of personal
jurisdiction two executives who were uninvolved in the transactions at issue). Likewise,
“[b]eing a corporation’s control person of itself does not . . . merit personal jurisdiction.” Id.
With respect to Mr. Charlier, the Complaint offers no allegations that would give
rise to personal jurisdiction. There are no allegations tying Mr. Charlier (or his actions) to the
United States. The Complaint does not allege that Mr. Charlier participated in (or even knew
about) the improper payments or the alleged false statements – indeed the Complaint alleges that
such conduct occurred years before Mr. Charlier came to VimpelCom. Nor does the Complaint
8 There can be no claim of general jurisdiction over Messrs. Charlier and Davies because they live outside of the United States and work for a foreign corporation based in the Netherlands. See In re Royal Ahold N.V. Sec. & ERISA Litig., 351 F. Supp. 2d 334, 350 (D. Md. 2004). For the reasons explained in this Section, there is also no specific jurisdiction.
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allege that he had any role in the actionable financial disclosures, all of which pre-date his
employment. Under these circumstances, where the executive was wholly uninvolved with the
transactions at issue, jurisdiction does not exist. See, e.g., In re Rhodia S.A. Sec. Litig., 531 F.
Supp. 2d at 542 (no jurisdiction where individual defendant was CEO for only part of class
period and was “wholly uninvolved” with transactions at issue); In re Royal Ahold N.V. Sec. &
ERISA Litig., 351 F. Supp. 2d at 354 (dismissing allegations against foreign director, who was on
board only for limited time, where plaintiffs “fail to note a single specific act taken by [foreign
director] directed at the U.S.”); RSM Prod. Corp. v. Fridman, 643 F. Supp. 2d 382, 397, 400
(S.D.N.Y. 2009) (no personal jurisdiction over former CEO where plaintiff did not allege any
basis to confer jurisdiction), aff'd, 387 F. App'x 72 (2d Cir. 2010); Levinsohn, Lerner, Berger &
Langsam v. Med. Taping Sys., Inc., 10 F. Supp. 2d 334, 341 (S.D.N.Y. 1998) (applying New
York’s long arm statute and dismissing claims against six individual defendants not associated
with company at time of alleged wrong). See also Shostack v. Diller, No. 15-CV-2255 (GBD)
(JLC), 2015 WL 5535808, at *5 (S.D.N.Y. Sept. 16, 2015) (“Conclusory allegations that the
corporate officers exercised control over the corporation by virtue of their title or position within
the corporation, or derived some benefit from the corporation’s activities do not suffice; courts
routinely grant motions to dismiss for lack of personal jurisdiction when the plaintiff relies solely
on such vague assertions.”).
With respect to Mr. Davies, there are similarly no facts giving rise to personal
jurisdiction. The Complaint does not allege that Mr. Davies participated in (or even knew about)
the improper payments in Uzbekistan. The only actions that Mr. Davies took which had any
possible impact in the United States were the signing of two SOX certifications. And while there
is law holding that signing of documents filed with the SEC may give rise to sufficient contact
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with the United States for jurisdictional purposes, those cases do not apply given the special facts
at issue here. See, e.g., In re Royal Ahold N.V. Sec. & ERISA Lit., 351 F. Supp. 2d at 350
(signing false and misleading documents filed with the SEC is sufficient to establish minimum
contacts with the United States). Here, unlike in Royal Ahold, the 2013 Form 20-F for which
Mr. Davies first signed a SOX certification is not alleged to be false or misleading, and thus
cannot be a basis to confer jurisdiction over Mr. Davies. (¶155).9 Nor can the SOX certification
he signed in connection with the 2014 Form 20-F. That filing specifically disclosed the
investigations concerning the Uzbekistan scheme, and cautioned that the results of these
investigations could impact VimpelCom’s business, results of operations, financial condition, or
“the assessment of our internal controls.” (¶163). All that Mr. Davies certified was that, to the
best of his knowledge for the year 2014, the report did not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made, “in light of
the circumstances under which such statements were made, not misleading with respect to the
period covered by this report.” Notably, the Complaint does not allege that there were any
improper payments or false recordings for 2014. Hauling Mr. Davies into court based on a SOX
certification that disclosed both the investigation into the improper payments and the uncertainty
of the Company’s internal controls does not comport with due process standards. See generally
In re AstraZeneca Sec. Litig., 559 F. Supp. 2d at 467 (signing, in a foreign country, a company’s
SEC Form F-3 that incorporated the company’s Form 20-F, which the complaint alleged contains
material misstatements, “is insufficient for personal jurisdiction”).
9 Even if Plaintiff had alleged that Mr. Davies’ SOX certification in the 2013 Form 20-F was false and misleading, that form disclosed the investigation and potential wrongdoing. (¶154). Any claim based on the 2013 Form 20-F fails for the same reason that Plaintiff’s claims with respect to the 2014 Form 20-F fail.
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Even if the Complaint were somehow construed to find sufficient minimum
contacts, such contacts are weak and asserting jurisdiction under those circumstances would be
unreasonable. Metro. Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d at 569 (“the weaker the
plaintiff’s showing [on minimum contacts], the less a defendant need show in terms of
unreasonableness to defeat jurisdiction.”) (quoting Ticketmaster–New York, Inc. v. Alioto, 26
F.3d 201, 210 (1st Cir. 1994)). The burden required to haul Mr. Charlier and Mr. Davies into a
United States courtroom is high. Both live and work outside of the United States. Neither is
alleged to have participated in (or have known about) the improper payments. Indeed, both
joined VimpelCom after the last payment, after the last false recording and after the disclosure of
the investigation into the conduct in Uzbekistan.
Finally, the dismissal of Messrs. Charlier and Davies would not affect the ability
to recover in this action should the Complaint’s allegations be proven at trial; this Court has
already ruled that the action may proceed against VEON. City of Monroe Emps. Ret. Sys. v.
Bridgestone Corp., 399 F.3d 651, 666 (6th Cir. 2005) (jurisdiction over foreign officer was not
reasonable where other defendants were subject to jurisdiction and “the marginal addition of
[current officer] would add little or nothing to the potential recovery should the plaintiffs
ultimately prevail on the merits and be awarded damages, for which [the current corporate
officers] would be at most ‘liable jointly and severally’ but not separately liable”). Under these
circumstances, exercising personal jurisdiction would be unreasonable and unfair.
II. PLAINTIFF HAS NOT STATED A CLAIM FOR VIOLATION OF § 10(b) AND RULE 10b-5 AGAINST MESSRS. CHARLIER AND DAVIES
Plaintiff’s claim that the Individual Defendants violated Section 10(b) and Rule
10b-5 is subject to the heightened pleading requirements of Fed. R. Civ. P. 9(b) and the PSLRA.
See In re VEON Ltd. Sec. Litig., 2017 WL 4162342, at *4. Plaintiff must allege facts sufficient
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to show that each defendant, in connection with the purchase or sale of securities: (i) made a
materially false statement or omitted a material fact; (ii) with scienter; and (iii) and that the
plaintiff’s reliance on the defendant’s action caused plaintiff’s injury. ECA Local 134 IBEW
Joint Pension Trust v. JP Morgan Chase Co., 553 F.3d 187, 197 (2d Cir. 2009). Plaintiff has
failed to plead any of these requisite elements with respect to either Mr. Charlier or Mr. Davies.
A. Plaintiff Has Not Pled Any Actionable Misstatement or Omission By Either Mr. Charlier or Mr. Davies
Plaintiff does not – and cannot – meet its burden of proving that either Mr.
Charlier or Mr. Davies “made a materially false statement or omitted a material fact.” ECA, 553
F.3d at 197.
With respect to Mr. Charlier, the Complaint does not allege that he made any
statements at all. Plaintiff has not alleged (and logically could not allege) that Mr. Charlier had
any involvement in any of the alleged misstatements made before he joined the Company, and
the Court has ruled that no actionable false statements were made after he became CEO. Supra,
p.8. Accordingly, Count I against Mr. Charlier must be dismissed. See Janus Capital Grp. v.
First Derivative Traders, 564 U.S. 135, 141-42 (2011) (no liability under Rule 10b-5 for
defendant who did not “make” the misstatements at issue); In re UBS AG Sec. Litig., No. 07
CIV. 11225 RJS, 2012 WL 4471265, at *11 (S.D.N.Y. Sept. 28, 2012) (“where an Individual
Defendant has not ‘made’ the allegedly material misstatement, he cannot be liable under the
Exchange Act.”), aff'd sub nom., City of Pontiac Policemen's & Firemen's Ret. Sys. v. UBS AG,
752 F.3d 173 (2d Cir. 2014).
Nor has Plaintiff alleged any actionable misstatement by Mr. Davies. The
Complaint only claims that Mr. Davies signed one allegedly false SOX certification. (¶165). As
an initial matter, because Plaintiff does not allege which statement in Mr. Davies’ SOX
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certification was false or misleading, it cannot satisfy the PSLRA requirements, having “fail[ed]
to individually identify the specific statements asserted to be false and/or misleading.” See Rok v.
Identiv, Inc., No. 15-CV-5775-CRB, 2017 WL 35496, at *9 (N.D. Cal. Jan. 4, 2017) (dismissing
securities claim because plaintiff failed to identify which statement in SOX certification was
false or misleading). But even if Plaintiff could overcome this threshold hurdle, nothing in the
SOX certification is actionable. Mr. Davies’ SOX certification simply states that, based on his
knowledge, there were no untrue statements in the 2014 Form 20-F and that he disclosed any
“change” in the Company’s internal reporting with respect to the time period covered by the
report – namely fiscal year 2014. Plaintiff does not allege that Mr. Davies had any “knowledge”
that anything in the 2014 Form 20-F was untrue. Nor does Plaintiff allege any facts showing that
that there was any “change” in the internal controls over financial reporting in 2014 or that Mr.
Davies failed to evaluate the internal controls in 2014 that he reported he did. See also Barrett v.
PJT Partners Inc., No. 16-CV-2841 (VEC), 2017 WL 3995606, at *6 (S.D.N.Y. Sept. 8, 2017)
(SOX certifications not false when plaintiff did not allege that defendants did not, in fact,
evaluate the company’s internal controls and did not, in fact, report any issues to board and
auditors).
Moreover, the Court has held that the only actionable SOX certifications are those
that pertain to falsely recorded improper payments as the acquisition of an asset or consulting
service. In re VEON Ltd. Sec. Litig., 2017 WL 4162342, at *8. But the Complaint only alleges
improper payments and false recordings up until 2012, well before Mr. Davies was CFO and two
years before he made the SOX certification in 2015. (¶¶88-90). The Complaint does not allege
any improper payments or false recordings in 2014. And the SOX certification that Mr. Davies
made in March 2015, in connection with the 2014 Form 20-F, specifically disclosed the
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investigations concerning the improper payments in Uzbekistan and disclosed that the results of
such investigations could affect VimpelCom’s business, results of operations, financial
condition, or “the assessment of internal controls.” Supra, pp. 5-6. See In re Gentiva Sec. Litig.,
932 F. Supp. 2d 352, 370 (E.D.N.Y. 2013) (dismissing allegation that SOX certifications were
misleading because company’s internal controls over financial reporting were not “effective”); In
re PetroChina Co. Sec. Litig., 120 F. Supp. 3d 340, 358–60 (S.D.N.Y. 2015), aff'd, 644 F. App’x
13 (2d Cir. 2016) (same).10
Because neither Mr. Charlier nor Mr. Davies made any actionable false statement,
Plaintiff cannot state a violation of Section 10(b) or Rule 10b-5. Count I should be dismissed.
B. Plaintiff Has Not Properly Alleged That Mr. Charlier Or Mr. Davies Acted with Scienter
Plaintiff also has failed to plead the requisite scienter to state a claim against Mr.
Charlier or Mr. Davies – an independent ground for dismissal. Under the PSLRA, a plaintiff
must “state with particularity facts giving rise to a strong inference that the defendant acted with
the required state of mind.” 15 U.S.C. § 78u-4(b)(2)(A). “The requisite state of mind in a Rule
10b-5 action is ‘an intent to deceive, manipulate or defraud.’” In re VEON Ltd. Sec. Litig., 2017
WL 4162342, at *9 (quoting Ganino v. Citizens Utilities Co., 228 F.3d 154, 168 (2d Cir. 2000)).
To satisfy the PSLRA's pleading requirements for scienter, a plaintiff must allege facts “(1)
showing that the defendants had both motive and opportunity to commit the fraud or (2)
10 As this Court has already noted, the In re PetroChina decision also distinguished a case where the complaint had alleged that the defendants falsely recorded bribes on company books, in the same way that Plaintiff alleges VimpelCom management falsely recorded the bribes on its books through 2012. In re VEON Ltd. Sec. Litig., 2017 WL 4162342, at *8. But those allegations all pre-date Mr. Davies and cannot render his certification years later false in retrospect. As In re PetroChina itself held, “Plaintiffs' failure to establish that the underlying fraud occurred during the applicable timeframe is in itself dispositive.” 120 F. Supp. 3d at 358.
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constituting strong circumstantial evidence of conscious misbehavior or recklessness.” Id.
(quoting ATSI Commc'ns, 493 F.3d at 99).
Plaintiff does not allege that either Defendant had any motive or opportunity to
commit the fraud. See In re VEON Ltd. Sec. Litig., 2017 WL 4162342, at *10 (“Plaintiffs do not
argue that they have alleged scienter under the motive and opportunity prong.”). Accordingly,
the “strength of the circumstantial allegations” of conscious misbehavior or recklessness “must
be correspondingly greater.” Campo v. Sears Holdings Corp., 371 F. App'x 212, 215–16 (2d
Cir. 2010) (citation omitted). Allegations of “merely enhanced negligence” or that a defendant
“ought to have known” are not sufficient. In re PXRE Grp. Sec. Litig., 600 F. Supp. 2d 510, 535
(S.D.N.Y.), aff'd, 357 F. App'x 393 (2d Cir. 2009) (citations omitted). Each defendant must be
judged separately. City of Monroe Emps. Ret. Sys. v. Hartford Fin. Servs. Grp., No. 10 Civ.
2835 (NRB), 2011 WL 4357368, at *13 (S.D.N.Y. Sept. 19, 2011) (“[p]laintiffs must plead
scienter with respect to each defendant.”).
The Complaint offers no allegations to meet this high standard. With respect to
Mr. Charlier, Plaintiff does not allege that Mr. Charlier acted at all – much less with scienter.
The law is well established that, where, as here, the defendant was not employed by the
Company at the time of the alleged fraud, the “failure to establish that the underlying fraud
occurred during the applicable timeframe is in itself dispositive.” In re PetroChina Co. Sec.
Litig., 120 F. Supp. 3d at 358 (dismissing securities claims based on actions when individual
defendants were not employed by company); see also In re UBS AG Sec. Litig., 2012 WL
4471265, at *22 n.20 (“the Court dismisses all claims against the Individual Defendants to the
extent that they rely on any part of the alleged frauds that occurred before they assumed those
roles or after they left UBS”). Indeed, the only event alleged in the Complaint that even
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occurred while Mr. Charlier was CEO – namely, that VIP fully cooperated in a “best-of-show
manner” as soon as it learned of the government’s investigation (¶91) – weakens any inference
(if any) of scienter. See Slayton v. Am. Express Co., 604 F.3d 758, 777 (2d Cir. 2010)
(“Ordering an investigation . . . was a prudent course of action that weakens rather than
strengthens an inference of scienter.”) (citation and internal quotation marks omitted).
Plaintiff similarly does not allege that Mr. Davies acted with scienter. All of the
improper payments and false recordings allegedly occurred before he joined VimpelCom. The
mere signing of a SOX certification – which again is all that is alleged against Mr. Davies – is
“insufficient to support a strong inference of recklessness in the absence of more particularized
allegations.” Hutchinson v. Perez, No. 12 Civ. 1073 (HB), 2012 WL 5451258, at *6 (S.D.N.Y.
Nov. 8, 2012) (“Plaintiff cannot rely on the mere fact that Defendants . . . signed certifications
. . . to support recklessness.”) Id. (quoting MBIA Sec. Litig., 700 F. Supp. 2d 566, 590 (S.D.N.Y.
2010)). See also Barrett v. PJT Partners Inc., 2017 WL 3995606, at *9 (“the corresponding
inference of scienter is not more compelling than the inference that [the certifying officers]
believed that [the company’s] controls were adequate.”); Int'l Ass'n of Heat v. IBM, 205 F. Supp.
3d 527, 536 (S.D.N.Y. 2016) (“‘required certifications under Sarbanes-Oxley . . . add nothing
substantial to the scienter calculus because ‘allowing Sarbanes-Oxley certifications to create an
inference of scienter in every case where there was an accounting error or auditing mistake made
by a publicly traded company would eviscerate the pleading requirements for scienter set forth in
the PSLRA’ ”) (citations omitted). The SOX certification states that it was limited to facts
within Mr. Davies’ personal knowledge for the 2014 time period; Plaintiff has not alleged any
facts which would demonstrate that Mr. Davies knew anything contrary to what was represented
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in that form, which disclosed the investigation and its potential impact on financial reporting and
internal controls. Supra, pp. 5-6.
To the extent Plaintiff claims scienter based on Defendants’ positions at the
Company, that too fails on its face. See N. Collier Fire Control & Rescue Dist. Firefighter
Pension Plan v. MDC Partners, Inc., No. 15 Civ. 6034 (RJS), 2016 WL 5794774, at *21
(S.D.N.Y. Sept. 30, 2016) (“The mere fact that a defendant held a supervisory position or a
position of authority,” including chairman of the board and CEO, “has been repeatedly rejected
by courts in this District as supportive of an inference of scienter”); Bd. of Trustees of City of Ft.
Lauderdale Gen. Emps.’ Ret. Sys., 811 F. Supp. 2d 853, 873 (S.D.N.Y. 2011) (“[C]ourts in
[S.D.N.Y.] have long held that accusations founded on nothing more than a defendant’s
corporate position are entitled to no weight.”) (citation and internal quotation marks omitted).
Nor can Plaintiff allege scienter through its allegations that lump “defendants”
together. See Gurfein v. Ameritrade, Inc., 411 F. Supp. 2d 416, 426-27 (S.D.N.Y. 2006)
(“Plaintiff lumps defendants together at various points in the amended complaint, making
allegations against “defendants,” without specifying which defendant plaintiff is referring to . . .
This sort of broad-brush allegation against numerous defendants is inadequate.”) (citation
omitted). The facts and holding in In re Rhodia S.A. Sec. Litig. are instructive. In that case,
plaintiffs attempted to sue several individuals, including the company’s CEO and its CFO, based
on “general allegations . . . that ‘Defendants’ were aware of the financially detrimental
investments.” 531 F. Supp. 2d at 550. The court dismissed the claims against the CEO and CFO,
finding that “[t]hese kinds of allegations are not sufficient” and that the complaint failed to plead
specific knowledge. Id. As that court held, “officers cannot be imputed with knowledge about
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all transactions which occur at a corporation for purposes of pleading scienter.” Id. The Court
should hold likewise here.
Finally, the other potentially relevant allegations in the Complaint actually negate
any inference of scienter. Plaintiff has alleged that the employees at VimpelCom structured the
improper payments in order to ensure that upper management (like Messrs. Charlier or Davies)
would not be able to detect those payments. (¶¶67-74). Even if one were to ignore the fact that
neither Mr. Charlier or Mr. Davies was employed by VimpelCom at the time of the improper
payments, the scheme was allegedly designed to ensure that those senior officers holding
positions at the time were kept in the dark as to the misconduct.
C. Plaintiff Has Not Alleged That Mr. Charlier Or Mr. Davies Caused Its Purported Losses
The Complaint also fails because it does not (and cannot) allege that Messrs.
Charlier or Davies caused Plaintiff any loss. Under the PSLRA, Plaintiff must show that each
defendant’s act or omission caused the economic loss for which the plaintiff seek to recover
damages. In re VEON Ltd. Sec. Litig., 2017 WL 4162342, at *11. The PSLRA states that “[i]n
any private action arising under this chapter, the plaintiff shall have the burden of proving that
the act or omission of the defendant alleged to violate this chapter caused the loss for which the
plaintiff seeks to recover damages.” Id. (quoting 15 U.S.C. § 78u-4(b)(4)). This loss causation
requirement “is the causal link between the alleged misconduct and the economic harm
ultimately suffered by the plaintiff.” Id. (quoting Lentell v. Merrill Lynch & Co., 396 F.3d 161,
172 (2d Cir. 2005)). Under Rule 10b-5, Plaintiff must allege proximate causation as well as
economic loss. Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 346 (2005).
Mr. Charlier did not make any actionable misstatement and thus he could not have
caused any of Plaintiff’s losses. See In re UBS AG Sec. Litig., 2012 WL 4471265, at *22 n.20
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(noting that individual defendants plainly cannot be held liable under loss causation for “alleged
losses resulting from statements made . . . before they had assumed the rules in which they are
alleged to have committed fraud.”).
The Complaint also does not plead that Mr. Davies caused Plaintiff’s losses. As
for any losses caused by false statements prior to March 24, 2015, Mr. Davies is not alleged to
have made any such misstatement and thus could not have caused any such losses.11 Nor can
Plaintiff show that any losses were caused by the alleged misstatement in the SOX certification
made in connection with the 2014 Form 20-F. That form was filed more than one year after
Plaintiff alleges that VimpelCom made the first corrective disclosure, and the price of
VimpelCom shares had already dropped. Plaintiff’s argument – that Mr. Davies’ SOX
certification in 2015 somehow caused its losses when the market was already made aware of
VimpelCom’s potential liabilities with regard to its internal controls (and which the 2014 Form
20-F re-affirmed) – is neither factually nor legally plausible. See id.
III. THE COMPLAINT FAILS TO STATE A CLAIM AGAINST MESSRS. CHARLIER AND DAVIES UNDER § 20(A) OF THE EXCHANGE ACT
Plaintiff’s claim for “control person” liability under Section 20(a) of the
Exchange Act also fails. Plaintiff must allege ‘“(1) a primary violation by the controlled person,
(2) control of the primary violator by the defendant, and (3) that the defendant was, in some
meaningful sense, a culpable participant in the controlled person’s fraud.’” Harbinger Capital
Partners LLC v. Deere & Co., 632 F. App’x 653, 657 (2d Cir. 2015) (affirming dismissal of
11 Notably, under no circumstances could the March 24, 2015 alleged misstatement by Mr. Davies have caused any loss to Lead Plaintiff, which sold all of its shares of VimpelCom stock before then on October 31, 2014 and March 6, 2015. Dkt. 10-2.
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§ 20(a) claim) (citation omitted); Ross v. Lloyds Banking Grp., PLC, 546 F. App’x 5, 12 (2d Cir.
2013)) (same). Plaintiff cannot satisfy either the second or third prong.
As to the second prong, the Complaint offers no allegations sufficient to show that
either Mr. Charlier or Mr. Davis controlled VimpelCom, and in at least one paragraph, it alleges
the exact opposite: “VimpelCom controlled the Individual Defendants.” (¶189). Once again, the
timing is important and serves as Plaintiff’s undoing. Mr. Charlier did not become CEO until
April 2015, well after any improper payments were paid and any alleged misstatements made.
Mr. Davies likewise joined VimpelCom after any improper payments were paid and his alleged
misstatement actually re-affirmed the investigations into the bribery scheme. In re Braskem S.A.
Sec. Litig., 246 F. Supp. 3d 731, 771 (S.D.N.Y. 2017) (corporate officers cannot be liable under
§ 20(a) for public filings when they were not at the company). Accordingly, neither can be said
to have controlled VimpelCom at the time of the transactions at issue. See In re Global
Crossing, Ltd. Sec. Litig., No. 02 Civ. 902 (GEL), 2005 WL 1881514, at *12 (S.D.N.Y. Aug. 5,
2005) (a plaintiff must allege “that defendant had ‘actual control over the transaction in
question’”) (citation omitted); see also Lewy v. SkyPeople Fruit Juice, Inc., No. 11-cv-2700,
2012 WL 3957916, at *12 (S.D.N.Y. Sept. 10, 2012) (considering whether the defendants had
control “over [the company’s] publication of the allegedly false statements”).
Nor does the Complaint allege any other facts showing any control by either Mr.
Davies or Mr. Charlier over VimpelCom. The Complaint asserts only the most boilerplate
allegation that all of the Individual Defendants should be held liable “[b]y virtue of their
positions with the Company and ownership of VimpelCom securities.” (¶189). But the
Complaint does not list how many VimpelCom securities Mr. Charlier or Mr. Davies owned (if
any), when any such securities were acquired, or how these securities purportedly resulted in any
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“control” over VimpelCom. To the extent Plaintiff claims that the positions of Messrs. Charlier
and Davies at the Company are sufficient to create control under Section 20(a), the allegation
also is insufficient. See Goldberg v. Gray, No. 5:15-CV-0538 (DNH/TWD), 2016 WL 4099189,
at *7 (N.D.N.Y. Aug. 2, 2016) (“Officer or director status alone does not constitute control for
the purposes of § 20(a) liability.”); In re Livent, Inc. Sec. Litig., 78 F. Supp. 2d 194, 221
(S.D.N.Y. 1999) (“Officer or director status alone does not constitute control;” granting motion
to dismiss § 20(a) claim).
As to the third prong, Plaintiff does not even attempt to plead that either Mr.
Charlier or Mr. Davies “was, in some meaningful sense, a culpable participant in [the] alleged
fraud.” Bayerische Landesbank v. Barclays Capital, Inc., 902 F. Supp. 2d 471, 474 (S.D.N.Y.
2012) (dismissing § 20(a) claim).12 Plaintiff only alleges that “the Individual Defendants had the
power and authority to cause VimpelCom to engage in the wrongful conduct complained of
herein.” (¶189) (emphasis added). This is a far cry from alleging that Messrs. Charlier and
Davies actually participated in the alleged fraud – which, as detailed above, occurred years
before their tenure. More is required to allow Section 20(a) claims to proceed. See Bayerische
Landesbank, 902 F. Supp. 2d at 474-75 (allegation that an individual “was aware of or directly
12 While District Courts are split as to the meaning of “culpable participation” with some courts holding that notice pleading is sufficient, “the majority of district courts in this Circuit have required Section 20(a) plaintiffs to allege that the defendant was, in some meaningful sense, a culpable participant in the controlled person's fraud.” Special Situations Fund III QP, L.P. v. Deloitte Touche Tohmatsu CPA, Ltd., 33 F. Supp. 3d 401, 437 (S.D.N.Y. 2014), aff'd, 645 F. App’x 72 (2d Cir. Apr. 8, 2016). See In re EZCorp, Inc. Sec. Litig., 181 F. Supp. 3d 197, 212 (S.D.N.Y. 2016) (Carter, J) (collecting cases). This Court need not decide this issue because even adopting the minority rule, Plaintiff has failed to plead facts showing that the Defendants acted with any culpability. See In re Vale S.A. Sec. Litig., No. 1:15-cv-9539-GHW, 2017 WL 1102666, at *34 (S.D.N.Y. Mar. 23, 2017) (“even assuming that ‘culpable participation’ is a less stringent standard than scienter, Plaintiffs simply do not allege facts showing that Defendant [] acted with any culpability in connection with the dissemination of the statements that survive, on a primary violation basis, Defendants’ motion to dismiss.”)
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participated in the fraud,” including by concealing adverse information, was conclusory and
insufficient to sustain a 20(a) claim).
IV. THE COMPLAINT SHOULD BE DISMISSED WITH PREJUDICE AGAINST MESSRS. CHARLIER AND DAVIES
To the extent Plaintiff might seek leave to amend its complaint again to cure any
of its fatal pleading deficiencies, that request should be denied. As set forth above, neither Mr.
Charlier nor Mr. Davies was employed at VimpelCom during the time of the alleged improper
payments or the false entries in its books and records. Because the deficiencies as to Messrs.
Charlier and Davies are substantive and incurable, allowing amendment would be futile. In re
Sanofi Sec. Litig., 87 F. Supp. 3d 510, 548-49 (S.D.N.Y. 2015) (denying leave to amend where
deficiencies in complaint were substantive because “[t]he statements plaintiffs identify were not
false or misleading [a]nd the facts alleged in the complaints support the conclusion that
defendants sincerely and reasonably believed their statements to be true.”), aff'd sub nom.,
Tongue v. Sanofi, 816 F.3d 199 (2d Cir. 2016).
CONCLUSION
For the foregoing reasons, Messrs. Charlier and Davies respectfully request that
the claims against them in the Amended Complaint be dismissed with prejudice.
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Dated: New York, New York February 9, 2018
KRAMER LEVIN NAFTALIS & FRANKEL LLP By: /s/ John P. Coffey John P. Coffey Kerri Ann Law Adina C. Levine 1177 Avenue of the Americas New York, New York 10036 Tel: (212) 715-9100 Fax: (212) 715-8100 [email protected] [email protected] [email protected] Matthew J. Matule (admitted pro hac) Deputy General Counsel - Litigation VEON Ltd. Claude Debussylaan 88 1082 MD Amsterdam The Netherlands Tel: +31 20 79 77 200 Fax: +31 20 79 77 201 [email protected] Attorneys for Defendants Jean-Yves Charlier and Andrew Mark Davies
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