Heavy & General Laborers' Local 472 & 172 Pension and Annuity Funds et al v. Fifth Third Bancorp et al

Filing 66

OPINION AND ORDER. For the reasons stated in the accompanying Opinion and Order, the Court grants Defendants' motion to dismiss #58 . The Court dismisses the consolidated complaint without prejudice. The Court gives Lead Plaintiff until June 11, 2021 to file an amended complaint if it can do so consistent with Federal Rule of Civil Procedure 11 and this Opinion. Telephone Conference set for 4/27/2021 is stricken and reset to 7/13/2021 at 9:30 AM. Attorneys/Parties should appear for the hearing by calling the Toll-Free Number: [phone], Access Code: 8087837. Members of the public and media will be able to call in to listen to this hearing (use toll free number). Please be sure to keep your phone on mute when you are not speaking. Persons granted remote access to proceedings are reminded of the general prohibition against photographing, recording, and rebroadcasting of court proceedings. Violation of these prohibitions may result in sanctions, including removal of court issued media credentials, restricted entry to future hearings, denial of entry to future hearings, or any other sanctions deemed necessary by the Court. Signed by the Honorable Sara L. Ellis on 4/26/2021. Mailed notice(rj, )

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
HEAVY & GENERAL LABORERS’
LOCAL 472 & 172 PENSION AND
ANNUITY FUNDS et al., individually
and on behalf of all others similarly situated,
Plaintiff,
v.
FIFTH THIRD BANCORP, GREG D.
CARMICHAEL, and TAYFUN TUZUN,
Defendants.

)
)
)
)
)
)
)
)
)
)
)
)
)

No. 20 C 2176
Judge Sara L. Ellis

OPINION AND ORDER
An individual shareholder brought this putative securities class action lawsuit on behalf
of herself and all others who purchased common stock in Fifth Third Bancorp (“Fifth Third”)
from November 9, 2016 through March 6, 2020 (the “Class Period”), alleging that Defendants
Fifth Third and its officers Greg D. Carmichael and Tayfun Tuzun engaged in federal securities
fraud. After the Court appointed putative class member Heavy & General Laborers’ Local 472
& 172 Pension and Annuity Funds as Lead Plaintiff, it filed a consolidated complaint, in which it
alleges that Defendants Fifth Third, Carmichael, and Tuzun violated §§ 10(b) and 20(a) of the
Securities Exchange Act of 1934 (the “Exchange Act”), codified at 15 U.S.C. §§ 78j(b) and
78t(a), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5. Defendants now move to dismiss the
consolidated complaint. Because Lead Plaintiff has failed to allege facts that give rise to a strong
inference of scienter on the part of any Defendant, the Court grants Defendants’ motion to
dismiss without prejudice.

BACKGROUND 1
I.

The Parties
Heavy & General Laborers’ Local 472 & 172 Pension and Annuity Funds is based in

Newark, New Jersey, and the Court appointed it Lead Plaintiff on June 29, 2020. Lead Plaintiff
purchased shares of Fifth Third common stock during the Class Period.
Fifth Third, headquartered in Cincinnati, provides financial services to corporations,
individuals, and non-profits, including an assortment of checking, savings, and money market
accounts, wealth management solutions, payments and commerce solutions, insurance services,
and credit products such as commercial loans and leases, mortgage loans, credit cards,
installment loans, and auto loans. Fifth Third also operates full-service banking centers across
Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Georgia, and
North Carolina.
During the Class Period, Carmichael served as Fifth Third’s President and Chief
Executive Officer. He also took over as the Chairman of the Board of Directors in January 2018.
Likewise, Tuzun served as Fifth Third’s Executive Vice President and Chief Financial Officer
during the Class Period.
II.

The Consumer Financial Protection Bureau (the “CFPB) Investigation into Fifth
Third’s Sales Practices
On November 3, 2016, the CFPB notified Fifth Third of an investigation into Fifth

Third’s sales practices, providing Fifth Third with a Civil Investigation Demand (“CID”)
addressed to Carmichael. The CID indicated that the CFPB had concerns with Fifth Third’s
practices in, among other things, “opening an account for any product or service offered by the
The Court takes the facts in the background section from Lead Plaintiff’s consolidated complaint and
presumes them to be true for the purpose of resolving Defendants’ motion to dismiss. See Phillips v.
Prudential Ins. Co. of Am., 714 F.3d 1017, 1019–20 (7th Cir. 2013).
1

2

Company without the knowledge and consent of a consumer,” “changing, without the
consumer’s knowledge and consent, the type of account or service in which the consumer is
enrolled,” and “engaging in unauthorized transactions on behalf of a consumer.” Doc. 53 ¶ 21.
The CFPB further issued five additional CIDs to Fifth Third concerning the use of unauthorized
accounts and predatory consumer practices between 2017 and 2019, all addressed to Carmichael.
III.

The CFPB Complaint Filed Against Fifth Third
On March 9, 2020, the CFPB filed a complaint against Fifth Third in the United States

District Court for the Northern District of Illinois, Bureau of Consumer Financial Protection v.
Fifth Third Bank, N.A., No. 20 C 1683, alleging that Fifth Third violated the Consumer Financial
Protection Act’s prohibition against unfair and abusive acts or practices, the Truth in Lending
Act, and the Truth in Savings Act. In the complaint, the CFPB alleged that “Fifth Third used a
‘cross-sell’ strategy to increase the total number of products and services to existing customers”
and “used an incentive-compensation program that rewarded managers and their subordinate
employees for selling new products and services to existing customers.” Doc. 53 ¶ 35. The
CFPB also claimed that Fifth Third opened deposit and credit card accounts without customers’
knowledge or consent and imposed “aggressive” sales goals for its employees to enroll
consumers in its online banking services. Id. ¶ 37.
The CFPB asserted that by 2009, Fifth Third noticed an increase in unauthorized credit
cards issued to consumers. It also stated that Fifth Third knew of the practice of opening lines of
credit on consumers’ deposit accounts without knowledge or consent by June 2010, “when senior
management was notified of an increase in the number of calls by employees to the internal
whistleblower hotline regarding the unauthorized opening of . . . lines of credit.” Id. The
complaint emphasized that, even after learning of the unauthorized consumer-financial products

3

and services, Fifth Third continued to push sales practices that likely would cause the opening of
unauthorized services or products. According to the CFPB, Fifth Third “failed to take steps to
determine and address a root cause of unauthorized accounts, which was consistently said by
employees to be intense sales pressure,” and “failed to close known loopholes in its collection of
proof of consumer authorization, thereby making it easy for employees to open accounts without
valid signature cards for deposit accounts or applications for credit products.” Id. ¶ 38.
IV.

Revelations Concerning Fifth Third’s Sales Practices as a Result of the CFPB
Investigation
As a result of the November 3, 2016 CID, Fifth Third produced more than 50,000 pages

of documents, emails, and data regarding consumer accounts and products to the CFPB. The
parties filed a number of these documents in redacted form in conjunction with a venue dispute
in the CFPB lawsuit. According to the CFPB, these documents revealed that Fifth Third knew of
its problematic sales practices as early as 2008.
For example, the CFPB highlighted a June 2010 internal email from an individual the
CFPB identified as Fifth Third’s “head of retail banking” that the Chicago “leadership team have
a reputation of less than desirable sales management practices” and that “[b]ullying and threats
are often used to achieve results.” Id. ¶ 44. The email further stated that “there have been
consistent problems around unauthorized credit card sales in Chicago.” Id. An additional email
from a former regional manager of Fifth Third stated that “[Fifth Third] had a fraud issue within
the Center and upon investigation discovered that [redacted name] had knowledge and allowed
other employees to use each other’s terminals and IDs to conduct transactions (in some cases for
themselves).” Id. ¶ 45. In a resignation letter that the CFPB identified as sent to “bank
management,” a Fifth Third employee discussed “witnessing unethical and predatory banking
practices.” Id. ¶ 46. The banker specifically told Fifth Third’s management, “I would consider
4

many of the sales practices and tactics used [at Fifth Third] to be predatory. Many of these sales
practices were brought to us by the regional and market management. They are openly discussed
on our conference calls.” Id. The letter also identified “[p]olicies such as ‘everyone should have
2-3 checking accounts’, or people ‘upgrading’ (switching existing MasterCard customers to Visa
rewards) credit cards for customer[s] without telling them they are applying for new credit” and
noted that Fifth Third was “becoming a ‘predatory’ institution.” Id.
Further, the CFPB summarized deposition testimony as showing that Fifth Third
internally investigated cases of what it called “gaming,” which includes “opening unauthorized
accounts but is broadly defined as the ‘manipulation or concealment of accounts or activities
with intent to deceive either customer or bank for personal gain,’ including ‘goal attainment,
financial gain, retention of position, etc.’” Id. ¶ 47. The CFPB also identified that “Fifth Third
admits that from 2010 to 2016 it opened more than 1,000 accounts without . . . authorization,”
further commenting that “[t]here is substantial evidence that Fifth Third’s admission understates
its problem, and Fifth Third continued to drive sales without implementing a systematic way to
detect unauthorized accounts.” Id. As with the documents filed in conjunction with the venue
dispute, the parties also withheld deponents’ names.
Former Fifth Third employees also described unethical practices employees engaged in
due to pressures imposed by Fifth Third to attain sales goals. According to a former Fifth Third
employee who worked from July 2001 to July 2020 at branches in Illinois, Fifth Third’s regional
bank managers used financial incentives to entice branch managers to meet sales goals for credit
card applications as late as 2020. Another unidentified former employee also asserted that
employees who did not reach their goals were under threat of losing their jobs and that
employees knew that the only way to meet new account goals was to open fake accounts. This

5

former employee also reported on unethical practices linked to opening unauthorized credit cards
without permission or approval of the customer.
V.

Fifth Third’s Stock Sales and Acquisition of MB Financial
In March 2019, Fifth Third completed a $4.7 billion acquisition of MB Financial, a

Chicago-based company. MB Financial shareholders approved the acquisition in part based on
Fifth Third’s Registration Statement, which highlighted the historical performance of its
common stock. Fifth Third had to use that common stock to fund 90% of the $4.7 billion
acquisition price because Fifth Third did not have sufficient capital to complete the acquisition
with cash. As such, Fifth Third issued approximately 131 million new shares of common stock
that, as of March 22, 2019, traded at the price of $24.62 per share.
In that same year, on September 17, 2019, Fifth Third sold 10 million preferred shares at
$25.00 per share. The prospectus for the offering incorporated risk factors from Fifth Third’s FY
2018 Form 10-K and noted that Fifth Third would use the proceeds from the offering for general
corporate purposes, including repurchases of shares of its common stock. As a result of this
offering, Fifth Third raised $242 million.
But, after Fifth Third disclosed the CFPB investigation and anticipated lawsuit in its FY
2019 Form 10-K on March 2, 2020, Fifth Third’s stock price dropped from $22.20 on March 6 to
$18.30 on March 9, a $3.90 per share decline. Although the market was declining on March 9,
Fifth Third’s stock price fell more than the market as a whole and the stock price of peer banks.
Fifth Third’s stock continued to decline, losing 28% per share between March 9 and March 12.
VI.

Carmichael and Tuzun’s Incentive Compensation and Stock Sales
According to the 2017 Definitive Proxy Statement, Fifth Third’s executive compensation

structure used pay for performance incentive compensation, with stock price growth,

6

performance relatives to peers, and a risk performance assessment the key components in
determining executives’ incentive compensation.
The incentive compensation Carmichael received for 2016, 2017, and 2018 exceeded his
annual salary. In total, during the Class Period, Carmichael collected over $23.4 million in
incentive-based compensation, representing more than 88% of his total compensation. As of
March 2020, Fifth Third cut Carmichael’s incentive compensation by $2.4 million when
compared to the $9,849,976 he received in incentive compensation and stock awards in 2019.
The incentive compensation Tuzun received for 2016, 2017, and 2018 also exceeded his annual
salary. During the Class Period, Tuzun collected a total of $6.2 million in incentive-based
compensation, representing more than 79% of his total compensation.
During the Class Period, Carmichael sold more than $5.8 million of his Fifth Third stock,
26% in total. As reflected in the chart below, Carmichael sold his Fifth Third stock at prices that
were 22% to 104% higher than where the stock price traded following the March 2020 disclosure
of the CFPB investigation and lawsuit.

Id. ¶ 120. Over the eighteen months before the start of the Class Period and in the six months
following the end of the Class Period, however, Carmichael did not sell any of his Fifth Third
stock.

7

VII.

Defendants’ Allegedly False and Misleading Statements
During the Class Period, which began on November 9, 2016, when Fifth Third filed its

Form 10-Q quarterly report with the SEC, Lead Plaintiff alleges that Defendants made false and
misleading statements and material omissions concerning Fifth Third’s (1) purported risk
disclosures, (2) risk management practices, (3) Code of Business Conduct and Ethics, (4) product
cross-selling and consumer business, and (5) employee incentive compensation.
A.

Fifth Third’s Risk Disclosures

Lead Plaintiff first asserts that Defendants made misleading statements and material
omissions regarding the risks Fifth Third faced in both the Form 10-Qs and Form 10-Ks it filed
with the SEC. Fifth Third filed its 3Q 2016 Form 10-Q, which Carmichael and Tuzun signed,
shortly after it received the CFPB’s CID. The 3Q 2016 Form 10-Q stated that there “have been
no material changes made during the third quarter of 2016 to any of the risk factors as previously
disclosed in the Bancorp’s most recent annual report and subsequent periodic reports as filed
with the SEC.” Id. ¶ 52. Fifth Third had most recently listed its risk factors in its FY 2015 Form
10-K (filed February 25, 2016) and 2Q 2016 Form 10-Q (filed August 5, 2016). The risk factors
included:
•

Fifth Third’s actual or alleged conduct in activities, such as lending
practices, data security, corporate governance and acquisitions,
may result in negative public opinion and may damage Fifth
Third’s reputation. Actions taken by government regulators and
community organizations may also damage Fifth Third’s
reputation.

•

Fifth Third and/or its affiliates are or may become involved from
time to time in information-gathering requests, reviews,
investigations and proceedings (both formal and informal) by
governmental regulatory agencies and law enforcement authorities,
as well as self-regulatory agencies, regarding their respective
businesses.

8

•

Compliance with the rules and policies adopted by the CFPB may
limit the products Fifth Third may permissibly offer to customers,
or limit the terms on which those products may be issued, or may
adversely affect Fifth Third’s ability to conduct its business as
previously conducted.

•

Like other large financial institutions and companies, Fifth Third is
also subject to risk from potential employee misconduct, including
noncompliance with policies and improper use or disclosure of
confidential information.

•

[T]he CFPB . . . [has] the authority to compel or restrict certain
actions by Fifth Third and its banking subsidiary, Fifth Third Bank.
. . . In the wake of the most recent global financial crisis, Fifth
Third and other financial institutions more generally have been
subjected to increased scrutiny from government authorities,
including bank regulatory authorities, stemming from broader
systemic regulatory concerns, including with respect to . . .
consumer compliance and other prudential matters and efforts to
ensure that financial institutions take steps to improve their risk
management and prevent future crises.

•

[G]overnment authorities, including the bank regulatory agencies,
are also pursuing aggressive enforcement actions with respect to
compliance and other legal matters involving financial activities,
which heightens the risks associated with actual and perceived
compliance failures.

Id. ¶ 52. Fifth Third included these same risk factors in its FY 2016 Form 10-K, filed on
February 24, 2017, which Carmichael and Tuzun signed. The FY 2016 Form 10-K also included
the following statement:
•

Fifth Third’s framework for managing risks may not be effective in
mitigating its risk and loss. . . . A failure in Fifth Third’s internal
controls could have a significant negative impact . . . on the
perception that customers, regulators and investors may have of
Fifth Third. . . . If Fifth Third’s risk management framework
proves ineffective, Fifth Third could incur litigation, negative
regulatory consequences [and] reputational damages . . . .

Id. ¶ 53.

9

In 2018 and 2019, Fifth Third’s FY 2017 and 2018 Form 10-Ks, signed again by
Carmichael and Tuzun, identified the following risk factors, in pertinent part, that “could” have
an impact on Fifth Third’s operations and business:
•

Fifth Third’s actual or alleged conduct in activities, such as certain
sales and lending practices, data security, corporate governance
and acquisitions, behavior of employees, association with
particular customers, business partners, investment or vendors, as
well as developments from any of the other risks described above,
may result in negative public opinion and may damage Fifth
Third’s reputation. Actions taken by government regulators,
shareholder activists and community organizations may also
damage Fifth Third’s reputation.

•

Fifth Third and/or its affiliates are or may become involved from
time to time in information-gathering requests, reviews,
investigations and proceedings (both formal and informal) by
governmental regulatory agencies and law enforcement authorities,
as well as self-regulatory agencies, regarding their respective
customers and businesses, as well as their sales practices, data
security, product offerings, compensation practices, and other
compliance issues. Also, a violation of law or regulation by
another financial institution may give rise to an inquiry or
investigation by regulators or other authorities of the same or
similar practices by Fifth Third. . . . Like other large financial
institutions and companies, Fifth Third is also subject to risk from
potential employee misconduct, including non-compliance with
policies and improper use or disclosure of confidential
information.

•

[T]he CFPB . . . [has] the authority to compel or restrict certain
actions by Fifth Third and its banking subsidiary, Fifth Third Bank.
. . . Fifth Third and other financial institutions are subject to
scrutiny from government authorities, including bank regulatory
authorities, stemming from broader systemic regulatory concerns,
including with respect to . . . consumer compliance and other
prudential matters and efforts to ensure that financial institutions
take steps to improve their risk management and prevent future
crises.

•

[G]overnment authorities, including the bank regulatory agencies
and law enforcement, are also pursuing aggressive enforcement
actions with respect to compliance and other legal matters
10

involving financial activities, which heightens the risks associated
with actual and perceived compliance failures.
•

Fifth Third’s framework for managing risks may not be effective in
mitigating its risk and loss. . . . A failure in Fifth Third’s internal
controls could have a significant negative impact . . . on the
perception that customers, regulators and investors may have of
Fifth Third. . . . If Fifth Third’s risk management framework
proves ineffective, Fifth Third could incur litigation, negative
regulatory consequences [and] reputational damages . . . .

Id. ¶¶ 54, 55.
B.

Fifth Third’s Risk Management Practices

Lead Plaintiff further contends that Defendants made misleading statements and material
omissions in Fifth Third’s Form 10-Qs and Form 10-Ks concerning its purported risk practices
for managing regulatory compliance risk. In its 3Q 2016 Form 10-Q, Fifth Third stated:
Regulatory compliance risk is defined as the risk of legal or
regulatory sanctions, financial loss, or damage to reputation as a
result of noncompliance with (i) applicable laws, regulations, rules
and other regulatory requirements (including but not limited to the
risk of consumers experiencing economic loss or other legal harm
as a result of noncompliance with consumer protection laws,
regulations and requirements); (ii) . . . codes of conduct; and
(iii) principles of integrity and fair dealing applicable to Fifth
Third’s activities and functions.
Id. ¶ 57. In that same form, Fifth Third listed its risk management practices as
follows:
•

Fifth Third focuses on managing regulatory compliance risk in
accordance with the Bancorp’s integrated risk management
framework, which ensures consistent processes for identifying,
assessing, managing, monitoring, and reporting risks.

•

The current regulatory environment, including heightened
regulatory expectations and material changes in laws and
regulations, increases compliance risk.

•

To mitigate compliance risk, Compliance Risk Management
provides independent oversight to ensure consistency and
11

sufficiency in the execution of the program, and ensures that lines
of business, regions and support functions are adequately
identifying, assessing and monitoring compliance risks and
adopting proper mitigation strategies. . . . Additionally,
Compliance Risk Management implements key compliance
programs and processes including but not limited to, risk
assessments, key risk indicators, issues tracking, regulatory
compliance testing and monitoring . . .
•

Compliance Risk Management provides independent oversight to
ensure that an enterprise-wide framework, including processes and
procedures, are in place to comply with applicable laws,
regulations, rules and other regulatory requirements; internal
policies and procedures; and principles of integrity and fair dealing
applicable to the Bancorp’s activities and functions. The Bancorp
focuses on managing regulatory compliance risk in accordance
with the Bancorp’s integrated risk management framework, which
ensures consistent processes for identifying, assessing, managing,
monitoring and reporting risks.

Id. ¶ 58.
On February 24, 2017, Fifth Third filed its FY 2016 Form 10-K, signed by Carmichael
and Tuzun. The form contained the same statements about the bank’s regulatory compliance risk
management practices as in the 3Q 2016 Form 10-Q. The Company’s FY 2017 and 2018 Form
10-Ks also contained nearly identical statements about Fifth Third’s purported regulatory
compliance risk management practices as the 3Q 2016 Form 10-Q.
Fifth Third’s FY 2017 Form 10-K further identified the “core principles of risk
management that are used to ensure [Fifth Third] is operating in a safe and sound manner.” The
form identified these “core principles” of risk management as:
•

Ensur[ing] Fifth Third’s products and services are designed,
delivered and maintained to provide value and benefit to its
customers and to Fifth Third, and that potential opportunities
remain aligned to the core customer base. The Bancorp does not
offer products or services that are not appropriate for its customers

•

Act[ing] with integrity in all activities.

12

•

Focus[ing] on providing operational excellence by providing
reliable, accurate and efficient services to meet customer’s needs.

•

Conduct[ing] business in compliance with all applicable laws,
rules and regulations and in alignment with internal policies and
procedures.

Id. ¶ 60.
C.

Fifth Third’s Code of Business Conduct and Ethics

As of 2016, Fifth Third maintained a Code of Business Conduct and Ethics, which it
amended several times during the Class Period and which it filed with the SEC on Current
Report Form 8-Ks so that investors could learn of its practices. The Code applied to all officers,
directors and employees of Fifth Third, including but not limited to Fifth Third’s principal
executive officer (Carmichael), principal financial officer (Tuzun), principal accounting officer,
and controller.
The purported misleading statements in the 2016 Code, filed with the SEC on Current
Report Form 8-K on March 16, 2016, were, in pertinent part:
•

We must all deal honestly, ethically, fairly and in good faith with
Fifth Third’s customers, shareholders, employees, suppliers,
regulators, business partners, competitors and others. We may not
take unfair advantage of anyone through manipulation,
concealment, abuse of privileged or confidential information,
misrepresentation, fraudulent behavior or any other unfair dealing
practice.

•

Employees, customers, shareholders and communities must know
that Fifth Third conducts all activities with the highest standards
and unquestioned integrity. They have to know by our actions that
they can trust us, and we have to show by our actions that we
provide something different; something of value.

•

Our Purpose is to listen to customers and inspire them with smart
financial solutions that continually improve their lives and the
well-being of our communities. Relationships are at the heart of
our Purpose, and what could be more personal than that? This is
not a mere collection of words, but rather a blueprint for how we
13

are to conduct ourselves. We ask questions. We listen. We
inspire. We focus on continual improvement – for customers, for
communities and for ourselves.
•

Employees are expected and required to take appropriate steps to
address issues that subject the bank to risk of potential regulatory,
reputational or legal harm.

Id. ¶ 65.
Fifth Third adopted an amended and restated Code on September 19, 2017, which it filed
as an exhibit to the 2017 Form 8-K filed with the SEC. The 2017 Code included a statement
from Carmichael, noting, “Doing the right thing is central to our ability to achieve our Vision to
be the One Bank people most value and trust. It’s a commitment that inspires us to create a great
customer experience . . . . It is a commitment that forms the bedrock of Fifth Third’s reputation
as a respected corporate citizen. And it is a commitment that begins with each Fifth Third
employee.” Id. ¶ 66. The alleged misleading statements in the 2017 Code were:
•

Fifth Third believes that fair and honest business practices are
essential to keeping our customer at the center of everything we
do. We should always act in the best interest of our customers.
Unethical business practices, such as incentive gaming, falsifying
documents or inflating performance results, are strictly prohibited.
You are prohibited from manipulating records, opening accounts
without customer authorization, offering customers unnecessary
products and falsifying records or applications in order to benefit
yourself or other employees of Fifth Third.

•

Fifth Third is committed to providing customers with financial
products and services in ways that avoid the use of any practices
that could be deemed predatory, unfair, deceptive or abusive.

•

Fifth Third Bancorp is committed to minimizing the impact of
internal and external fraud to both Fifth Third and our customers.
Every employee at every level of the Bancorp is accountable and
expected to do their part to protect Fifth Third and our customers
from fraudulent activity. There is zero tolerance for internal fraud
within Fifth Third’s organization and internal fraudulent activity
must be referred to Bank Protection when suspected. Failure to
report fraudulent activity exposes Fifth Third to regulatory and
14

compliance violations and could lead to significant financial
penalties and additional fraud losses.
•

Employees must not engage in deceptive or dishonest business
practices, such as misrepresenting products or offering customers
inaccurate or insufficient information about products in order to
benefit personally.

•

A fundamental part of our commitment to integrity is adhering to
the letter and the spirit of applicable laws, regulations and Bancorp
policies. All employees are required to fully comply with all
applicable laws, rules and regulations, as well as with all Fifth
Third policies and procedures.

Id. ¶ 66. In September 2018, Fifth Third amended the Code again, which it filed with its 2018
and 2019 Current Report Form 8-Ks. The 2018 Code included the same message from
Carmichael as found in the 2017 Code and further stated:
•

Fifth Third believes that fair and honest business practices are
essential to keeping our customer at the center of everything we
do. We should always act in the best interest of our customers.

•

Unethical business practices are strictly prohibited. Examples of
such activities include, but are not limited to:








Incentive gaming
Falsifying documents or inflating performance results
Manipulating records
Opening bogus or fake accounts
Opening accounts or selling products without customer
authorization
Offering customers unnecessary products
Falsifying records or applications in order to benefit
yourself or other employees of Fifth Third

•

Fifth Third is committed to providing customers with financial
products and services in ways that avoid the use of any practices
that could be deemed predatory, unfair, deceptive or abusive.

•

Fifth Third Bancorp is committed to minimizing the impact of
internal and external fraud to both Fifth Third and our customers.
Every employee at every level of the Bancorp is accountable and
expected to do [their] part to protect Fifth Third and our customers
from fraudulent activity. There is zero tolerance for internal fraud
15

within Fifth Third’s organization and internal fraud activity must
be referred to Bank Protection when suspected. Failure to report
fraudulent activity exposes Fifth Third to regulatory and
compliance violations and could lead to significant financial
penalties and additional fraud losses.
Id. ¶¶ 67, 68.
D.

Product Cross Selling, Consumer Business, and Customer Relations

Lead Plaintiff also asserts that Defendants made false and misleading statements
concerning Fifth Third’s product cross selling, consumer business, and customer relations. Fifth
Third’s FY 2016, 2017, and 2018 Form 10-Ks, all signed by Carmichael and Tuzun, stated that
Fifth Third was “taking advantage of cross-sell opportunities” generated by synergies formed by
its business segments. Id. ¶¶ 70–72.
On December 7, 2016, Carmichael and Tuzun presented at the Goldman Sachs US
Financial Services Conference. Carmichael spoke to investors regarding Fifth Third’s consumer
growth strategy, stating that Fifth Third was “looking for a more balanced growth between our
consumer and our commercial businesses” and “[t]o that end, we are focused on growing our
credit card and unsecured personal lending businesses. Both of these businesses have attractive
return profiles and growth potential.” Id. ¶ 73.
On January 24, 2017, Fifth Third hosted an earnings conference call to discuss the
Company’s 4Q 2017 financial results, in which Carmichael talked about how Fifth Third’s
consumer growth strategy of growing credit cards and consumer loans would “allow us to
achieve a better balance between commercial and consumer loan growth.” Id. ¶ 74. During the
call, Carmichael commented:
[W]e have a great business model. We have the right businesses
that we are in, right, and we do a fantastic job of going to the
market and our people do a fantastic job of going to the market
really as one bank – Fifth Third.
16

And it is really about harvesting the full relationships of the
customer relationships on the consumer side, on the commercial
side. It is about providing the right products and services to our
customers and really being the one bank our customers most value
and trust. We have worked hard to put that model in place across
our franchise. So we feel very good about that.
And really our strong brand and our footprint is extremely
important to us and we are going to continue to focus on our brand
equity in the marketplace. But when you look at it across the
board we have strong earnings capacity, we have a great team in
place, we have invested heavily in the right products. We made
some strategic moves recently that position us well for the future.
And I think we will have the products, the services and the team to
deliver on that in the market.
Id. ¶ 74.
On March 7, 2017, Carmichael and Tuzun presented at the RBC Capital Markets
Financial Institutions Conference, where Carmichael again discussed with analysts and investors
Fifth Third’s consumer growth strategy, stating, “[g]rowth in credit cards and other consumer
loans should allow us to achieve a better balance between commercial and consumer loan
growth.” Id. ¶ 75. He also stated that Fifth Third “takes pride in” its ranking “as the second
most trusted company for retail banking,” noting that Fifth Third “believe[s] in putting the
customer at the center of everything we do” and that “[i]n addition to being a trusted partner, we
have received high customer satisfaction scores and our mobile offerings have received a number
of accolades.” Id.
On December 7, 2017, Fifth Third hosted an Investor Day for analysts and investors.
During the conference, Carmichael discussed the customer experience, stating that “[i]t starts
with the financial needs analysis, and we dive deep into understanding the needs of that
customer. . . . Once again, we can’t be a great bank if we don’t focus on taking care of the
customer, and we measure this very carefully. We got to make sure that we have products that
17

are seamless, convenient, fast, that they’re tailored to meet the customer needs.” Id. ¶ 76.
Carmichael also emphasized that “[v]alue and trust is extremely important.” Id. During that
same call, Frank R. Forrest, Fifth Third’s Chief Risk Officer, discussed at length the Company’s
risk management practices. He stated:
•

We have enhanced risk management programs and processes
across the firm. And through all these actions, we are now
achieving strong and consistent results, and we are exceptionally
well positioned to perform through the next cycle.

•

[W]e are managing the risk across the company today
exceptionally well.

•

We’ve improved expertise in the most significant areas of risk that
face our industry and our company. That includes . . . customer
practices. . . .

•

I’m now going to talk a little bit about culture and how we manage
conduct risk. We all know that conduct risk, ethics, how we
handle our customer relationships, how we treat our employees,
it’s all been headline risk. We’ve read a lot about it. Conduct risk
at Fifth Third Bank is well managed, and it’s in alignment with our
core values. It is foundational in everything we do to have a strong
risk culture and a One Bank strategy that Greg just covered. We
have a corporate responsibility and reputation office that provides
oversight in governance of key areas that drive our culture, and
that includes ethics and diversity and community commitment and
safeguarding the reputation of the company, which is one of my
primary responsibilities. All of these areas are critical elements of
our company’s culture, and we closely monitor these activities and
report them to the Board and to management and to our regulators.

•

The last consumer portfolio I want to talk briefly about is card. It’s
$2.2 billion today. It’s 6% of our overall consumer portfolio. But
we have a strategy that you’ll hear about to grow this portfolio
within our appetite with a measured and a managed approach.
We’ve been actually recruiting industry experts recently to help us
grow the business within our defined risk profile, and we see some
opportunity here, and we are advancing the use of analytics to
improve our credit decisioning on the card business.

Id. at ¶ 78.
18

Fifth Third hosted an earnings conference call with investors on October 23, 2018, which
Carmichael and Tuzun attended, to discuss its 3Q 2018 financial results. During the call,
Carmichael told investors that “[o]ur third priority is to pursue profitable organic growth
opportunities in our key businesses. In addition to our branch network optimization initiative to
drive improved household, deposit, and revenue growth across our retail footprint, we’re also
prioritizing organic growth opportunities across all areas of the franchise.” Id. ¶ 79. On January
22, 2019, Fifth Third again hosted an earnings conference call with investors to discuss its 4Q
and 2018 financial results, with Carmichael stating that “we continue to invest in organic growth
opportunities, including the previously communicated branch network optimization.” Id. ¶ 80.
E.

Incentive Compensation

Lead Plaintiff also asserts that Defendants made false and misleading statements
concerning Fifth Third’s incentive compensation. On March 9, 2017, Fifth Third filed a Proxy
Statement with the SEC, reviewed by Carmichael and Tuzun, that stated:
•

The Company endeavors to attract and retain the best people in the
financial services industry and motivate them to fulfill the
Company’s Vision of becoming the One Bank that people most
value and trust. We intend to accomplish this in the way that we
consider our shareholders’ long-term interests, by establishing
compensation programs that reward our people for delivering
products our customers highly value, and avoiding excessive risk.
Our compensation philosophy comprises the following guiding
principles:





Manage risk effectively within incentive programs
designed to pay for performance.
Align compensation with long-term shareholder
interests.
Provide strong oversight of executive pay.
Conduct recurring processes that ensure strategic and
fiscal soundness along with balanced risk taking.

19

•

We incorporate formulaic and discretionary risk-balancing
mechanisms, which outline specific metrics for modifying payouts
to discourage unnecessary or imprudent risk-taking actions.

•

In December 2015, the Committee, in conjunction with the Risk
and Compliance Committee, reviewed our executive and other
incentive programs. Based on the provisions and actions above,
the Committee concluded that their design and/or metrics do not
encourage unnecessary and/or inappropriate risk taking.

Id. ¶ 82.
Similarly, the 2018 Proxy Statement, which Carmichael and Tuzun again reviewed, also
discussed the bank’s compensation plan, stating in part:
•

At Fifth Third, we endeavor to attract and retain the best people
and motivate them to fulfill the Company’s Vision of becoming the
One Bank that people most value and trust. We intend to
accomplish this in the way that we consider our shareholders’
long-term interests, by establishing compensation programs that
reward our people for delivering products and services our
customers highly value, and for avoiding excessive risk.

•

We believe it is critical to bring a multi-faceted strategy toward
mitigating risk in incentive plans. We incorporate formulaic and
discretionary risk-balancing mechanisms, which include specific
metrics for modifying payouts to discourage taking unnecessary or
imprudent risks.

•

In February 2017, the Committee, in conjunction with the Risk and
Compliance Committee, reviewed our executive and other
incentive programs. Based on the provisions and actions above,
the Committee concluded that their design and/or metrics do not
encourage taking unnecessary or inappropriate risk.

Id. ¶ 83.
The 2019 Proxy Statement, reviewed by Carmichael and Tuzun, also contained
information on Fifth Third’s compensation plan, which stated:
•

Our compensation methodology and structure centers on our
compensation philosophy, which comprises the following guiding
principles:
20






Manage risk effectively within incentive programs
designed to pay for performance.
Align compensation with long-term shareholder
interests.
Provide strong oversight of executive compensation.
Conduct recurring processes that ensure strategic and
fiscal soundness along with balanced risk taking.

•

We believe it is critical to bring a multi-faceted strategy toward
mitigating risk in our compensation programs and incentive plans.
We incorporate formulaic and discretionary risk-balancing
mechanisms, which include specific metrics for modifying payouts
to discourage taking unnecessary or imprudent risks.

•

In December 2018, the Committee met jointly with the Risk and
Compliance Committee to review our executive and other
incentive programs. Based in part on the provisions and actions
above, the Committee concluded that the design and/or metrics of
such programs do not encourage taking unnecessary or
inappropriate risk.

Id. ¶ 84.
LEGAL STANDARD
A motion to dismiss under Rule 12(b)(6) challenges the sufficiency of the complaint, not
its merits. Fed. R. Civ. P. 12(b)(6); Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir.
1990). In considering a Rule 12(b)(6) motion, the Court accepts as true all well-pleaded facts in
the plaintiff’s complaint and draws all reasonable inferences from those facts in the plaintiff’s
favor. Kubiak v. City of Chicago, 810 F.3d 476, 480–81 (7th Cir. 2016). To survive a Rule
12(b)(6) motion, the complaint must assert a facially plausible claim and provide fair notice to
the defendant of the claim’s basis. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007); Adams v. City of Indianapolis, 742 F.3d 720, 728–29 (7th
Cir. 2014). A claim is facially plausible “when the plaintiff pleads factual content that allows the

21

court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”
Iqbal, 556 U.S. at 678.
Securities fraud claims must also satisfy Rule 9(b)’s particularity requirement, which
requires a party to “state with particularity the circumstances constituting fraud.” Fed. R. Civ. P.
9(b); Cornielsen v. Infinium Cap. Mgmt., LLC, 916 F.3d 589, 598 (7th Cir. 2019); AnchorBank,
FSB v. Hofer, 649 F.3d 610, 614–15 (7th Cir. 2011). “This ordinarily requires describing the
‘who, what, when, where, and how’ of the fraud, although the exact level of particularity that is
required will necessarily differ based on the facts of the case.” AnchorBank, 649 F.3d at 615
(citation omitted).
Congress further heightened the pleading standards for securities fraud claims when it
enacted the Private Securities Litigation Reform Act (“PSLRA”) “[a]s a check against abusive
litigation by private parties” in securities fraud suits. Tellabs, Inc. v. Makor Issues & Rights, Ltd.
(“Tellabs II”), 551 U.S. 308, 313 (2007). The PSLRA requires “complaints alleging securities
fraud [to] ‘state with particularity facts giving rise to a strong inference that the defendant acted
with the required state of mind.’” Cornielsen, 916 F.3d at 598–99 (quoting 15 U.S.C. § 78u4(b)(2)(A)). The PSLRA also requires “[a]ny complaint alleging a material misstatement or
omission [to] ‘specify each statement alleged to have been misleading’ and the ‘reason or
reasons why the statement is misleading.’” Id. at 599 (quoting 15 U.S.C. § 78u-4(b)(1)). On
motion by a defendant, the Court must dismiss a complaint that does not meet these
requirements. 15 U.S.C. § 78u-4(b)(3)(A).
ANALYSIS
Lead Plaintiff’s consolidated complaint sets forth two claims: first, Lead Plaintiff alleges
that all Defendants have violated § 10(b) of the Exchange Act and SEC Rule 10b-5 and second,

22

Lead Plaintiff seeks to hold Carmichael and Tuzun individually liable under § 20(a) of the
Exchange Act as “controlling persons” of Fifth Third. Defendants move to dismiss both claims.
I.

“Puzzle” Pleading
Defendants first argue that Lead Plaintiff’s consolidated complaint improperly relies on

so-called “puzzle” pleading. Defendants claim this form of pleading is impermissible in a
complex securities action such as this one because it fails to provide individualized explanations
of falsity for each of the allegedly false and misleading statements outlined in the consolidated
complaint and instead merely pastes repetitive and lengthy quotes from Fifth Third’s regulatory
filings and earnings followed by boilerplate allegations.
The PSLRA requires a plaintiff to “specify each statement alleged to have been
misleading, the reason or reasons why the statement is misleading,” and, if based on information
and belief, all facts that form the plaintiff's basis for believing that the statement is misleading.
15 U.S.C. § 78u-4(b)(1). “Puzzle pleading refers to a pleading style that forces the Court and the
defendant to piece together exactly which statements [Lead Plaintiff is] challenging and what
allegations contradict those statements.” U.S. Sec. & Exch. Comm’n v. Winemaster, No. 19-CV04843, 2021 WL 1172773, at *14 (N.D. Ill. Mar. 29, 2021) (citations omitted) (internal quotation
marks omitted). A pleading like that can “improperly place[] the burden on the Court to sort out
the alleged misrepresentations and then match them with the corresponding adverse facts.”
Conlee v. WMS Indus., Inc., No. 11 C 3503, 2012 WL 3042498, at *4 (N.D. Ill. July 25, 2012)
(citation omitted) (internal quotation marks omitted). The end result of puzzle pleading may
“leave the reader—whether Defendants or the court—jumping from page to page in an attempt to
link the alleged statements to the background that supposedly makes them false or misleading.”
Id.

23

Defendants argue that the consolidated complaint does not satisfy the PSLRA’s pleading
standards because it quotes Fifth Third’s statements at length and then uses a stock assertion that
the statement is false or misleading. See id. (dismissing complaint wherein “the heart of the
complaint, the section titled ‘Defendants’ False and Misleading Statements Made During the
Class Period,’ is a sixteen page mash-up of block quotes, snippets, parentheticals, and Lead
Plaintiff's characterizations of alleged statements made by one or more Defendants”); see also
Boca Raton Firefighters & Police Pension Fund v. Bahash, 506 F. App’x 32, 38 (2d Cir. 2012)
(complaint failed to satisfy the PSLRA because it “consist[ed] in large part of large block
quotations with italicized text, followed by a passage that reads ‘[t]he statements referenced in
[the preceding paragraphs] were each materially false and misleading when made for the reasons
set forth in ¶ 256 and the factual data contained throughout this Complaint” (second and third
alterations in original)).
Here, however, the Court does not find Lead Plaintiff’s consolidated complaint
impermissibly employs puzzle pleading because the Court can identify the alleged false
statements giving rise to the claims at issue and the factual allegations Lead Plaintiff claims
demonstrates their falsity. And Defendants’ extensive motion to dismiss suggests that they too
can adequately follow and understand Lead Plaintiff’s allegations. In fact, Lead Plaintiff
identifies the statements it challenges and when Defendants made those statements, organizes the
statements underneath discrete section headings, puts forth some reasoning, albeit barely, as to
why the alleged statements are misleading, and does not use stock assertions nor refer back to
any preceding paragraphs in doing so. See Boca Raton Firefighters’ & Police Pension Fund v.
DeVry, Inc., No. 10 C 7031, 2012 WL 1030474, at *1 n.4 (N.D. Ill. Mar. 27, 2012) (declining to
dismiss a complaint for puzzle pleading even where the complaint’s format created repetition

24

because it did not make the complaint too difficult to understand). This suffices to allow the
Court to reach the merits of Defendants’ arguments for dismissal.
In connection with their puzzle pleading assertion, Defendants also argue that the facts on
which Lead Plaintiff relies are not based on its personal knowledge, but rather on unproven and
heavily disputed allegations drawn from the CFPB investigation and allegations concerning
conduct that occurred at Wells Fargo, a peer bank, that the Court should disregard. But the Court
finds nothing improper in Lead Plaintiff’s use of information lifted from the CFPB action, as
“[i]t makes little sense to say that information from . . . a study [or investigation]—which the
[complaint] could unquestionably rely on if it were mentioned in a news clipping or public
testimony—is immaterial simply because it is conveyed in an unadjudicated complaint.” In re
Herbal Supplements Mktg. & Sales Pracs. Litig., No. 15-CV-5070, 2017 WL 2215025, at *6
(N.D. Ill. May 19, 2017) (citing In re Bear Stearns Mortg. Pass-Through Certificates Litig., 851
F. Supp. 2d 746, 767–68 n.24 (S.D.N.Y. 2012)).
Moreover, the Court does not find it appropriate to strike the allegations related to the
Wells Fargo investigation, as the Court does not find them lengthy, complex, or unduly
prejudicial. See Cumis Ins. Soc’y, Inc. v. Peters, 983 F. Supp. 787, 798 (N.D. Ill. 1997) (courts
may strike allegations where “the allegations being challenged are so unrelated to plaintiff’s
claim as to be void of merit and unworthy of any consideration” and they are unduly prejudicial);
Trustmark Life Ins. Co. v. Univ. of Chicago Hosps., No. 94 C 4692, 1996 WL 68009, at *1 (N.D.
Ill. Feb.14, 1996). Instead, the Wells Fargo allegations merely provide background to the
CFPB’s subsequent investigation into Fifth Third’s allegedly similar practices and some of
Defendants’ statements. Having resolved Defendants’ preliminary pleading challenges to the

25

consolidated complaint, the Court proceeds to address Defendants’ substantive arguments for
dismissal.
II.

Section 10(b) Claim (Count I)
Defendants next argue that Lead Plaintiff falls short in satisfying the pleading

requirements to assert its claim for securities fraud under § 10(b) of the Exchange Act. Section
10(b) and SEC Rule 10b-5 “prohibit fraudulent or misleading statements of material fact in
connection with the purchase or sale of a security.” Walleye Trading LLC v. AbbVie Inc., 962
F.3d 975, 977 (7th Cir. 2020). Section 10(b) prohibits the “use or employ, in connection with the
purchase or sale of any security . . . [of] any manipulative or deceptive device or contrivance in
contravention of” the SEC’s rules and regulations. 15 U.S.C. § 78j(b). Relevant here, Rule 10b5 implements § 10(b) by making it unlawful to “make any untrue statement of a material fact or
to omit to state a material fact necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading . . . in connection with the purchase
or sale of any security.” 17 C.F.R. § 240.10b-5(b).
To state a claim under § 10(b) and Rule 10b-5(b), a plaintiff must allege that “(1) the
defendant made a false statement or omission (2) of material fact (3) with scienter (4) in
connection with the purchase or sale of securities (5) upon which the plaintiff justifiably relied
(6) and that the false statement proximately caused the plaintiff’s damages.” Fryman v. Atlas
Fin. Holdings, Inc., 462 F. Supp. 3d 888, 896 (N.D. Ill. 2020) (citations omitted). Defendants’
motion addresses the first element (falsity) with respect to the statements challenged by Lead
Plaintiff, the third element (scienter) with respect to all the challenged statements, and the sixth
element (damages). Because Defendants’ scienter argument is dispositive, the Court will only
address that argument.

26

To meet the scienter requirement, Lead Plaintiff must allege with particularity facts
giving rise to a strong inference that each defendant acted with the required state of mind.
Cornielsen, 916 F.3d at 601–02. For the § 10(b) claim, “that state of mind is ‘an intent to
deceive, demonstrated by knowledge of the statement’s falsity or reckless disregard of a
substantial risk that the statement is false.’” Pension Tr. Fund for Operating Eng’rs v. Kohl’s
Corp., 895 F.3d 933, 936 (7th Cir. 2018) (quoting Higginbotham v. Baxter Int’l, Inc., 495 F.3d
753, 756 (7th Cir. 2007)). Courts define “recklessness” in this context as “an extreme departure
from the standards of ordinary care . . . to the extent that the danger was either known to the
defendant or so obvious that the defendant must have been aware of it.” City of Livonia Emps.’
Ret. Sys. & Local 295/Local 851 v. Boeing Co., 711 F.3d 754, 756 (7th Cir. 2013) (citations
omitted). “Alleging that a defendant should have known about fraud is not enough to show that
the defendant was reckless.” In re Chi. Bd. Options Exch. Volatility Index Manipulation
Antitrust Litig. (“CBOE”), 435 F. Supp. 3d 845, 861 (N.D. Ill. 2020).
The PSLRA requires a plaintiff to “satisfy a heightened standard of plausibility” in
pleading scienter. Kohl’s, 895 F.3d at 936. The plaintiff must “state with particularity facts
giving rise to a strong inference that the defendant acted with the required state of mind” for
“each act or omission alleged to violate this chapter.” 15 U.S.C. § 78u-4(b)(2)(A) (emphasis
added). To meet this “strong inference” standard, “an inference of scienter must be more than
merely plausible or reasonable—it must be cogent and at least as compelling as any opposing
inference of nonfraudulent intent.” Tellabs II, 551 U.S. at 314. In determining whether a
complaint has met this standard, the Court must account for “plausible, nonculpable explanations
for the defendant’s conduct” and weigh them against the strength of the inferences in favor of
scienter. Id. at 323–24; Pugh v. Tribune Co., 521 F.3d 686, 693 (7th Cir. 2008). In the end, the

27

Court must determine whether all the facts set forth in the consolidated complaint, accepted as
true and taken collectively, “give rise to a strong inference of scienter.” Tellabs II, 551 U.S. at
322–23, 326.
Lead Plaintiff argues that Defendants made false and misleading statements and material
omissions concerning Fifth Third’s (1) risk disclosures, (2) risk management practices, (3) Code
of Conduct and Ethics, (4) product cross-selling and consumer business, and (5) employee
incentive compensation. It must allege facts showing that Defendants “had the requisite scienter
at the time that they made each allegedly fraudulent statement.” In re NeoPharm, Inc. Sec.
Litig., No. 02 C 2976, 2007 WL 625533, at *6 (N.D. Ill. Feb. 23, 2007); Smyth v. China
Agritech, Inc., No. CV 13-03008-RGK (PJWx), 2013 WL 12145047, at *3 (C.D. Cal. Sept. 26,
2013) (“The scienter analysis focuses on the state of mind of defendants at the time the false
statements were made.”). Moreover, because Lead Plaintiff contends that Fifth Third,
Carmichael, and Tuzun all violated § 10(b), it must plead a strong inference of scienter with
respect to each Defendant. See Cornielsen, 916 F.3d at 601–02; Pugh, 521 F.3d at 692–95, 697–
98 (where the plaintiffs alleged that both a corporate defendant and its executive officers violated
§ 10(b), addressing separately whether the plaintiffs had adequately pleaded scienter for the
individual officers and the corporate defendant).
“Corporations, of course, have no state of mind on their own. Instead, the scienter of
their agents must be imputed to them.” Mizzaro v. Home Depot, Inc., 544 F.3d 1230, 1254 (11th
Cir. 2008). “Accordingly, the corporate scienter inquiry must focus on ‘the state of mind of the
individual corporate official or officials who make or issue the statement (or order or approve it
or its making or issuance, or who furnish information or language for inclusion therein, or the
like) rather than generally to the collective knowledge of all the corporation’s officers and

28

employees acquired in the course of their employment.’” Pugh, 521 F.3d at 697 (quoting Makor
Issues & Rights, Ltd. v. Tellabs Inc. (“Tellabs III”), 513 F.3d 702, 708 (7th Cir. 2008)). Because
the only relevant actors here are Carmichael and Tuzun 2, the Court does not separately address
Fifth Third’s scienter. Rather, to the extent that the Court concludes that Lead Plaintiff has
sufficiently pleaded the required scienter for either Carmichael or Tuzun, the Court finds that
that it can also infer Fifth Third’s scienter from the same allegations. The Court, therefore,
proceeds to consider Lead Plaintiff’s asserted bases for scienter.
A.

Knowledge of False Statements and Omitted Facts

First, Lead Plaintiff argues that Defendants knew the omitted facts undermining their
alleged misstatements, which suffices to plead scienter. Specifically, Lead Plaintiff points out
that Carmichael received the CFPB CID before the Class Period began, along with five
additional demands during the Class Period. According to Lead Plaintiff, these demands
apprised Carmichael of the CFPB’s investigation into specific allegedly problematic sales
practices at Fifth Third, namely that employees were opening unauthorized accounts. And
Carmichael signed all statements filed with the SEC after receiving the CIDs starting in 2016, in
addition to speaking at investor calls and conferences discussing Fifth Third’s sales practices and
its compliance structure. Instead of alleging knowledge of the omitted facts, however, all that
the allegations concerning the CIDs demonstrate at this stage is that Carmichael knew of the
investigation, not necessarily of the problem itself. See Higginbotham, 495 F.3d at 758 (“[T]here

The consolidated complaint also includes statements Forrest and Fifth Third executive vice president
Philip McHugh made. Because Lead Plaintiff did not discuss scienter with respect to either officer in its
opposition to Defendants’ motion to dismiss, the Court only considers the arguments and corresponding
allegations identified by Lead Plaintiff and does not consider any other allegations that Lead Plaintiff fails
to discuss in its opposition. Firestone Fin. Corp. v. Meyer, 796 F.3d 822, 825 (7th Cir. 2015) (“[A] party
generally forfeits an argument or issue not raised in response to a motion to dismiss.”).
2

29

is a big difference between knowing about the reports . . . and knowing that the reports are
false.”).
The consolidated complaint also suggests that Tuzun was or should have been aware of
fraud occurring at Fifth Third because he attended investor meetings and signed all statements
filed with SEC during the Class Period. But the consolidated complaint does not include any
allegations that, in attending the investor meetings or signing the statements, Tuzun was told of
the falsity of any of the representations or otherwise knew of the alleged problems. The Court
also cannot infer scienter based on Carmichael or Tuzun’s executive positions because “a
pleading of scienter may not rest on the inference that defendants must have been aware of the
misstatement based on their positions within the company.” Arbitrage Event-Driven Fund v.
Tribune Media Co., No. 18 C 6175, 2020 WL 60186, at *10 (N.D. Ill. Jan. 6, 2020) (citation
omitted); accord Plumbers & Pipefitters Local Union 719 Pension Fund v. Zimmer Holdings,
Inc., 673 F. Supp. 2d 718, 747 (S.D. Ind. 2009) (“[R]espective positions within the company
prove nothing about fraud or knowledge thereof but rather are exactly the type of generalized
allegations the court must disregard under the PSLRA.” (citation omitted)), aff’d, 679 F.3d 952
(7th Cir. 2012).
In addition, while the consolidated complaint does allege that Fifth Third knew of
pervasive employee misconduct, it fails to identify which corporate agents or officers knew of
said misconduct. None of these allegations allow for the inference that Carmichael and Tuzun
had such knowledge. At most, they allow an inference that Carmichael and Tuzun should have
known about the fraud, but what they should have known does not suffice to show that they
acted recklessly. CBOE, 435 F. Supp. 3d at 861.

30

B.

Assurances about Compliance with Risk Management Practices

Second, Lead Plaintiff argues that Carmichael and Tuzun acted with scienter because
they made statements concerning Fifth Third’s robust risk management and compliance practices
and that, pursuant to these practices, any improper sales practices would have made their way to
them. According to Lead Plaintiff, Carmichael’s and Tuzun’s assurances about the robustness of
the risk practices served to conceal Fifth Third’s faulty reporting structure and their knowledge
of its problems. See S.E.C. v. Lyttle, 538 F.3d 601, 603 (7th Cir. 2008) (scienter inferred when
defendants “knew that the representations they made to investors were false”). But here, Lead
Plaintiff does not allege any specific facts that demonstrate that Carmichael or Tuzun knew about
the deficiencies in the Fifth Third’s reporting structure or the obviousness of those deficiencies.
“By definition, all frauds demonstrate the ‘inadequacy’ of existing controls, just as all bank
robberies demonstrate the failure of bank security and all burglaries demonstrate the failure of
locks and alarm systems.” Higginbotham, 495 F.3d at 759–60. As such, the existence of
inadequate compliance practices alone does not demonstrate that Carmichael and Tuzun made
“statements regarding those controls necessarily acted with the intent to deceive.” Roth v.
OfficeMax, Inc., 527 F. Supp. 2d 791, 801–02 (N.D. Ill. 2007).
C.

CFPB Litigation

Lead Plaintiff next argues that the CFPB’s ongoing litigation against Fifth Third supports
an inference of scienter. Government investigations can help to reinforce allegations of scienter.
See In re Akorn, Inc. Sec. Litig., 240 F. Supp. 3d 802, 820 (N.D. Ill. 2017) (“That the SEC and
DOJ initiated investigations provides additional support for finding that scienter has been
adequately pleaded.”). But making such an inference on its own strikes the Court as improperly
inferring fraud by hindsight. See Société Générale Sec. Servs., GbmH v. Caterpillar, Inc., No. 17

31

CV 1713, 2018 WL 4616356, at *3 (N.D. Ill. Sept. 26, 2018) (the PSLRA’s heightened pleading
requirements are intended “to discourage claims of so-called fraud by hindsight” (citations
omitted) (internal quotation marks omitted)); see also W. Palm Beach Firefighters’ Pension
Fund v. Conagra Brands, Inc., No. 19-CV-01323, 2020 WL 6118605, at *25 (N.D. Ill. Oct. 15,
2020) (“The Seventh Circuit has emphasized that ‘hindsight’ cannot be the ‘only basis’ of a
proposed scienter inference, since there is no ‘fraud by hindsight.’” (citing Higginbotham, 495
F.3d at 759)). “Courts in this district have declined to allow plaintiffs to use a must have known
theory as an end-run around the requirement that plaintiffs set forth particularized facts to
suggest that defendants acted knowingly or recklessly.” Conagra Brands, Inc., 2020 WL
6118605, at *25 (citations omitted). Further, Lead Plaintiff points to nothing in the CFPB
litigation that suggests that Carmichael or Tuzun had personal knowledge of any problematic
practices at the time when they made the statements at issue. As such, the Court does not find it
appropriate to infer scienter from conclusory statements made in another litigation. See In re
Bally Total Fitness Sec. Litig., No. 04 C 3530, 2006 WL 3714708, at *1–2, 6–7 (N.D. Ill. July
12, 2006) (February 2005 press release did not support an inference of scienter because its
findings were “simply hindsight conclusions” that did “not assist in determining the state of mind
behind the misstatements at the time they were made” between August 1999 and April 2004).
D.

Motive

Lead Plaintiff further argues that it has adequately pleaded motive to support an inference
of scienter. A plaintiff may use “motive and opportunity or circumstantial evidence to establish
scienter under the PSLRA, as long as those facts support a strong inference that the defendant
acted recklessly or knowingly.” Chu v. Sabratek Corp., 100 F. Supp. 2d 815, 823 (N.D. Ill.
2000) (citations omitted). Lead Plaintiff first focuses on Carmichael and Tuzun’s incentive

32

compensation, arguing that they stood to profit from concealing ongoing problems with
unauthorized accounts and the resulting CFPB investigation. The consolidated complaint shows
that, in addition to their regular compensation, Carmichael collected nearly $23.4 million in
incentive-based compensation during the Class Period, whereas Tuzun made $6.2 million. When
Fifth Third disclosed the account problems and the resulting CFPB investigation in March 2020,
Carmichael’s incentive compensation for 2019 dropped by $2.4 million and Tuzun’s by 12%.
But these allegations do not contribute to a strong inference of scienter. Allegations
regarding a corporate officer’s motivation to earn bonuses, stock, or other compensation “are too
common among corporations and their officers to be considered evidence of scienter.” Bally
Total Fitness, 2006 WL 3714708, at *9; see Plumbers & Pipefitters Local Union 719 Pension
Fund v. Zimmer Holdings, Inc., 679 F.3d 952, 956 (7th Cir. 2012) (an alleged incentive to
improve bonuses and increase the value of stock options was “too generic to satisfy” Tellabs II).
Rather, if courts accepted the motive to reap higher compensation “as sufficient to establish
scienter, most corporate executives would be subject to such allegations, and the heightened
pleading requirements for these claims would be meaningless.” Davis v. SPSS, Inc., 385 F.
Supp. 2d 697, 714 (N.D. Ill. 2005); see also Kohl’s, 895 F.3d at 939–40 (“[A] generalized
motive common to all corporate executives is not enough to establish scienter. Otherwise,
‘virtually every company in the United States that experiences a downturn in stock price could
be forced to defend securities fraud actions.’” (quoting Zucco Partners, LLC v. Digimarc Corp.,
552 F.3d 981, 1005 (9th Cir. 2009))). Indeed, “[t]he desire to increase the value of a company
and attain the benefits that result, such as meeting analyst expectations and reaping higher
compensation, are basic motivations not only of fraud, but of running a successful corporation.”
Davis, 385 F. Supp. 2d at 714. Therefore, because Lead Plaintiff does not tie Carmichael and

33

Tuzun’s incentive compensation specifically to the challenged practices, with it instead just
generally tied to the overall value of the company, the Court cannot infer scienter from Fifth
Third’s incentive compensation plan.
Lead Plaintiff also argues that Carmichael and Tuzun had a motive to conceal the CFPB
investigation and improper account practices in order to complete the MB Financial acquisition,
for which Fifth Third needed to issue stock while the price was artificially high. But the general
desire to keep stock prices high to make the company appear profitable or to close a deal, on its
own, does not suffice to allow a strong inference of scienter and, as with the incentive
compensation argument, could just as well demonstrate Carmichael and Tuzun’s motivation “of
running a successful corporation.” Davis, 385 F. Supp. 2d at 714.
Finally, Lead Plaintiff advances the theory that Carmichael’s stock trades during the
Class Period further evidence his motive to commit fraud, claiming they were “dramatically out
of line with prior trading practices at times [and] calculated to maximize the personal benefit
from undisclosed inside information.” Makor Issues & Rights, Ltd. v. Tellabs, Inc., 437 F.3d
588, 604 (7th Cir. 2006). “Insider trading alone does not raise an inference of scienter,”
however. Davis, 385 F. Supp. 2d at 714; Silverman v. Motorola, Inc., No. 07 C 4507, 2008 WL
4360648, at *13 (N.D. Ill. Sept. 23, 2008). Instead, “[t]he sale must be suspicious in scope or
timing” to support such an inference. Davis, 385 F.Supp.2d at 715. Carmichael’s sales within
the Class Period do not meet this criteria. Although Lead Plaintiff points out that Carmichael
sold 26% of his shares during the Class Period but did not trade eighteen months before or six
months afterwards, the sales during the Class Period show similar gaps of time in between
trades. And Lead Plaintiff has failed to tie the timing of the sales to any specific misleading or
false statements made by Carmichael or Tuzun. Without additional context to suggest that

34

Carmichael’s stock sales were suspicious or unusual, the Court does not find they support a
strong inference of scienter. See Higginbotham, 495 F.3d at 759 (“[A]bsence of sales by other
managers . . . implied that nothing was thought to be out of the ordinary.”); Davis, 385 F. Supp.
2d at 714–15 (“The strength of an inference depends on how closely it follows from a fact.
Without more, an executive’s sale of stock does not lead to the conclusion that he engaged in
fraud.”).
Having examined Lead Plaintiff’s arguments concerning scienter individually and
collectively, the Court cannot find sufficient allegations giving rise to a strong inference of
scienter on either Carmichael’s or Tuzun’s part. As a result, the Court also cannot impute
scienter on Fifth Third. Accordingly, the Court dismisses Lead Plaintiff’s § 10(b) claims without
prejudice.
III.

Section 20(a) Claim (Count II)
Lead Plaintiff also alleges that Carmichael and Tuzun violated § 20(a) of the Exchange

Act as “controlling persons” of Fifth Third. “Section 20(a) provides a basis for holding
individuals liable for acts of securities fraud if they control other individuals or businesses that
violate the securities laws.” Plumbers & Pipefitters Local Union No. 630 Pension-Annuity Tr.
Fund v. Allscripts-Misys Healthcare Sols., Inc., 778 F. Supp. 2d 858, 886 (N.D. Ill. 2011) (citing
15 U.S.C. § 78t). However, “to state a claim under § 20(a), a plaintiff must first adequately
plead a primary violation of securities laws—here, a violation of § 10(b) and Rule 10b-5.” Pugh,
521 F.3d at 693. Because Lead Plaintiff has failed to adequately plead its § 10(b) claim, its
claim for control person liability under § 20(a) also fails at this stage. Id. at 698 (“[B]ecause the
plaintiffs have not adequately alleged the direct liability of any defendant [under § 10(b) and
Rule 10b-5], their § 20(a) claim was also correctly dismissed.”); Fryman, 462 F. Supp. 3d at 891,

35

905 (dismissing § 20(a) claims against the corporate defendant’s CEO and CFO where the
plaintiffs failed to adequately plead § 10(b) claims).
CONCLUSION
For the foregoing reasons, the Court grants Defendants’ motion to dismiss [58]. The
Court dismisses the consolidated complaint without prejudice. The Court gives Lead Plaintiff
until June 11, 2021 to file an amended complaint if it can do so consistent with Federal Rule of
Civil Procedure 11 and this Opinion.

Dated: April 26, 2021

______________________
SARA L. ELLIS
United States District Judge

36