In re Banco Bradesco S.A. Securities Litigation
Filing
84
OPINION AND ORDER re: #63 MOTION to Dismiss The Amended Class Action Complaint filed by Domingos Figueiredo de Abreu, Luiz Carlos Trabuco Cappi, Luiz Carlos Angelotti, Banco Bradesco S.A. For the foregoing reasons, Defendants' motion to dismiss is GRANTED IN PART and DENIED IN PART. Plaintiff has pleaded a claim under Section 10(b) of the Exchange Act and Rule 10b-5 thereunder with respect to the following statements and as against the following defendants: (1) the August 8, 2014 press release (as against Bradesco and Angelotti); (2) statements about Bradesco's Code of Ethical Conduct (but not the Code itself) and anti-corruption statements in Forms 20-F filed after October 9, 2014, and certifications made in post-October 9, 2014 filings attesting that the reports "d[id] 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 they were made, not misleading with respect to the period covered by this report" (as against by Bradesco and Trabuco); (3) the March 31, 2015 press release filed with the SEC on April 10, 2015 (as against by Bradesco and Angelotti); and (4) the May 31, 2016 "Notice to the Market" filed with the SEC on June 1, 2016, as well as the June 9, 2016 "reiteration" of the "clarifications provided in" the May 31 Notice (as against Bradesco and Angelotti). Plaintiff has also pleaded a claim under Section 20(a) of the Exchange Act against Trabuco. In all other respects, Defendants' motion to dismiss is granted. The dismissal includes all claims against Defendant Abreu. Because the Court cannot conclude that further amendment of the complaint would be futile, the Court grants Plaintiff leave to file a second amended complaint solely to cure the deficiencies identified in this opinion no later than 30 days from the date of this order. See Loreley, 797 F.3d at 191. Discovery in this action will remain stayed until further order of the Court. If Plaintiff does not file a second amended complaint within 30 days from the date of this order, the Court expects to set a status conference to initiate discovery shortly thereafter. The Clerk of Court is directed to terminate the motion pending at ECF No. 63. SO ORDERED. (Domingos Figueiredo de Abreu terminated.) (Signed by Judge Gregory H. Woods on 9/29/2017) (anc)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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In re BANCO BRADESCO S.A. SECURITIES :
LITIGATION.
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USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: 9/29/17
1:16-cv-4155-GHW
OPINION AND ORDER
GREGORY H. WOODS, United States District Judge:
In 2013, an anonymous letter was delivered to the headquarters of the Brazilian Federal
Police detailing a widespread practice of corporate bribery of Brazilian tax officials. That letter
prompted the Brazilian authorities to open a multi-year investigation into more than seventy
Brazilian industrial, agricultural, civil engineering, and financial institutions known as “Operation
Zealots.” On May 31, 2016, Defendants Luiz Carlos Trabuco Cappi, Domingos Figueiriedo de
Abreu, and Luiz Carlos Angelotti, each senior executives of Defendant Banco Bradesco S.A., were
indicted by the Brazilian Federal Police on charges of violating Brazilian anti-corruption laws
through an alleged scheme to unlawfully influence the outcome of proceedings pending before a
Brazilian tax tribunal.
Lead Plaintiff Public Employees’ Retirement System of Mississippi alleges that Defendants
made a number of statements that, in light of the alleged misconduct underlying those criminal
charges as well as earlier uncharged bribery schemes, were false or misleading in violation of the
Securities Exchange Act of 1934. Defendants have moved to dismiss the operative complaint on
several grounds. In addition, Defendant Abreu has moved to dismiss the claims against him for lack
of personal jurisdiction. For the reasons that follow, Defendants’ motion to dismiss is GRANTED
IN PART and DENIED IN PART.
I.
BACKGROUND1
This putative class action arises indirectly out of Operação Zelotes (“Operation Zealots”), a
multi-year investigation by Brazilian authorities into allegedly widespread corporate bribery of
Brazilian tax officials. As a result of Operation Zealots, Defendants Luiz Carlos Trabuco Cappi
(“Trabuco”), Domingos Figueiredo de Abreu (“Abreu”), and Luiz Carlos Angelotti (“Angelotti”)
(collectively, the “Individual Defendants”), each senior executives of Defendant Banco Bradesco
S.A. (“Bradesco” or the “Company”), were indicted by the Brazilian Federal Police on May 31, 2016
on charges of violating Brazilian anti-corruption laws through an alleged scheme to unlawfully
obtain favorable tax treatment and tax rulings for Bradesco.
Lead Plaintiff, the Public Employees’ Retirement System of Mississippi (“Plaintiff”) brings
this lawsuit under Section 10(b) of the Securities Exchange Act (“Exchange Act”) and SEC Rule
10b-5 promulgated thereunder, as well as under Section 20(a) of the Exchange Act, on behalf of
itself and a putative class of purchasers or acquirers of preferred American Depositary Shares
(“PADS”) of Bradesco between April 30, 2012 and July 27, 2016 (the “Class Period”).2 Plaintiff
filed an amended complaint on October 21, 2016, naming Bradesco, Trabuco, Abreu, and Angelotti
as defendants. ECF No. 45. Defendants filed a motion to dismiss the amended complaint on
Unless otherwise noted, the facts are taken from the amended class action complaint, and are accepted as true for the
purposes of this motion. See, e.g., Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002). However, “the tenet
that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). In the amended complaint, Plaintiff represents that, where allegations are not
made on personal knowledge, they are made on information and belief based upon, “among other things, the ongoing
investigation that court-appointed Lead Counsel is conducting under Lead Plaintiff’s supervision,” which includes
review and analysis of (i) documents filed by Bradesco with the SEC and the Brazilian Comissão de Valores Mobiliários
(“CVM”); (ii) securities analysts’ reports about Bradesco; (iii) transcripts of Bradesco conference calls; (iv) Bradesco
press releases; (v) media reports, including those published in the U.S. and in Brazil, concerning Bradesco and
“Operation Zealots”; and (vi) documents, criminal complaints, and other evidence submitted by Brazilian prosecutors
and other governmental authorities in Brazilian court proceedings. Am. Compl. at 1.
1
2 This action was initially filed by purported Bradesco ADS purchaser William Bryan on June 3, 2016. ECF No. 1. In
accordance with the Private Securities Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-4(a)(3), the Court
received motions by members of the putative class for appointment as lead counsel. Following full briefing, the Court,
by order dated August 15, 2016, appointed the Public Employees’ Retirement System of Mississippi as lead plaintiff and
approved its choice of lead counsel and liaison counsel. ECF No. 24. The operative amended class action complaint
was then filed on October 21, 2016. ECF No. 45.
2
December 23, 2016, ECF No. 63, Plaintiff filed an opposition on February 3, 2017, ECF No. 69,
and Defendants filed a reply on March 3, 2017, ECF No. 73.
A summary of the factual allegations pleaded in the amended complaint follows.
A. The Parties
Defendant Banco Bradesco S.A. is one of the largest banks in Brazil. Am. Class Action
Compl. (ECF No. 45) (“amended complaint” or “AC”) ¶ 23. It provides a variety of commercial
banking services, including loans and deposit-taking, credit card issuance, insurance, leasing,
payment collection and processing, asset management, and brokerage services. Id. Bradesco has a
number of subsidiaries that operate in the insurance and asset management industries, including
Grupo Bradesco Seguros, Bradesco Seguros S.A., Bradesco Asset Management, and Bradesco BBI.
Id. Bradesco’s common and preferred shares are listed and traded on the Bolsa de Valores de São
Paulo (“BOVESPA”), and its common and preferred American Depositary Shares (“CADS” and
“PADS,” respectively) are listed and traded on the NYSE. AC ¶¶ 24-25. Bradesco is subject to
reporting requirements of both the SEC and its Brazilian equivalent, the Comissão de Valores
Mobiliários (“CVM”). AC ¶ 26.
Defendant Luiz Carlos Trabuco Cappi is Bradesco’s Chief Executive Officer and Vice
President of its Board of Directors. AC ¶ 29. Prior to his appointment as CEO on March 10, 2009,
Trabuco had served as Bradesco’s Vice President since March 1999. Id.
Defendant Luiz Carlos Angelotti is Bradesco’s Managing Officer and Investment Relations
Officer and is a member of its Executive Board. AC ¶ 30. Angelotti was elected to the position of
Managing Officer in January 2012 and served on Bradesco’s Executive Committees for Disclosure
and Corporate Governance from 2012 to 2016. AC ¶ 30. According to the amended complaint, he
was also responsible for the Company’s “Tax Audit, General Accounting, Social and Environmental
Responsibility, as well as its Planning, Budgeting and Control areas during the Class Period.” Id.
3
Prior to his appointment as Managing Officer, Angelotti served as Department Officer from 2002 to
2010, and then as Deputy Officer from 2010 to 2012. Id.
Defendant Domingos Figueiredo de Abreu is Bradesco’s Executive Vice President and is
also a member of the Company’s Executive Board. AC ¶ 31. Abreu served on the Company’s
Statutory Committees for Ethical Conduct and Internal Controls and Compliance, and its Executive
Committees for Disclosure and Corporate Governance from 2012 to 2016. Id.
According to the amended complaint, each of the Individual Defendants was “named as a
defendant in the Criminal Complaint for his role in Bradesco’s tax bribery scheme.” AC ¶¶ 29-31.
Plaintiff alleges that Trabuco and Angelotti made a series of false or misleading statements in SEC
and CVM filings during the Class Period, while Abreu made one false or misleading statement in an
SEC filing and, “by virtue of” his committee membership, “was involved in the preparation and
review of the false or misleading statements in Bradesco’s SEC and CVM filings.” Id.
B. Bradesco’s Alleged Unlawful Scheme
According to the amended complaint, Operations Zealots revealed “that Bradesco had been
engaged in an eleven-year scheme, beginning in 2004, to improperly influence the outcome of tax
adjudications with billions of Brazilian Reais at stake.” AC ¶ 60. The relevant cast of characters in
the alleged scheme includes Eduardo Cerqueira Leite (“Leite”), Mario Pagnozzi Junior (“Pagnozzi”),
and José Teruji Tamazato (“Tamazato”) (collectively, the “Bribe Facilitation Group”), as well as a
number of other non-parties. Leite served as an auditor at the Federal Revenue Service of Brazil
(“FRS”). Id. ¶¶ 4, 33. Specifically, he was the Head of the Tax Guidance and Analysis Division at
the Delegacia Especial de Receita Federal de Instituições Financeiras em São Paulo (“Specialized
Office for Financial Institutions in São Paulo” or “DEINF/SP”), an administrative body within the
FRS with responsibility for taxation, collection and recovery, as well as verification with respect to
financial institution taxpayers. AC ¶ 33. Leite, who was also named in the Brazilian criminal
complaint, is alleged in the amended complaint to have “facilitated Bradesco’s efforts to influence
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the outcome of” proceedings before CARF, the appellate body responsible for adjudicating tax
disputes in Brazil, and to have been “instrumental in Bradesco’s tax bribery scheme, including his
role in making determinations favorable to Bradesco in various actions before the DEINF/SP, in
exchange for bribes.” Id.
Pagnozzi is a Brazilian businessman and lawyer affiliated with Pagnozzi, Calazans &
Associados Consultoria Empresarial Ltda., which “purportedly provided ‘tax advice’ to Bradesco.”
AC ¶ 34. Plaintiff alleges that Pagnozzi, who was also named in the Brazilian criminal complaint,
“served as an intermediary for Bradesco’s illicit actions, facilitating bribe payments from the
Company and the improper provision of confidential information to the Company at both the
DEINF/SP and CARF levels.” Id.
Tamazato, who was also named in the criminal complaint, is a business partner of Pagnozzi’s
at Pagnozzi, Calazans & Associados, where he serves as an accountant and “client winner.” AC ¶
35. Tamazato “worked with Pagnozzi to facilitate Bradesco’s payment of bribes in exchange for the
improper provision of confidential information as well as favorable determinations in various tax
proceedings.” Id.
Mário da Silveira Teixeira Júnior (“Teixeira”) was a member of Bradesco’s Board of
Directors from 2002 to 2015. AC ¶ 41. He served on the Company’s Statutory Committee for
Internal Controls and Compliance and acted as it Coordinator from 2012 to 2015. Id. Also named
in the criminal complaint, Teixeira allegedly attended at least one meeting between the Individual
Defendants, Leite, and Pagnozzi, where he “encouraged the Bradesco attendees to pay for the
‘services’ that Leite and Pagnozzi were offering.” Id.
Jorge Victor Rodrigues (“Victor”) is a former FRS auditor and CARF councilor. In addition
to being named in the criminal complaint, Victor “has also been implicated in CARF bribery
schemes involving Banco Safra, Santander[, and] other Brazilian companies.” AC ¶ 37.
5
Otacilio Cartaxo (“Cartaxo”) was the President of CARF from the middle of 2011 until
January 2015, prior to which he was Secretary of the FRS from 2009 to 2011. AC ¶¶ 11, 38.
Lutero Fernandes do Nascimento (“Nascimento”) is a former FRS tax analyst and former
Head of the Technical and Legal Advisory Service of CARF. He served as a legal adviser to Cartaxo
as President of CARF in 2013 and 2014, and is also named in the criminal complaint. AC ¶¶ 11, 39.
Jeferson Ribeiro Salazar (“Salazar”) is a former FRS auditor with experience presenting tax
cases before CARF, and who, according to the amended complaint, “offered to help facilitate
Bradesco’s CARF proceeding.” AC ¶¶ 11, 40. Salazar is also named in the criminal complaint. Id.
1. 2004 and 2007 Tax Credits
Plaintiff alleges that, on several occasions beginning in the early 2000s, Leite accessed
confidential tax information related to Bradesco’s prior tax filings, as well as information related to
other financial institutions and relevant administrative tax proceedings in order to identify tax credits
for which Bradesco could apply. AC ¶ 64. After acquiring that information, Leite provided it to
Pagnozzi and worked with Pagnozzi to formulate a written proposal advising the Company to seek
“lucrative tax credits.” Id. Pagnozzi would present the proposals, which were allegedly referred to
by Leite and Pagnozzi as “papers,” to the Company, which, according to the amended complaint,
agreed to pay Pagnozzi a percentage of the requested tax credit in return for a favorable
determination in the ensuing tax proceedings. Id. The payments, which were “disguised as
remuneration for ‘tax advice,’” were passed on to Leite, who then made determinations in
Bradesco’s favor, “effectively approving his own recommendations.” Id.
For example, on November 24, 2004, Pagnozzi and Leite proposed to Bradesco that the
Company apply for corporate income tax (“IRPJ”) and social contribution over net profits (“CSLL”)
credits for calendar years 2000 and 2001 based on a purported overpayment by the Company and
related adjustments to its prior tax filings. AC ¶ 65. Utilizing confidential information that he
accessed with his DEINF/SP credentials, the amended complaint alleges, Leite put together the
6
“papers” for Bradesco, “proposing how the Company could illegally obtain the tax credits in
exchange for a bribe.” AC ¶ 66. Leite reviewed Bradesco’s 1995 and 1999 tax returns to
“manufacture an overpayment for the 2000 and 2001 fiscal years, such that Bradesco would be able
to claim IRPJ and CSLL credits in the amount of R$200,000,000 (approximately $73,260,000).”3 Id.
Pagnozzi then delivered the “papers”—“under the guise of providing ‘tax advice’”—to Angelotti,
who was responsible for the Company’s “tax area.” Id. Bradesco then paid Pagnozzi and Leite
more than R$1,250,000 (approximately $458,000). Id. As alleged in the amended complaint,
Bradesco “did exactly as Pagnozzi and Leite instructed” and instituted a tax proceeding
(Administrative Tax Proceeding No. 16327.000683/2003-11) to seek approval of the IRPJ and
CSLL credits described in the “papers.” AC ¶ 67. Leite was responsible for approving Bradesco’s
request, which he did. Id.
Plaintiff describes a number of similar tax credit schemes in 2007, and alleges that
“[b]etween 2004 and 2007, Bradesco and its subsidiary Banco Boavista paid Pagnozzi and Leite no
less than R$2,717,000 (approximately $1,206,700) in bribes in exchange for more than
R$260,250,000 (approximately $103,673,000) in illegally obtained tax credits.” AC ¶¶ 68-72.
2. Bradesco’s “Continued Payments” from 2007 to 2015
An expert report compiled by the Brazilian Federal Police “establishes that Bradesco made
450 payments to Pagnozzi, totaling R$12,981,421.83 (approximately $5,200,000), from 2007 to
2015.” AC ¶ 73. In addition, Plaintiff alleges that evidence collected by the Federal Police shows
that the Company “made more than 100 payments to” Victor, totaling R$2,073,978.41
(approximately $830,000). AC ¶ 74. According to the amended complaint, this evidence of
“Bradesco’s transfers to Victor and Pagnozzi” between 2007 and 2015 demonstrates that
3
References to “R$” are to amounts in Brazilian Reais. AC at 1 n.1.
7
“Bradesco’s bribe payments continued long after the 2007 payments made in connection with the
Company’s scheme to illegally obtain IRPJ and CSLL tax credits.” AC ¶ 76.
3. Bradesco’s 2014 Bribery Scheme
Plaintiff alleges that, in the course of Operation Zealots, the Federal Police uncovered “three
separate bribery schemes that Bradesco put in place in 2014 to reap hundreds of millions of dollars
in tax benefits,” including (i) seeking tax credits and reimbursements of R$1,000,000,000
(approximately $600,000,000) based on taxes the Company paid from 2009 to 2014; (ii) requesting
PIS and COFINS tax credits totaling R$360,000,000 (approximately $144,000,000); and (iii)
manipulating a CARF tax appeal pertaining to R$2,736,809,135.03 (approximately $1,232,800,000) in
tax credits and associated fines. AC ¶ 77.
a. Alleged Scheme to Influence the Adjudication of a 2014 Tax
Compensation Request
In addition to the above-described scheme to obtain tax credits at the DEINF/SP level,
Defendants allegedly continued to pay Pagnozzi and Leite in a scheme related to a 2014 review of
Bradesco’s prior tax filings. AC ¶ 78. In a proposal dated March 24, 2014, sent to Angelotti by
Pagnozzi’s office and bearing Bradesco’s stamp with the date of receipt, Pagnozzi proposed the
“verification, review and study, relative to the last five (5) years, of all taxes . . . seeking to make
feasible the reduction of [Bradesco’s] current tax burden and the recovery of overpaid taxes.” AC
¶ 79. According to the amended complaint, the proposal further provided that Bradesco would file
a petition with the DEINF/SP seeking approval of tax credits and reimbursements “in the amounts
that Leite had identified and proposed” (roughly R$1,000,000,000, or approximately $392,157,000),
and that Leite, as head of the DEINF/SP’s Guidance and Tax Analysis Division, would grant the
petition. Id. The proposal also contemplated that Bradesco would pay 15% of any awarded credits
or reimbursements at the DEINF/SP level to Leite and Pagnozzi. Id.
8
Plaintiff alleges that “Bradesco accepted the proposal, but sought to negotiate the amount of
the bribe to Leite and Pagnozzi.” Id. Pagnozzi and Tamazato met with Angelotti on March 24,
2014 and August 12, 2014 to discuss the proposal and renegotiate the “bribe percentage.” AC ¶ 80.
On August 14, 2014, Pagnozzi and Tamazato sent Angelotti a revised proposal for his review that
reduced the percentage to 5-8% depending on the amount of the credit or reimbursement that Leite
was able to secure for the Company. Id. During a November 12, 2014 telephone call that was
intercepted and recorded by the Federal Police, Pagnozzi and Tamazato “revisited the bribe
amount,” noting that it had been negotiated down to 3% of the value of the expected credits. AC
¶ 81.
This scheme “was never completed due to the announcement of Operation Zealots in the
spring of 2015.” AC ¶ 82.
b. Alleged Scheme to Manipulate PIS and COFINS Credits
According to the amended complaint, Defendants also agreed to pay bribes to Leite and
Pagnozzi to obtain more than $100,000,000 in credits related to PIS and COFINS taxes, which are
assessed on the basis of a company’s gross revenues, irrespective of profits. AC ¶¶ 83-84. Pagnozzi
and Leite proposed to Bradesco that it seek between R$1,500,000,000 (approximately $600,000,000)
and R$360,000,000 (approximately $144,000,000) in potential tax credits. AC ¶ 84. As with the
prior tax credit requests, “the Company” agreed to pay a bribe to Pagnozzi and Leite in exchange for
a guaranteed favorable outcome. Id.
Pagnozzi, Tamazato, and Leite discussed this scheme with Angelotti, Abreu, and Trabuco
during an October 9, 2014 in-person meeting at Bradesco’s headquarters. AC ¶ 85. While Trabuco
attended the meeting, he left shortly after greeting Pagnozzi, Tamazato, and Leite. Id. During a
follow-up meeting on November 12, 2014 attended by Pagnozzi, Abreu, Angelotti, and Trabuco,
Abreu told Pagnozzi that Bradesco was “going to close that deal” with Pagnozzi, Tamazato, and
9
Leite. AC ¶ 86. During the same meeting, Trabuco allegedly told Pagnozzi to “tell our friend [Leite]
we are interested in hiring you to do this.” Id. (alteration in original).
Plaintiff alleges that Bradesco requested additional data concerning other companies that had
made similar tax credit applications. AC ¶ 87. Leite used his DEINF/SP credentials to access
confidential data, including information and documents protected by tax secrecy laws, as well as
information Leite had obtained through a private consultation with an FRS attorney in connection
with a separate matter. AC ¶¶ 87-88. He then used that information to put together a proposal for
Bradesco purporting to explain why the Company was entitled to R$360,000,000 in PIS and
COFINS credits. AC ¶ 88. Leite, Pagnozzi, Tamazato, and Angelotti met again on November 28,
2014 to further discuss the arrangement. AC ¶ 89.
This scheme was also “never completed due to the announcement of Operation Zealots in
the spring of 2015.” Id.
c. Alleged Scheme to Manipulate CARF Proceedings
Between October 2014 and March 2015, Angelotti and Abreu, “with Trabuco’s and
Teixeira’s knowledge,” also agreed to pay bribes to public servants in order to manipulate the
outcome of a CARF proceeding concerning a R$2.7 billion (approximately $1.2 billion) Bradesco tax
appeal. AC ¶ 90. The amount at stake in the appeal consisted of a R$1,824,539,423.40
(approximately $821,865,000) tax credit that had been disallowed and an associated fine of
R$912,269,711.63 (approximately $410,932,000) that Bradesco had incurred in connection with the
disallowance. AC ¶ 91.
After the appeal was docketed as Administrative Tax Proceeding No. 16327.000190/201183 and distributed to the CARF, Bradesco and the Bribe Facilitation Group allegedly discussed how
they could influence the members of the CARF panel to manipulate the outcome of the proceedings
in the Company’s favor. AC ¶ 92. According to the amended complaint, Bradesco could not rely
on Leite for this endeavor, since he was not a CARF councilor. Id. Accordingly, the Company
10
enlisted the participation of two additional individuals: Nascimento and Victor. Id. Plaintiff alleges
that Nascimento, an FRS tax analyst, Head of the Technical and Legal Advisory Service of CARF,
and CARF President Cartaxo’s “right hand,” had the authority to draft CARF orders and decisions.
Id. He also had access to internal confidential information and to the CARF computer systems,
including the internal system for tracking the progression of proceedings. Id. In addition,
Nascimento “had connections with the sitting CARF councilors and was intimately familiar with the
internal workings of CARF.” Id. Victor, the retired FRS auditor and CARF councilor “specializ[ed]
in the trade of ‘selling facilitations’ within the FRS.” AC ¶ 93. As relevant here, he “served as the
go-between with Bradesco and Nascimento as [he] paid Nascimento and certain of his family
members a monthly ‘advance’ of R$5,000 on the total amount of expected bribe payments.” Id.
Victor also had relationships with sitting CARF councilors. Id.
By July 30, 2014, Victor, Salazar, and Leite had scheduled a meeting in Brasilia with
Nascimento. AC ¶ 94. Before the meeting, Leite again used his DEINF/SP credentials to access
restricted, confidential information and view the current status of Bradesco’s proceeding. Id. As
alleged, Victor “also reminded Nascimento to bring his computer and his access token to the
meeting so that they could run searches in the CARF internal systems to find information relevant
to Bradesco’s appeal.” Id. Plaintiff alleges that Nascimento confirmed his attendance at this
meeting to the Brazilian Federal Police, and that he told the Federal Police that the meeting “was set
up so that Leite could evaluate Bradesco’s chances of succeeding on appeal,” and that “Victor
mentioned to Nascimento that he would receive a percentage of Victor’s bribe proceeds if Bradesco
prevailed.” Id.
With the CARF proceeding initially set for August 8, 2014, the Bribe Facilitation Group
worked with Salazar, Victor, and Nascimento to “devise a plan to corrupt the CARF commissioners
who were assigned to Bradesco’s proceeding.” AC ¶ 95. According to the amended complaint, they
performed “due diligence” on each of the relevant CARF councilors and determined that Bradesco
11
was likely to lose in the first instance, before the CARF Lower Chamber. Id. An intercepted
telephone conversation revealed that they had chosen to focus their efforts on achieving a reversal
in the CARF Upper Chamber. Id.
Based on confidential information obtained from the internal CARF system, Nascimento
informed “the group” that Bradesco’s proceeding had been postponed from its original August 8,
2014 date. AC ¶ 96. On September 2, 2014, Victor met with Salazar, Leite, Pagnozzi, and
Tamazato in São Paulo. AC ¶ 97. According to the criminal complaint, Plaintiff alleges, the
attendees “discussed the need to ‘stoke the fire’ with Bradesco during the delay—i.e., to convince
the Company to hire them so that everything could be ‘stitched up’ before the case was placed back
on the Lower Chamber’s agenda.” Id.
The next day, Nascimento used his CARF credentials to obtain confidential information
from the Ministry of Finance’s restricted database regarding the status of Bradesco’s proceeding and
the composition of the panel that would hear its case. AC ¶ 98. Leite, Salazar, and Victor then set
out to create the “papers” that they would present to Bradesco and which would allegedly
“propos[e] a plan for manipulating the proceedings.” AC ¶¶ 96, 98.
Shortly thereafter, on approximately September 14, 2014, Victor spoke with CARF councilor
Fabíola Cassiano Keramidas (“Keramidas”). AC ¶ 99. During the earlier “due diligence” that had
been conducted in August, the Bribe Facilitation Group, along with Salazar, Victor, and Nascimento
had assessed that, although two of the relevant councilors were “tough to deal with,” Keramidas was
“not dangerous.” AC ¶ 95. During the September conversation, Victor “directed Keramidas to
request that the Lower Chamber trial be again postponed.” AC ¶ 99. Plaintiff alleges that
Keramidas lodged such a request and that the proceeding was moved to the agenda for the
following month. Id.
Armed with the additional time, the confidential CARF information from Nascimento
concerning the status of Bradesco’s case and the composition of the panel, as well as the “papers”
12
they had prepared, the Bribe Facilitation Group met with Bradesco on October 9, 2014 at
Bradesco’s headquarters to “finalize the deal and present their proposal for how to influence the
proceedings.” AC ¶ 100. Angelotti, Abreu, and Trabuco attended the meeting on Bradesco’s
behalf, though “Trabuco left shortly after greeting” the members of the Bribe Facilitation Group.
Id. At the meeting, the Bribe Facilitation Group provided the “papers” they had prepared and also
discussed “the three possible outcomes of the Lower Chamber proceedings: (i) conversion of the
trial into a diligence investigation,” similar to what had occurred with another banking company; “(ii)
further postponement of the trial, which the group could orchestrate for the Company; or (iii) an
unfavorable Lower Chamber decision.” AC ¶ 101.
During the October 9 meeting, the Bribe Facilitation Group also explained that they could
offer Bradesco the ability to influence the outcome of the CARF proceedings, an advantage they
described as the “Midas Touch.” AC ¶ 102. Specifically, Cartaxo was the father-in-law of one of
Victor’s business partners, and the group planned to use that relationship to influence Cartaxo. Id.
According to the amended complaint, the “Midas Touch” strategy was “especially important
because, as mentioned in the ‘papers,’ if Bradesco lost before the Lower Chamber, one of the
options would be to pursue a special appeal to the Upper Chamber, and the determination of this
appeal would be decided by Cartaxo.” Id.
Immediately after the October 9 meeting concluded, Leite reported to Salazar in an
intercepted telephone call that “the meeting was very good” and that he believed that “it’s going to
pan out.” AC ¶ 103. He also relayed that the Bradesco attendees were very interested in the
“product” and stated that he “was already someone known to them, with whom they personally
interacted.” Id. According to this intercept, Leite told the attendees at the Bradesco meeting:
“[Y]ou know me and know that I am a very transparent and determined person, I will work very
hard and right now there are positives ‘in our favor.’” Id.
13
As described in the amended complaint, Leite reiterated to Bradesco after the October 9
meeting that they could attempt to further delay the Lower Chamber proceedings, which were
scheduled for October 14, 2014, but Bradesco opted to allow the proceedings to move forward. AC
¶ 104-105. As it turns out, however, the case was not heard on October 14, and was instead
postponed until November 12, 2014, “once again at the request of councilor Keramidas, who Victor
described as ‘our friend.’” AC ¶ 105. On November 12, Pagnozzi met again with representatives of
Bradesco. AC ¶ 106. During the meeting, Abreu questioned Pagnozzi regarding the different
options Bradesco could pursue. Id. He also asked whether the Company would prevail on appeal to
the CARF Upper Chamber in the event it lost in the Lower Chamber. Id. Trabuco, who attended
the meeting only briefly, also asked for Pagnozzi’s proposal on how to proceed if the case were
remanded for a diligence investigation. Id.
Bradesco lost its case before the CARF Lower Chamber by a unanimous 6-0 vote. AC
¶ 107. After learning of the adverse ruling, Plaintiff alleges, Abreu and Angelotti “accused the group
of negatively influencing the trial.” Id. Abreu “threatened to expose Leite and have him imprisoned,
but Pagnozzi warned against this course of action, stating that it would only result in the Company
making ‘the greatest enemy on Earth.’” Id. Teixeira also joined the meeting briefly and “reinforced
to Abreu and Angelotti the benefit of the ‘services provided’ by the group.” Id.
According to the amended complaint, while Trabuco did not attend the entire November 12,
2014 meeting, Pagnozzi confirmed to Leite in an intercepted telephone call the next day that
Trabuco knew about Abreu’s and Angelotti’s dealings with the group. AC ¶ 108. During the brief
period that Trabuco was at the meeting, he told Pagnozzi, “I’m glad you’re here . . . helping the
Bank,” which Pagnozzi “understood to mean that Angelotti and Abreu were ‘relaying’ to Trabuco
‘everything we’re talking about.’” Id.
Plaintiff alleges that “Bradesco and the group” quickly agreed on a strategy to challenge the
adverse Lower Chamber ruling, and that Bradesco executed the first part of the strategy by filing a
14
Petition for Clarification, Rectification and Amendment with the Lower Chamber on December 16,
2014. AC ¶ 110. In the meantime, Victor and Nascimento began to research possible “paradigms”4
to support an appeal of the Lower Chamber finding to the Upper Chamber. The amended
complaint describes a series of additional meetings in the following months that allegedly
“demonstrate that Defendants were continuing to move forward with the scheme”: (i) a meeting
between the Bribe Facilitation Group and Angelotti on November 28, 2014; (ii) a meeting between
Pagnozzi and Leite, and then another meeting between Pagnozzi and “Bradesco” on January 28,
2015; and (iii) a meeting between Pagnozzi and “Bradesco” on March 19, 2015. AC ¶ 111.
Bradesco’s tax lawyer, Leo Krakowiak, filed an appeal on behalf of the Company on March
18, 2015, and Bradesco intended to rely on the “Midas Touch” provided by the relationship with
Cartaxo’s son-in-law to ensure that the appeal would be deemed “admissible.” AC ¶ 112. “In
addition, Nascimento, as Cartaxo’s right-hand man, would be responsible for examining the
arguments and drafting the order of admissibility for the appeal.” Id. However, once Operation
Zealots was disclosed to the public on March 26, 2015, Bradesco abandoned its CARF appeal. AC
¶ 113.
C. Operation Zealots Becomes Public
On March 26, 2015, the Brazilian Federal Police publicly disclosed certain information about
the ongoing Operation Zealots investigation, including that seventy companies, including banks,
were under investigation for bribing CARF members to obtain favorable rulings. AC ¶ 114. U.S.
news outlets published articles on Operation Zealots after the market closed on that day. Id. On
March 28, 2015, major Brazilian news outlet O Estado de S. Paulo (“O Estado”) “confirmed that
Bradesco was one of the large banks being investigated in Operation Zealots.” AC ¶ 115.
4 According to the amended complaint, a “‘paradigm’ refers to a previous CARF decision that an appellee may cite in an
effort to strengthen its arguments or prove a specific point. However, an appellee is limited in terms of which prior
decisions it can cite. In addition, the cited paradigms are examined at the threshold admissibility stage, rather than at the
merits stage.” AC ¶ 110 n.2.
15
In early April 2015, various Brazilian news outlets, including O Estado, reported that
Bradesco executives, including Trabuco, were subjects of the investigation, and that the Brazilian
Federal Prosecutor (“MPF”) had recorded telephone conversations revealing that the executives had
met with the lawyers and FRS officials being investigated and had engaged in negotiations with that
group in an attempt to avoid an unfavorable CARF decision. AC ¶ 116. The reports noted,
however, that because the Federal Police’s telephone intercepts were discontinued while Bradesco’s
negotiations with Brazilian officials were still ongoing, it “remained unclear whether evidence existed
showing that Bradesco executives followed through with the alleged corruption scheme.” Id.
D. The Indictment of Trabuco, Abreu, and Angelotti
On May 31, 2016, the Federal Police indicted Trabuco, Abreu, and Angelotti. AC ¶ 118.
Based on the information in the indictment and the police report compiled by the Federal Police,
the MPF filed a criminal complaint against Trabuco, Abreu, Angelotti, Teixeira, Leite, Pagnozzi,
Tamazato, Victor, Nascimento, and Salazar on July 27, 2016. AC ¶ 119. The criminal complaint
alleges that the Individual Defendants committed the crime of “active corruption” and provides
specific facts and details evidencing these crimes. Id. In particular, the criminal complaint alleges
violations of Article 333 of the Brazilian Criminal Code, under which it is illegal “[t]o offer or
promise an undue advantage to a public official, for him to conduct, omit or delay an official act.”
Id. The criminal complaint also contained information and details regarding the other tax bribery
schemes that Bradesco is alleged to have undertaken between 2004 and 2015. Id.
On July 27, 2016, the Brazilian Federal District Court “accepted” the criminal complaint,
which Plaintiff alleges “indicates that the court found just cause to prosecute the criminal action.”
AC ¶ 120. In the decision accompanying the court’s acceptance of the complaint, the judge noted
that, while the accused were still entitled to present their defense, “in this initial evaluation, there is
no relevant clear piece of evidence capable of invalidating the accusation.” AC ¶ 121.
16
E. The Temporary Suspension of CARF Proceedings and the Alleged Improper
Influence over the Parliamentary Commission of Inquiry
As a result of Operation Zealots, all CARF proceedings were suspended for much of 2015.
AC ¶ 122. They resumed in December 2015 after the enactment of “sweeping reforms aimed at
inhibiting similar illicit conduct in the future.” Id. In the wake of the Operation Zealots revelations,
Brazil’s House of Representatives also formed a Parliamentary Commission of Inquiry (“CPI”) to
investigate the alleged manipulation of CARF proceedings through the payment of bribes. AC
¶ 126. However, Trabuco was never summoned to testify. Id.
Plaintiff alleges that the CPI itself succumbed to improper influence. For example, the
amended complaint alleges that one congressman explained that when requests calling for the
testimony of high-level bank executives were made, the CPI session was emptied so the requests
could not be approved for lack of a quorum. Id. In addition, two congressmen participating in the
investigation, including the CPI Vice President, “stated that some members of the commission
accepted bribes in exchange for agreeing not to seek testimony from certain executives implicated in
the scheme.” AC ¶ 127.
The amended complaint cites as “additional evidence of improper relationships between the
CARF CPI members and the corrupt executives” that one congressman lodged an “Independent
Vote” pointing to the large sums donated by Bradesco and other companies implicated in Operation
Zealots to CPI members’ political campaigns. Id. The same congressman further stated that
Trabuco had been “systematically shield[ed]” from being called to testify, and the CPI Vice
President similarly stated that calls for Trabuco to give testimony had been “systematically avoided.”
Id. A third congressman resigned from the CPI, noting that not one “of those who actually
practiced the crimes” had been heard before the CPI and declared the commission “an
embarrassment to [the] country.” Id.
17
In August 2016, the CARF CPI came to a close without having reached any conclusions or
having issued a final report. AC ¶ 128. While the interim president, Waldir Maranhão, had
approved an extension of the commission’s term, Rodrigo Maia overruled the extension when he
assumed the presidency three days later. Id. According to Plaintiff, Maia’s decision to overrule the
extension came on the same day he had lunch with André Gerdau of the Gerdau Group, Trabuco,
and the interim President of Brazil, Michel Temer. Id.
F. Additional Allegations Concerning Bradesco’s CARF Connections
On November 27, 2014, “in the midst of Bradesco’s CARF bribery scheme,” Brazilian
President Dilma Rousseff named Joaquim Levy (“Levy”) as Brazil’s Minister of Finance after
Trabuco “apparently turned down the appointment.” AC ¶ 129. Levy took office on January 1,
2015. Id. Prior to his appointment as Minister of Finance, Levy had served as managing director of
Bradesco subsidiary Bradesco Asset Management from 2010 to 2014, where he remained on the
payroll until the end of 2014. Id. According to the amended complaint, the Ministry of Finance,
which is responsible for overseeing CARF, was involved in the Operation Zealots investigation. Id.
In early 2015, shortly before the public announcement of Operation Zealots, Levy appointed
Bradesco lawyer Maria Teresa Martinez Lopes (“Martinez”) as Vice President of CARF. AC ¶ 130.
Martinez, who had worked for Bradesco for thirty-one years and had served as a sitting CARF
councilor for fifteen years, announced that she would continue working for Bradesco while also
serving as Vice President of CARF. Id. When the public raised concerns that this dual role created
a conflict of interest, “CARF and Bradesco attempted to quell these concerns by citing to CARF
procedures that would prohibit Martinez from voting in any proceeding in which Bradesco had an
interest,” and “Bradesco also noted that the Company’s internal compliance policies similarly
prohibited such a conflict.” Id. Plaintiff alleges, however, that the internal CARF information
contained in the “papers” that the Bribe Facilitation Group had presented to Bradesco indicated that
Martinez was originally part of the CARF Upper Chamber panel that would have heard Bradesco’s
18
appeal of the Lower Chamber ruling. Id. Although “the group assumed that she would recuse
herself,” the CARF proceeding was terminated before she did. Id.
Levy resigned as Minister of Finance on December 18, 2015. Martinez, however, continues
both to serve as Vice President of CARF and to work at Bradesco. AC ¶ 131.
G. Operation Car Wash
Before Operation Zealots became public in 2015, the public learned in 2014 of another
investigation being conducted by Brazilian authorities called Operação Lava Jato (“Operation Car
Wash”). AC ¶ 45. Operation Car Wash involves “allegations of bid-rigging and bribery at Brazil’s
state-owned oil company, Petróleo Brasileiro S.A.—Petrobras (‘Petrobras’).” Id. According to the
amended complaint, “[t]he evidence unearthed by this investigation to date establishes a decadeslong corruption scheme in which third-party contractors were awarded Petrobras contracts based on
inflated bids and then kicked-back a certain percentage of the contract value as a bribe payment that
was funneled to Petrobras executives and politicians.” Id. Operation Car Wash has resulted in
numerous arrests and convictions. Id.
Plaintiff alleges that the “scandal at Petrobras intensified investors’ focus on the policies in
place at Brazilian companies to prevent similar misconduct.” AC ¶ 46. Bradesco recognized the
adverse impact that Operation Car Wash and its revelations could have on Bradesco’s own business.
The Company cautioned investors in its 2014 Form 20-F, filed with the SEC on April 30, 2015, that
“the perception of risks and uncertainties surrounding Brazil may also adversely affect our
business,” and further stated: “The high-profile nature of these [Operation Car Wash] investigations
may have momentarily harmed the reputation of Brazil, which could reduce investor confidence
. . . . If uncertainty continues or a reduction in investor confidence as a result of these investigations
is material, it may adversely affect the results of our operations.” Id.
According to Plaintiff, “[a]s Bradesco publicly recognized that a bribery scandal involving
another Brazilian company could reduce investor confidence and adversely affect Bradesco’s
19
financial results, a bribery scandal involving Bradesco would be even more damaging to the
Company and its investors.” AC ¶ 47.
H. The Challenged Statements and Omissions
Plaintiff alleges that Defendants made a series of false or misleading statements and
omissions of material fact during the Class Period. The challenged statements and omissions can be
broken into eight categories: (i) statements about the Company’s internal controls over financial
reporting; (ii) statements about the Company’s Anti-Corruption Policy and measures it takes to
prevent and combat corruption; (iii) statements about the Company’s Code of Ethical Conduct, as
well as the Code of Ethical Conduct itself; (iv) statements regarding the Company’s disclosure
controls and procedures; (v) statements in Sarbanes-Oxley (“SOX”) certifications; (vi) the failure to
make disclosures required by Item 3 of Form 20-F; (vii) statements regarding the accuracy of
Reference Forms filed with the Brazilian CVM and then with SEC on Forms 6-K; and (viii) allegedly
false denials related to Operation Zealots. A summary of each category of alleged misstatements or
omissions follows.
1. Statements Regarding Bradesco’s Internal Controls over Financial
Reporting (“ICFR”)
In its 2011 Form 20-F, Bradesco stated that “[o]ur internal control was designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles,” and
that “our management has concluded that our internal control over financial reporting was effective
as of December 31, 2011.” AC ¶ 136. Bradesco’s May 2012 Reference Form filed with the CVM
stated with respect to the “level of efficiency of [internal controls used to ensure that reliable
financial statements are prepared], indicating eventual deficiencies and actions taken to correct
them” that “[t]here were no such faults and therefore no such measures taken on preparing the
20
issuer’s consolidated financial statements for the years ended on December 31, 2011, 2010 and
2009.” AC ¶ 137.5
Bradesco’s 2012, 2013, 2014, and 2015 Forms 20-F contain nearly identical statements
regarding the Company’s ICFR as were made in the 2011 Form 20-F. AC ¶¶ 138, 140, 142, 144.
Each of the Company’s Forms 20-F between 2011 and 2015 reported that there had been no
material changes in the Company’s ICFR over the prior fiscal year. AC ¶¶ 136, 138, 140, 142, 144.
Bradesco’s May 2013, May 2014, and May 2015 Reference Forms each state, with only immaterial
variations in wording, that management had “concluded with a reasonable level of assurance that
internal controls are efficient and effective to ensure the integrity of information.” AC ¶¶ 139, 141,
145.
Plaintiff alleges that the statements that Bradesco’s ICFR were “designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements” and that the controls were “effective” during the Class Period were materially false or
misleading because: “(i) in violation of the Company’s internal controls, Defendants were engaged
in an eleven-year-long practice of paying illegal bribes in exchange for illegally obtained tax credits,
which were then reflected in Bradesco’s financial statements; and (ii) Bradesco’s [ICFR] were
ineffective and inadequately designed as evidenced by the fact that these controls, which remained
unchanged from 2004 to 2016, had failed to prevent or detect the long-running bribery scheme
committed by Defendants—let alone Bradesco’s mischaracterization of the bribes as payments for
‘tax advice’—nor had they prevented the Company from reflecting in its financial statements tax
credits that Defendants had ultimately obtained as a result of this scheme.” AC ¶ 146. According to
the amended complaint, the ineffectiveness of Bradesco’s ICFR in 2014 and 2015, and therefore the
falsity of Defendants’ statements in the 2014 and 2015 Forms 20-F and the May 2015 and May 2016
5
After being filed with the CVM, this and all other Reference Forms were filed with the SEC on Form 6-K. AC ¶ 28.
21
Reference Forms, “is further evidenced by the fact that, from mid-2014 to early 2015, members of
Bradesco’s senior management were actively engaging in illegal conduct by negotiating the payment
of bribes in exchange for favorable determinations in connection with Administrative Tax
Proceeding No. 16327.000190/2011-83; (ii) the Company’s contemplated tax compensation request;
and (iii) Bradesco’s application for COFINS and PIS tax credits.” AC ¶ 147.
2. Anti-Corruption Statements
On August 8, 2014, Bradesco filed a press release with the SEC on a Form 6-K signed by
Angelotti. AC ¶ 148. In the “Management Report” section of the press release, under the heading
“Preventing and Combating Corruption and Money Laundering and the Financing of Terrorism,”
the Company’s Board of Directors and Board of Executive Officers stated:
Bradesco adopts a formal and effective process for preventing and combating
corruption and bribery, supported by the Code of Ethical Conduct and by the
Corporate Anti-Corruption Policy. Cultural adaptation is accomplished through
institutional communication and training programs, providing an effective
monitoring of risks and controls. Bradesco also has a complaint channel, whose
actions configured as violations are subject to applicable disciplinary measures,
regardless of hierarchical level, and without prejudice to appropriate legal
penalties.
Id. The Company’s 2014 Form 20-F stated, with respect to “Prevention and Fight Against
Corruption,” that “[w]e carry out procedures to prevent and fight any corruption acts on an ongoing
and permanent basis,” that in 2014 Bradesco’s Board “approved the Corporate Anti-Corruption
Policy, which establishes guidelines for the prevention and fight against corruption, applicable to
management and employees of the Group, comprising Bradesco and its controlled entities,” and
that the Board “also established the Corporate Anti-Corruption Rule, with rules and procedures
aimed at preventing and fighting corruption and bribes.” AC ¶ 149.
Bradesco’s 2015 Form 20-F states that “[w]e continuously seek to enforce measures with a
view to preventing and fighting corruption and bribery, thus demonstrating our commitment
towards operating our business and building and maintaining relationships in an ethical manner.”
22
AC ¶ 150. Similar to the 2014 Form 20-F, the 2015 Form 20-F also described “[t]he AntiCorruption Corporate Standard, with rules and procedures are [sic] aimed at the concession of gifts,
sponsorships, donations, procurement and management of business partners, which aim to prevent
and combat corruption and bribery, in compliance with the laws and regulations in force in Brazil
and in the countries in which we have business units.” Id.
Plaintiff alleges that the above statements were materially false or misleading because, at the
time they were made to investors, “Bradesco and its executives were attempting to pay illegal bribes
in order to: (i) secure a favorable result in Administrative Tax Proceeding No. 16327.000190/201183 and, in fact, had already engaged in illegal conduct by discussing and negotiating this bribe
payment in mid-2014 and early 2015; (ii) obtain a favorable determination with respect to the
Company’s tax compensation request and, in fact, had already engaged in illegal conduct by
discussing and negotiating this bribe payment in mid-2014 and early 2015; and (iii) obtain a favorable
DEINF/SP determination with respect to Bradesco’s application for COFINS and PIS tax credits
and, in fact, had already engaged in illegal conduct by discussing and negotiating this bribe payment
in late-2014 and early 2015.” AC ¶ 151.
3. Code of Ethics Statements
Each of the Bradesco’s Class Period Forms 20-F stated the following:
We have adopted a Code of Ethics and Sectorial Codes of Ethics under the
Securities Exchange Act of 1934, as amended. Our Codes of Ethics apply to our
Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and
persons performing similar functions, to our directors, other officers, employees,
business partners, suppliers, and service providers.
AC ¶ 152. According to the amended complaint, Bradesco’s “Code of Ethical Conduct” underwent
certain revisions during the Class Period. The version applicable from the beginning of the Class
Period through January 26, 2014 stated that “integrity” “signifies full respect for the laws of the
Country and rules that govern the activities of our sector and of our Organization,” that “[w]e must
prohibit any granting of advantage or privilege to public servants,” and that “[w]e must ensure
23
compliance with our policies, rules and rigid controls for the prevention and combating of . . .
corruption and unlawful acts of any nature, in strict compliance with applicable laws.” AC ¶ 153. It
also provided that “[a]ny concern or complaint regarding . . . fraud committed by the management
and employees of the Bank and its subsidiaries, or even by third parties, must be brought to the
attention of the Audit Committee.” Id.
Plaintiff alleges that the Code of Ethics statement in Bradesco’s 2011, 2012, and 2013 Forms
20-F and the Code of Ethical Conduct in operation during that time were materially false or
misleading because, “far from ‘prohibit[ing] any granting of advantage or privilege to public
servants’: (i) the Company was engaged in an eleven-year-long scheme, executed by its officers, of
paying illegal bribes to public servants in exchange for illegally-obtained tax credits, which were then
reflected in Bradesco’s financial statements; (ii) Defendants routinely violated the Company’s code
of ethics by engaging in this illegal conduct; and (iii) Defendants continuously violated the
Company’s code of ethics by concealing this illegal conduct.” AC ¶ 154.
The version of Bradesco’s Code of Ethical Conduct applicable from January 27, 2014
through June 28, 2015 stated that “integrity” “means total respect for the laws and rules that govern
the activities of the sector and of our Organization,” that “[i]n this context, is [sic] unacceptable any
conduct that configure in attempt or practice of bribery or corruption, including concealment or
dissimulation of the occurrence of such acts,” that “it is forbidden to accept, obtain, finance, fund,
grant, pay, promise, sponsor or authorize, directly or indirectly, any benefit, monetary or otherwise,
in any way whatsoever, in favor or [sic] whoever that may represent improper relationship,” and that
“[i]t is prohibited to promise, offer or give, directly or indirectly, benefit to the public servant or to a
third-party related to him.” AC ¶ 155. The January 27, 2014-June 28, 2015 Code also stated that
“[w]e must ensure compliance with our policies, rules and controls for the prevention and
combating of . . . corruption and unlawful acts of any nature, in strict compliance with applicable
laws to the subject,” and provided that “[f]acts related to any accounting aspects or frauds
24
committed by managers and employees of the Bank and its subsidiaries, or by third parties, must be
brought to the attention of the Audit Committee.” Id. The Code of Ethical Conduct in effect from
June 29, 2015 through the end of the Class Period contained substantially the same statements, with
only immaterial variations in wording. See AC ¶ 156.
Plaintiff alleges that the statements in Bradesco’s 2014 and 2015 Forms 20-F and the
operative Codes of Ethical Conduct were materially false or misleading because, at the time they
were made, “(i) the Company was engaged in an eleven-year-long scheme, executed by its officers,
of paying illegal bribes to public servants in exchange for illegally-obtained tax credits, which were
then reflected in Bradesco’s financial statements; (ii) Defendants routinely violated the Company’s
code of ethics by engaging in this long-running bribery scheme; and (iii) Defendants continuously
violated the Company’s code of ethics by concealing this bribery scheme from investors.” AC
¶ 157. Plaintiff alleges that the statements were also materially false or misleading because, at the
time they were made, “Bradesco and its executives were violating the Company’s code of ethics by
attempting to pay illegal bribes in order to: (i) secure a favorable result in Administrative Tax
Proceeding No. 16327.000190/2011-83 and, in fact, had already engaged in illegal conduct by
discussing and negotiating this bribe payment in mid-2014 and early 2015; (ii) obtain a favorable
determination with respect to the Company’s tax compensation request and, in fact, had already
engaged in illegal conduct by discussing and negotiating this bribe payment in mid-2014 and early
2015; and (iii) obtain a favorable DEINF/SP determination with respect to Bradesco’s application
for COFINS and PIS tax credits and, in fact, had already engaged in illegal conduct by discussing
and negotiating this bribe payment in late-2014 and early 2015.” AC ¶ 158.
4. Disclosure Controls Statements
Each of Bradesco’s Class Period Forms 20-F contained the following statement regarding
the Company’s disclosure controls and procedures:
25
Based upon the evaluation referred to above, our Chief Executive Officer and
Chief Financial Officer concluded, subject to the limitations noted above, that for
the period covered by this annual report, our disclosure controls and procedures
were adequate and effective to provide reasonable assurance that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act of the SEC is recorded, processed, summarized and disclosed
within the time period specified in the applicable rules and forms, and that it is
accumulated and communicated to our Management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.
AC ¶ 159. Plaintiff alleges that Bradesco’s statements that its “disclosure controls and procedures
were adequate and effective to provide reasonable assurance that information required to be
disclosed by us . . . is recorded, processed, summarized and disclosed” were materially false and
misleading because “[i]n truth, Bradesco’s disclosure controls and procedures were inadequate and
ineffective as evidenced by: (i) the fact that the Company’s Class Period representations, regarding,
for example, its internal controls and compliance with SEC regulations, omitted and concealed
Bradesco’s eleven-year-long practice of paying illegal bribes in exchange for tax credits—credits
which were then reflected in the Company’s financial statements; and (ii) the fact that Bradesco’s
Class Period Forms 20-F did not contain the information required by Item 3.” AC ¶ 160.
According to the amended complaint, the ineffectiveness of Bradesco’s disclosure controls and
procedures in 2014-2016 is “further evidenced by: (i) Defendants’ representations in Bradesco’s
2014 and 2015 Forms 20-F regarding the Company’s internal controls and compliance with SEC
regulations; and (ii) the Company’s statements in 2015 and 2016 Forms 6-K concerning Defendants’
involvement in the illegal conduct targeted by Operation Zealots, each of which was materially false
or misleading in light of Bradesco’s negotiation of the payment of illegal bribes in exchange for
favorable determinations in connection with” the CARF appeal, the tax compensation request, and
the application for COFINS and PIS tax credits. AC ¶ 161.
26
5. Trabuco’s Statements in SOX Certifications
Each of Bradesco’s Class Period Forms 20-F contained a signed and sworn CEO
Certification pursuant to SOX. AC ¶ 162. In each of those certifications, Trabuco “certif[ied] that
. . . [b]ased 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.” Id. Trabuco also certified that “[t]he company’s other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures . . . and [ICFR] . . .
for the company and have . . . [d]esigned such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the company, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared.”
Id. Finally, Trabuco certified that “[t]he company’s other certifying officer and I have disclosed . . .
to the company’s auditors and the audit committee of the company’s board of directors . . . [a]ny
fraud, whether or not material, that involves management or other employees who have a significant
role in the company’s [ICFR].” Id.
Bradesco’s Class Period Forms 20-F also contained an additional certification pursuant to
SOX Section 906, and signed by Trabuco, stating that “the undersigned officer of Banco Bradesco
S.A. . . . does hereby certify, to such officer’s knowledge, that the annual report on Form 20-F . . .
fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934 and information contained in the Form 20-F fairly presents, in all material respects, the
financial condition and results of operations of the Company.” AC ¶ 163.
Plaintiff alleges that the foregoing SOX certifications were false or misleading because: “(i)
the Company was engaged in an undisclosed eleven-year-long practice of paying illegal bribes in
exchange for illegally obtained tax credits, which were then reflected in Bradesco’s financial
27
statements; (ii) Bradesco’s [ICFR] and disclosure controls were ineffective and inadequately designed
as evidenced by the fact that these controls, which remained unchanged from 2004 to 2016, did not
prevent or detect the long-running bribery scheme committed by Bradesco’s management or the
resulting impact of this scheme on Bradesco’s financial statements; and (iii) Bradesco’s Class Period
Forms 20-F did not contain the information required by Item 3.” AC ¶ 164. Plaintiff further alleges
that those statements were false or misleading “in light of: (i) the Company’s intention to pay a
bribe in order to secure a favorable result in” the CARF appeal “and the illegal conduct committed
by Defendants in discussing and negotiating this bribe payment in mid-2014 and early 2015; (ii)
Bradesco’s intention to pay a bribe to obtain a favorable determination with respect to the
Company’s tax compensation request and the illegal conduct committed by Defendants in discussing
and negotiating this bribe payment in mid-2014 and early 2015; and (iii) the Company’s intention to
pay a bribe in order to obtain a favorable DEINF/SP determination with respect to Bradesco’s
application for COFINS and PIS tax credits and the illegal conduct committed by Defendants in
discussing and negotiating this bribe payment in late-2014 and early 2015.” AC ¶ 165.
6. Failure to Make Disclosures Required by Item 3 of Form 20-F
Item 3.D of Form 20-F requires filers to “prominently disclose risk factors that are specific
to the company or its industry and make an offering speculative or one of high risk, in a section
headed ‘Risk Factors.’” AC ¶ 166. The instructions for Item 3.D state that “[r]isk factors should be
concise and explain clearly how the risk affects the issuer or the securities.” Id.
As alleged in the amended complaint, Bradesco’s Item 3.D disclosures were incomplete and,
therefore, misleading because Defendants failed to disclose the following risks stemming from the
alleged eleven-year-long practice of paying bribes in exchange for tax credits: “(i) the risk that public
disclosure of the bribery scheme would result in Bradesco’s executives facing criminal charges in
Brazil; (ii) the risk that public disclosure of the bribery scheme would result in the Company and/or
its executives incurring fines and penalties related to the tax credits that Bradesco illegally obtained;
28
(iii) the risk that public disclosure of the bribery scheme would result in the Company’s liability
pursuant to the Foreign Corrupt Practices Act of 1977 and/or other criminal or civil penalties in the
United States; and (iv) the risk that public disclosure of the bribery scheme would result in a loss of
investor confidence and a corresponding decline in the price of Bradesco PADS.” AC ¶ 167.
7. Statements Concerning the Accuracy of Reference Form
Information
Bradesco’s Class Period Reference Forms, filed with the CVM and subsequently with the
SEC, each contain a statement by Trabuco and Angelotti declaring that “the set of information
contained therein is a true, accurate, and complete description of the issuer’s economic financial
outcomes and of the risks inherent to its activities and securities issued.” AC ¶ 168.
Plaintiff alleges that those statements were materially false or misleading because “the
Company was engaged in an eleven-year-long practice of paying illegal bribes in exchange for
illegally-obtained tax credits, which were then reflected in Bradesco’s financial statements.” AC
¶ 169. Plaintiff also alleges that they were materially misleading in light of the failure to disclose the
same set of risks described above with respect to Item 3 of Form 20-F. Id. Plaintiff further alleges
that the statements, as contained in Bradesco’s 2015 and 2016 Reference Forms, were materially
false or misleading because, “from mid-2014 to early 2015, members of Bradesco’s senior
management were actively engaging in illegal conduct by negotiating the payment of bribes in
exchange for favorable rulings in connection with” the CARF appeal, the tax compensation request,
and the application for COFINS and PIS tax credits. AC ¶ 170.
8. Allegedly False Denials Related to Operation Zealots
In a press release issued on March 31, 2015 and later filed with the SEC on a Form 6-K
signed by Angelotti on April 10, 2015, Bradesco responded to the March 28, 2015 O Estado article,
which had stated that Bradesco was involved in the wrongdoing uncovered by Operation Zealots.
AC ¶ 171. The press release stated that “Bradesco informs that it does not know details concerning
29
the investigative process related to the subject” and further “clarifie[d] that it adopts strict internal
controls to ensure the compliance of its Anticorruption Corporate Policy and of its Code of Ethical
Conduct, besides complying with the rules issued by Regulatory Bodies.” Id.
On December 4, 2015, O Estado published another article about Operation Zealots and
requested comment from Bradesco on whether the Company had committed any of the alleged
misconduct. AC ¶ 172. Bradesco provided a comment, stating that it maintained its own legal
structure, which was the only one authorized to represent the bank in legal proceedings, and that it
did not contract any additional legal services provider. Id. The Company also stated that it “never
conceded to, negotiated or had practiced acts in violation of the internal rules of compliance as well
as the applicable laws of the Country.” Id.
On May 31, 2016, in response to the indictment of Trabuco, Angelotti, and Abreu, Bradesco
issued a “Notice to the Market.” AC ¶ 173. The Notice stated that “[n]o proposal, hiring or
payment have been implemented from these contacts [with the group], even because the tax pending
issue was under the responsibility of renowned tax specialists” and also noted that “the lawsuit at
CARF, object of the investigation, was tried in disfavor of Bradesco unanimously – 6 x 0, and is now
submitted to the Judiciary.” Id. Finally, the Notice stated:
The Company informs that it has never promised, offered or gave undue
advantage to any person, including public employees, for submission of tax affairs
or of any other nature.
The indictment takes by surprise the Bradesco’s Management, considering that
the two Officers were heard only as witnesses [during the Operation Zealots
investigation] and the Company’s CEO [n]eve[r] has been heard or participated in
any meeting with representatives of the tax advisory officer.
Bradesco reiterates its high standards of ethical conduct and reaffirms its
confidence in the full operation of Justice.
Id. (alterations in original).
Bradesco subsequently filed the Notice with the SEC on a Form 6-K on June 1, 2016, and
Bradesco’s denial of wrongdoing was picked up and repeated by several news outlets, including
30
Reuters, The Wall Street Journal, Bloomberg, and Financial Times. AC ¶ 174. In a Form 6-K filed on June
9, 2016 and signed by Angelotti, Bradesco stated: “[W]e would like to take this opportunity to
reiterate the clarifications provided in the Notice to the Market of May 31, 2016.” AC ¶ 175.
Plaintiff alleges that the statements denying illegal conduct and reaffirming the Company’s
Anti-Corruption Policy and Code of Ethical Conduct and its “high standards of ethical conduct”
were materially false or misleading because they are “directly contradicted by evidence establishing
that: (i) Bradesco made numerous bribe payments between 2004 and 2007 in exchange for favorable
determinations regarding the Company’s applications for tax credits; and (ii) the Company continued
to make bribe payments to Leite and also made bribe payments to Victor between 2007 and 2014.
In addition, when Operation Zealots was announced, Bradesco was in the midst of negotiating bribe
payments in order to” secure a favorable result in the CARF appeal, obtain a favorable
determination with respect to the tax compensation request, and obtain a favorable determination
with respect to the application for COFINS and PIS tax credits. AC ¶ 176.
Plaintiff further alleges that the Company’s statement that it did not contract with any
additional legal services providers was materially false or misleading “in light of, inter alia, their
decade-long relationship with Pagnozzi and Tamazato whereby the Company illegally obtained tax
advantages in exchange for bribes.” Id.
II.
LEGAL STANDARDS
A. Rule 12(b)(6)
To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), “a complaint
must allege sufficient facts, taken as true, to state a plausible claim for relief.” Johnson v. Priceline.com,
Inc., 711 F.3d 271, 275 (2d Cir. 2013) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007)).
To determine plausibility, courts follow a “two-pronged approach.” Ashcroft v. Iqbal, 556 U.S. 662,
679 (2009). “First, although a court must accept as true all of the allegations contained in a
complaint, that tenet is inapplicable to legal conclusions, and threadbare recitals of the elements of a
31
cause of action, supported by mere conclusory statements, do not suffice.” Harris v. Mills, 572 F.3d
66, 72 (2d Cir. 2009) (quoting Iqbal, 556 U.S. at 678) (alterations omitted). Second, a court
determines “whether the ‘well-pleaded factual allegations,’ assumed to be true, ‘plausibly give rise to
an entitlement to relief.’” Hayden v. Paterson, 594 F.3d 150, 161 (2d Cir. 2010) (quoting Iqbal, 556
U.S. at 679). Determining whether a complaint states a plausible claim is a “context-specific task
that requires the reviewing court to draw on its judicial experience and common sense.” Iqbal, 556
U.S. at 679.
Because claims under Section 10(b) of the Securities Exchange Act (“Exchange Act”) and
Rule 10b-5 thereunder sound in fraud, they are subject to the heightened pleading requirements of
Federal Rule of Civil Procedure 9(b) and the PSLRA. Novak v. Kasaks, 216 F.3d 300, 306-07 (2d Cir.
2000). Rule 9(b) requires that the complaint “state with particularity the circumstances constituting
fraud.” To satisfy that requirement, the complaint must “(1) specify the statements that the plaintiff
contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were
made, and (4) explain why the statements were fraudulent.” ATSI Commc’ns, Inc. v. Shaar Fund, Ltd.,
493 F.3d 87, 99 (2d Cir. 2007). The PSLRA imposes similar requirements on claims brought under
the Exchange Act: “the complaint shall specify each statement alleged to have been misleading, the
reason or reasons why the statement is misleading, and, if an allegation regarding the statement or
omission is made on information and belief, the complaint shall state with particularity all facts on
which that belief is formed.” 15 U.S.C. § 78u-4(b)(1). The PSLRA further requires that the
complaint “state with particularity facts giving rise to a strong inference that the defendant acted
with the required state of mind” with respect to each alleged misstatement or omission. 15 U.S.C.
§ 78u-4(b)(2). A complaint will survive under that heightened standard “only if a reasonable person
would deem the inference of scienter cogent and at least as compelling as any opposing inference
one could draw from the facts alleged.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 324
(2007).
32
In resolving a motion to dismiss under Rule 12(b)(6), courts generally may not consider
materials extrinsic to the complaint. Fed. R. Civ. P. 12(d). However, that rule is not absolute. In
addition to the facts alleged in the complaint, courts “may consider any written instrument attached
to the complaint, statements or documents incorporated into the complaint by reference, legally
required public disclosure documents filed with the SEC, and documents possessed by or known to
the plaintiff and upon which it relied in bringing the suit.” ATSI, 493 F.3d at 98. Courts may also
consider “matters of which judicial notice may be taken,” Goel v. Bunge, Ltd., 820 F.3d 554, 559 (2d
Cir. 2016) (citation omitted), including documents that both “bear on the adequacy” of SEC
disclosures and are “public disclosure documents required by law,” Kramer v. Time Warner, Inc., 937
F.2d 767, 773-74 (2d Cir. 1991).
B. Rule 12(b)(2)
On a motion to dismiss pursuant to Rule 12(b)(2), the “plaintiff bears the burden of
demonstrating personal jurisdiction over a person or entity against whom it seeks to bring suit.”
Penguin Grp. (USA) Inc. v. Am. Buddha, 609 F.3d 30, 34 (2d Cir. 2010) (citing In re Magnetic Audiotape
Antitrust Litig., 334 F.3d 204, 206 (2d Cir. 2003) (per curiam)); see also Bank Brussels Lambert v. Fiddler
Gonzalez & Rodriguez, 171 F.3d 779, 784 (2d Cir. 1999) (“When responding to a Rule 12(b)(2)
motion to dismiss for lack of personal jurisdiction, the plaintiff bears the burden of establishing that
the court has jurisdiction over the defendant.” (citations omitted)). To defeat a jurisdiction-testing
motion, the plaintiff’s burden of proof “‘varies depending on the procedural posture of the
litigation.’” Dorchester Fin. Sec., Inc. v. Banco BRJ, S.A., 722 F.3d 81, 84 (2d Cir. 2013) (quoting Ball v.
Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 197 (2d Cir. 1990)). At the pleading stage—and
prior to discovery—a plaintiff need only make a prima facie showing that jurisdiction exists, and that
showing may be established solely by allegations. Id. at 84-85; see also Eades v. Kennedy, PC Law Offices,
799 F.3d 161, 167-68 (2d Cir. 2015) (“‘In order to survive a motion to dismiss for lack of personal
33
jurisdiction, a plaintiff must make a prima facie showing that jurisdiction exists.’” (quoting Licci ex rel.
Licci v. Lebanese Canadian Bank, SAL, 732 F.3d 161, 167 (2d Cir. 2013))).
If the court considers only pleadings and affidavits, the plaintiff’s 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.” In re Terrorist Attacks on Sept. 11, 2001, 714 F.3d 659, 673 (2d Cir.
2013) (quoting Chloe v. Queen Bee of Beverly Hills, LLC, 616 F.3d 158, 163 (2d Cir. 2010)). Courts may
rely on materials outside the pleading in considering a motion to dismiss for lack of personal
jurisdiction. See DiStefano v. Carozzi N. Am., Inc., 286 F.3d 81, 84 (2d Cir. 2001). “‘The allegations in
the complaint must be taken as true to the extent they are uncontroverted by the defendant’s
affidavits.’” MacDermid, Inc. v. Deiter, 702 F.3d 725, 727 (2d Cir. 2012) (quoting Seetransport Wiking
Trader Schiffarhtsgesellschaft MBH & Co., Kommanditgesellschaft v. Navimpex Centrala Navala, 989 F.2d 572,
580 (2d Cir. 1993)). If the parties present conflicting affidavits, however, “all factual disputes are
resolved in the plaintiff’s favor, and the plaintiff’s prima facie showing is sufficient notwithstanding
the contrary presentation by the moving party.” Seetransport Wiking, 702 F.3d at 727 (citation
omitted).
III.
DISCUSSION
Plaintiff asserts claims under Section 10(b) of the Exchange Act and Rule 10b-5 thereunder,
as well as claims for control person liability against the Individual Defendants under Section 20(a) of
the Exchange Act.
Section 10(b) of the Securities Exchange Act makes it unlawful to “use or employ, in
connection with the purchase or sale of any security . . . any manipulative or deceptive device or
contrivance in contravention of such rules and regulations as the [Securities and Exchange]
Commission may prescribe.” 15 U.S.C. § 78j(b). Promulgated under authority granted to the SEC
by Section 10, Rule 10b-5 makes it unlawful to “make any untrue statement of a material fact or to
34
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.” 17 C.F.R. § 240.10b-5(b).
To state a claim under Section 10(b) and Rule 10b-5 for fraudulent misrepresentations, a
plaintiff must allege “(1) a material misrepresentation or omission by the defendant; (2) scienter; (3)
a connection between the misrepresentation or omission and the purchase or sale of a security; (4)
reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.”
GAMCO Investors, Inc. v. Vivendi Universal, S.A., 838 F.3d 214, 217 (2d Cir. 2016) (quoting Halliburton
Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398, 2407 (2014)).
Under Rule 10b-5, “[w]hen an allegation of fraud is based upon nondisclosure, there can be
no fraud absent a duty to speak.” Chiarella v. United States, 445 U.S. 222, 235 (1980). A corporation
does not have a duty to disclose information simply because it is material. Matrixx Initiatives, Inc. v.
Siracusano, 563 U.S. 27, 44 (2011); see In re Time Warner Inc. Sec. Litig., 9 F.3d 259, 267 (2d Cir. 1993))
(“[A] corporation is not required to disclose a fact merely because a reasonable investor would very
much like to know that fact.”). Similarly, a corporation does not have a duty to disclose information
simply because it suggests the corporation or its employees engaged in uncharged illegal conduct.
See, e.g., In re Citigroup, Inc. Sec. Litig., 330 F. Supp. 2d 367, 377 (S.D.N.Y. 2004) (“[T]he federal
securities laws do not require a company to accuse itself of wrongdoing.”). However, “[d]isclosure
is required . . . when necessary ‘to make . . . statements made, in light of the circumstances under
which they were made, not misleading.’” Matrixx, 563 U.S. at 44. Thus, “[w]hen a corporation does
make a disclosure—whether it be voluntary or required—there is a duty to make it complete and
accurate.” In re Marsh & Mclennan Cos. Sec. Litig., 501 F. Supp. 2d 452, 469 (S.D.N.Y. 2006); see also
Meyer v. Jinkosolar Holdings Co., 761 F.3d 245, 250 (2d Cir. 2014) (“Even when there is no existing
duty to disclose information, once a company speaks on an issue or topic, there is a duty to tell the
whole truth.”). A duty to disclose may also arise “expressly pursuant to an independent statute or
35
regulation—i.e., an affirmative legal disclosure obligation.” In re Sanofi-Aventis Sec. Litig., 774 F.
Supp. 2d 549, 561 (S.D.N.Y. 2011) (citation omitted).
Section 20(a) of the Exchange Act provides that “[e]very person who, directly or indirectly,
controls any person liable under any provision of this chapter or of any rule or regulation thereunder
shall also be liable jointly and severally with and to the same extent as such controlled person to any
person to whom such controlled person is liable . . . unless the controlling person acted in good
faith and did not directly or indirectly induce the act or acts constituting the violation or cause of
action.” 15 U.S.C. § 78t(a). “Any claim for ‘control person’ liability under § 20(a) of the Exchange
Act must be predicated on a primary violation of securities law.” Pacific Inv. Mgmt. Co. v. Mayer Brown
LLP, 603 F.3d 144, 160 (2d Cir. 2010). “To state a claim of control person liability under § 20(a), ‘a
plaintiff must show (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.’” Carpenters Pension Tr. Fund of St. Louis v. Barclays PLC,
750 F.3d 227, 236 (2d Cir. 2014) (quoting ATSI, 493 F.3d at 108).
A. Preliminary Questions
The parties’ briefs raise three predicate questions that are most efficiently addressed at the
outset: (1) whether Plaintiff has adequately alleged the bribery schemes that purportedly rendered
the challenged statements false or misleading; (2) what impact, if any, a decision issued by a Brazilian
appellate court dismissing the criminal charges against Trabuco subsequent to the amended
complaint has on this action at the motion-to-dismiss stage; and (3) what impact the Supreme
Court’s 2011 decision in Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135 (2011), had on
the so-called group-pleading doctrine. As explained more fully below, the Court concludes that
Plaintiff has adequately alleged some, but not all, of the asserted bribery schemes, that the Brazilian
court decision has no effect on the Court’s review of Defendants’ motion to dismiss, and that the
group-pleading doctrine does not survive Janus.
36
1. The Adequacy of the Bribery Allegations
Because the gravamen of the amended complaint is that a series of unlawful bribery schemes
over the course of eleven years rendered the challenged statements false or misleading, the Court
must determine at the outset whether Plaintiff has adequately alleged any or all of those
schemes. See, e.g., In re Axis Capital Holdings, Ltd. Sec. Litig., 456 F. Supp. 2d 576, 585 (S.D.N.Y.
2006) (“In the present case, each of plaintiffs' nondisclosure claims are entirely dependent upon the
predicate allegation that AXIS participated in an anticompetitive scheme to drive other insurance
companies out of the market. If the complaint fails to allege facts which would establish such an
illegal scheme, then the securities law claims premised on the nondisclosure of the alleged scheme are
fatally flawed.”). As part of the “circumstances constituting fraud,” see Fed. R. Civ. P. 9(b), such
schemes must be pleaded with particularity. See, e.g., In re FBR Inc. Sec. Litig., 544 F. Supp. 2d 346,
354 (S.D.N.Y. 2008) (“[I]n order to state a claim that defendants violated the securities laws because
they failed to disclose the insider trading scheme, plaintiffs must plead the alleged trading scheme
with particularity.”); In re Yukos Oil Co. Sec. Litig., No. 04-cv-5243 (WHP), 2006 WL 3026024, at *14
(S.D.N.Y. Oct. 25, 2006) (dismissing claim premised on failure to disclose illegal tax evasion scheme
where complaint failed “to plead with particularity sufficient facts demonstrating that [defendant’s]
tax strategy violated . . . the Russian Federation Tax Code.”); In re JP Morgan Chase Sec. Litig., 363 F.
Supp. 2d 595, 632 (S.D.N.Y. 2005) (“Plaintiffs contend that JPM Chase made material omissions in
failing to disclose its violations of 18 U.S.C. Sections 215 and 1005. Plaintiffs have failed to allege
with particularity that JPM Chase or its agents violated these statutes.”); see also Menaldi v. Och-Ziff
Capital Mgmt. Grp. LLC, 164 F. Supp. 3d 568, 578-79, 582 (S.D.N.Y. 2016) (dismissing claim
premised on foreign bribery where complaint failed adequately to plead “how, when, and whether”
defendant offered anything of value to government officials).
37
a. The amended complaint does not adequately allege pre-2014
bribery schemes
Plaintiff has failed adequately to allege that anyone at Bradesco was aware that they were
involved in any unlawful dealings with government officials at least until March 24, 2014. According
to the detailed allegations in the amended complaint, no one in the Company, including the
Individual Defendants, had any contact or communication with Leite during that period. Although
the portion of the amended complaint describing the alleged pre-2014 schemes contains some
blanket allegations that payments were made by the Company “to Leite and Pagnozzi,” e.g., AC ¶ 70,
the particularized examples of such transactions provided by Plaintiff consistently describe payments
made to Pagnozzi, and then passed on by Pagnozzi to Leite, see, e.g., id. Blanket allegations that
payments were made “to Leite and Pagnozzi,” standing alone, do not satisfy Rule 9(b)’s requirement
to plead the “who, what, when, where, and how” of the alleged transactions. See Am. Federated Title
Corp. v. GFI Mgmt. Servs., Inc., 39 F. Supp. 3d 516, 520 (S.D.N.Y. 2014) (quoting DiLeo v. Ernst &
Young, 901 F.2d 624, 627 (7th Cir. 1990)).
Moreover, the Brazilian criminal complaint, upon which Plaintiff expressly and pervasively
relies for its bribery allegations and which the Court may consider without converting Defendants’
motion to one for summary judgment,6 exclusively describes payments made during this period to
either Pagnozzi or Tamazato, and not directly to Leite or any other Brazilian government official.
See Decl. of Tina Gonzalez Barton (ECF No. 65) (“Barton Decl.”), Ex. D, at 3-19. Thus, even if
Plaintiff’s allegations could be read to suggest with sufficient particularity that Bradesco made some
payments directly to Leite during the pre-2014 period, those allegations would not be entitled to the
assumption of truth because they are contradicted by the document upon which the amended
At least one ground for the Court to consider the criminal complaint is that it is incorporated by reference repeatedly
throughout the amended complaint. See, e.g., AC ¶¶ 33-41, 64, 92; ATSI Commc’ns, 493 F.3d at 98 (explaining that courts
may consider “statements or documents incorporated into the complaint by reference” in ruling on a motion to dismiss).
Additionally, because Plaintiff expressly relied on the criminal complaint in framing the amended complaint, see AC at
p. 1, the Court may consider it as “integral to” the amended complaint. See Goel., 820 F.3d at 559 (explaining that a
document is “integral to the complaint” if the complaint “relies heavily upon its terms and effect”).
6
38
complaint relies. See In re Elan Corp. Sec. Litig., 543 F. Supp. 2d 187, 206 (S.D.N.Y. 2008) (“The
court need not accept as true an allegation that is contradicted by documents on which the
complaint relies.” (citation omitted)); Rappaport v. Asia Elecs. Holding Co., 88 F. Supp. 2d 179, 184
(S.D.N.Y. 2000) (“If these documents contradict the allegations of the amended complaint, the
documents control and this Court need not accept as true the allegations in the amended
complaint.” (citation omitted)).
Finally, Plaintiff appears to concede that it has only cognizably alleged that payments were
made directly to Pagnozzi, arguing in its opposition brief that it “has alleged with particularity . . . the
specific amount of the bribe payments Bradesco made to Leite (via Pagnozzi)” and that, “in pleading
that Defendants paid bribes to Leite, through Pagnozzi, in exchange for Leite’s issuance of favorable
tax adjudications, Plaintiff has stated a plausible claim that the underlying illegal and unethical
conduct occurred.” Pl.’s Mem. of Law in Opp’n to Defs.’ Mot. to Dismiss (ECF No. 69) (“Pl.’s
Mem.”) at 40, 42.
In addition to the absence of cognizable allegations of contact directly between Bradesco
personnel and Leite, there is no allegation in the amended complaint that Pagnozzi, or anyone,
communicated Leite’s involvement, or his indirect receipt of payments, to any Bradesco director,
officer, or employee during the period prior to 2014. Similarly, Plaintiff alleges that the “papers”
were consistently delivered to the Company by Pagnozzi, who was not a government official.
Without knowledge that the favorable tax rulings allegedly obtained during the pre-2014 period were
the result of illicit payments to, or other unlawful attempts to influence, government officials,
neither Defendants nor any other Bradesco personnel could have possessed the scienter necessary to
support a securities fraud claim premised on those activities. See In re PetroChina Co. Ltd. Sec. Litig,
120 F. Supp. 3d 340, 357-58 (S.D.N.Y. 2015) (concluding that complaint “fails to demonstrate that
PetroChina officials were aware of any bribery that Jiang—who had departed a month earlier—
might have been involved in when the Company filed its 2012 annual report” and stating that
39
“Plaintiffs are required . . . to establish—at a bare minimum—that the underlying fraud took place
during the time period covered by the purportedly false public statements and that someone at
PetroChina knew or had reason to know about it.”).
Plaintiff attempts to remedy that deficiency through weak circumstantial allegations that
Leite said to Salazar in October 2014 that he was “known to” Bradesco and that the Company had
“interacted with him personally” at some point during that period, that the Company made a large
number of payments to Pagnozzi and Victor during that period, that the Company had no need to
engage Pagnozzi for tax advice because it already had several renowned tax experts at its side, and
that every tax ruling during that period was favorable to the Company. But even assuming those
allegations are sufficient to meet the plausibility threshold established by Twombly and Iqbal, they fall
on the wrong side of the PSLRA’s requirement that securities fraud complaints “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).
Plaintiff does not allege, for example, the circumstances under which Leite was “known to”
or had “interacted . . . personally” with Leite prior to 2014, aside from the unavailing attempt to do
so described above. Nor does Plaintiff allege that Bradesco’s purported familiarity and interactions
with Leite during that period did not consist of routine and entirely lawful interactions with him in
his capacity as an FRS tax auditor. Such an allegation may well have strengthened the inference that
Plaintiff seeks to create, but such an allegation is not present here. Additionally, Leite’s statement
that he was “known to” the Company was made in late 2014 and does not itself indicate when the
Company’s familiarity with him arose. Similarly, Plaintiff does not allege the circumstances
underlying, or the reason for, the 450 payments to Pagnozzi and the 148 payments to Victor
allegedly made during that period. Indeed, the amended complaint does not even allege that any
agent of Bradesco had ever met Victor or knew who he was.
40
Similarly, the allegation that Bradesco already had ample tax assistance without Pagnozzi falls
flat when considered in the context of Plaintiff’s own allegation that Pagnozzi’s work had resulted in
a series of positive tax results for the Company. Viewed through that lens, the decision to engage
and continue to work with Pagnozzi is entirely consistent with a rational and lawful business
decision, particularly in the absence of any allegation that Bradesco personnel were aware of Leite’s
involvement. And it certainly is not sufficient to give rise to the inference that Bradesco personnel
must have known something illicit was taking place.
Finally, Plaintiff’s allegation that Bradesco had a 100% success rate in its tax rulings during
the pre-2014 period does not create a plausible inference, much less a strong one, that individuals
within the Company knew or should have suspected that unlawful dealings were afoot. Had
Plaintiff alleged that such a record of favorable results was atypical, or that other tax advisers had
failed to achieve such results for the Company in the past, or that individuals within Bradesco knew
the Company was not entitled to the tax treatment it received during that period, the inference
would be stronger, but those allegations are not found in the amended complaint. Thus, while that
allegation and the others described above may give rise to a conceivable or possible or even plausible
inference that Bradesco personnel were aware of the allegedly unlawful dealings with Leite, that it
not enough. As noted earlier, even assuming that Plaintiff’s pre-2014 allegations are sufficient to
satisfy the general plausibility standard of Rule 8, they do not satisfy the particularity requirements of
Rule 9(b) and the PSLRA with respect both to falsity and scienter. See Tellabs, 551 U.S. at 314
(holding that, “[t]o qualify as ‘strong’ within the intendment of [the PSLRA], . . . 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” (emphasis added)); S. Cherry St., LLC v. Hennessee
Grp. LLC, 573 F.3d 98, 110 (2d Cir. 2009) (“To meet the ‘strong inference’ standard, it is not
sufficient to set out ‘facts from which, if true, a reasonable person could infer that the defendant
acted with the required intent,’ for that gauge ‘does not capture the stricter demand Congress sought
41
to convey in § 21D(b)(2).” (quoting Tellabs 551 U.S. at 314)); see also In re JP Morgan Chase, 363 F.
Supp. 2d at 624 (holding that plaintiff failed to allege scienter on theory of conscious misbehavior
where plaintiff “failed to plead with requisite particularity that any of the defendants engaged in
illegal behavior.”).
In sum, the Court concludes that, while the amended complaint may adequately allege that
Pagnozzi worked with, and made payments to, Leite in order to further his work for Bradesco prior
to 2014, the amended complaint does not adequately allege that any agent of Bradesco participated
in or was aware of that conduit of information, proposals, and money between Pagnozzi and Leite
prior to 2014. In other words, the allegations in the amended complaint relating to that period,
when viewed through the applicable pleading standards, show only that Bradesco received tax advice
from a lawyer (Pagnozzi), and that Bradesco paid Pagnozzi’s firm for those services. As alleged, any
unlawful dealings were conducted on the side between Pagnozzi and Leite. As a result, all claims
relating to challenged statements or omissions made prior to 2014 are dismissed. See, e.g., In re FBR,
544 F. Supp. 2d at 355 (“Plaintiffs’ failure to properly plead the wrongdoing that they allege
defendants were obligated to disclose is fatal to both their Section 10 and Section 20 claims.”).
Because the deficiencies that the Court has identified may be curable by amendment, the Court will
grant Plaintiff leave to amend.
b. The amended complaint adequately alleges bribery schemes
beginning on March 24, 2014
By contrast, the Court concludes that Plaintiff has adequately alleged that Bradesco
personnel were aware of Leite’s involvement beginning on March 24, 2014 and extending through
the end of the alleged class period. According to the amended complaint, Pagnozzi sent a proposal
to Angelotti on March 24, 2014 providing that “Leite, as the head of the DEINF/SP’s Guidance
and Tax Analysis Division, would . . . grant the Company’s [tax credit and reimbursement] petition.”
AC ¶ 79. Pagnozzi and Tamazato met with Angelotti on March 24, 2014 and August 12, 2014 “to
42
discuss the proposal and renegotiate the bribe percentage.” AC ¶ 80. On August 14, 2014, Plaintiff
alleges, Pagnozzi and Tamazato sent Angelotti a revised proposal “that cut the bribe amount to a
range of 5% to 8% depending on the amount of the credit or reimbursement that Leite was able to
secure for the Company.” Id. The amended complaint further alleges that Pagnozzi, Tamazato, and
Leite met with Angelotti, Abreu, and Trabuco in person at Bradesco headquarters on October 9,
2014 to discuss the scheme to manipulate PIS and COFINS credits. AC ¶ 85. And during a
November 12, 2014 meeting attended by Pagnozzi, Abreu, Angelotti, and Trabuco, Abreu is alleged
to have told Pagnozzi that Bradesco was “going to close that deal,” and Trabuco is alleged to have
told Pagnozzi to “tell our friend [Leite] we are interested in hiring you to do this.” AC ¶ 86.
Bradesco then “requested additional data concerning other companies that had made similar
applications,” data that “was only available through Leite’s ability to access confidential information
due to his role with the DEINF/SP.” AC ¶ 87.
These particularized allegations are sufficient at the pleading stage to show the
commencement of Bradesco’s knowing involvement in schemes to unlawfully influence the
outcome of tax proceedings through Pagnozzi’s connection with Leite. Accordingly, the Court will
proceed to analyze any challenged statements or omissions alleged to have been made after March
24, 2014.
2. The Impact of the Brazilian Federal Circuit Court of Appeals’ June
13, 2017 Ruling
On June 16, 2017, well after the filing of the amended complaint and after Defendants’
motion to dismiss was fully briefed, Defendants informed the Court that Brazil’s Federal Circuit
Court of Appeals for the First Region had granted a writ of habeas corpus three days earlier,
dismissing the criminal charges against Trabuco. See ECF No. 77. On June 19, 2017, the Court
issued an order inviting the parties to submit supplemental letter briefs describing their views of the
impact of that decision on the pending motion to dismiss. ECF No. 78. Defendants submitted a
43
supplemental brief on the issue on June 30, 2017, ECF No. 79, and Plaintiff submitted a responsive
letter brief on July 21, 2017, ECF No. 82.
Not surprisingly, Defendants contend that the dismissal of the criminal charges against
Trabuco “makes clear that Plaintiffs have not adequately alleged a claim against Trabuco and
provides further support for dismissing the claims against the other Defendants.” ECF No. 79, at 2.
For its part, Plaintiff contends that “the Brazilian Court’s decision does not support dismissal of any
of Plaintiff’s claims against any Defendant.” ECF No. 82, at 7. Although the Brazilian court’s
dismissal of the criminal charges against Trabuco may be relevant at the evidentiary stage of this
proceeding, the Court concludes that it has no impact at the pleading stage.
To begin with, the Court notes that, although it may take judicial notice of a foreign
judgment on a motion to dismiss, it is not clear that the Court properly may take account of the
reasoning and factual recitations contained within a foreign judgment for their truth. See Jordan
(Berm.) Inv. Co. v. Hunter Green Invs. Ltd., 154 F. Supp. 2d 682, 689 (S.D.N.Y. 2001) (taking judicial
notice of judgment but explaining that “courts routinely take judicial notice of documents filed in
[other actions], . . . not for the truth of the matters asserted in the other litigation, but rather to
establish the fact of such litigation and related filings”). Moreover, the Court is mindful that, in
determining an issue of foreign law, courts “may consider any relevant material or source, including
testimony, whether or not submitted by a party or admissible under the Federal Rules of Evidence.”
Fed. R. Civ. P. 44.1. That is an inquiry that the Court has not yet had an opportunity to conduct.
Accordingly, the Court is hesitant to reach any conclusion regarding the impact of the June 13, 2017
decision on this action at this early stage.
Nevertheless, the Court observes that the Brazilian court’s decision appears to have turned,
at least in large part, on the sufficiency of the allegations in the charging instrument, as well as on the
applicable standard of proof. As Plaintiff points out, the decision evaluated the Brazilian
prosecutor’s complaint against Trabuco based on the standard of proof for criminal cases in Brazil.
44
See ECF No. 79, Ex. 1 (“Decision”) at 8 (noting that “it falls to the Public Prosecutor’s Office to
prove, unequivocally, beyond reasonable doubt, the guilt of the accused” (emphasis added)); id. at 10
(noting that it “must give maximum consideration to that which the defense . . . also presented”
(emphasis added)); id. at 17 (“[A]fter reading the complaint, it is not even certain whether the alleged
shady business supposedly offered by the public officials . . . was in fact accepted by the Bank, much
less that it had consent of the detained person.” (emphasis added)). In holding that the charging
instrument contained insufficient facts to sustain the charges against Trabuco under Brazilian legal
standards, the Brazilian Federal Circuit Court of Appeals for the First Region did not hold that the
alleged misconduct did not occur, nor is there any indication that the court’s decision is not capable
of being reversed by a higher Brazilian court, or that the ruling is with prejudice to Brazilian
authorities bringing charges against Trabuco anew.
Perhaps most importantly, the standard of proof in this action—a civil action in a U.S.
court—is only a preponderance of the evidence, and the Court is required in evaluating the
sufficiency of a civil complaint in U.S. federal court to “accept all allegations in the complaint as true
and draw all inferences in the nonmoving party’s favor.” LaFaro v. New York Cadiothoracic Grp.,
PLLC, 570 F.3d 471, 475 (2d Cir. 2009). The Brazilian court, by contrast, notes its mandate to
“always give maximum consideration to that which the defense has . . . also presented.” Decision at
10. For that reason, and the other reasons described above, while the decision may be relevant on
summary judgment or at trial, the Court cannot conclude that it has any impact on this action at this
preliminary stage. Cf. In re 650 Fifth Ave. and Related Props., No. 08-cv-10934 (KBF), 2017 WL
2214869, at *19 (S.D.N.Y. May 18, 2017) (excluding evidence, from trial, of lack of criminal charges
due to danger of misleading jury into the “patently incorrect” belief “that a lack of criminal charges
means that there can be no civil liability”).
45
3. The Impact of Janus on the Group-Pleading Doctrine
The final preliminary question for the Court is whether the group-pleading doctrine (also
known as the group-published documents doctrine) survives the Supreme Court’s 2011 decision in
Janus. The group-pleading/group-published documents doctrine permits securities fraud plaintiffs
to rely on “a presumption that statements in prospectuses, registration statements, annual reports,
press releases, or other group-published information, are the collective work of those individuals
with direct involvement in the everyday business of the company.” In re Am. Int’l Grp., Inc. 2008 Sec.
Litig., 741 F. Supp. 2d 511, 530 (S.D.N.Y. 2010) (citation omitted). That doctrine was recognized by
the Second Circuit at least as early as 1987. See DiVittorio v. Equidyne Extractive Indus., Inc., 822 F.2d
1242, 1247 (2d Cir. 1987) (“[N]o specific connection between fraudulent representations in [an]
Offering Memorandum and particular defendants is necessary where, as here, defendants are
insiders or affiliates participating in the offer of securities in question.”).
In Janus, the Supreme Court held that, in order to be liable for a violation of Rule 10b-5—
which makes it unlawful for “any person, directly or indirectly, . . . [t]o make any untrue statement of
a material fact” in connection with the purchase or sale of securities, 17 C.F.R. § 240.10b-5(b)—a
defendant must have “made” the allegedly material misstatements. 564 U.S. at 141. “Make,” the
Court explained, means “to state,” not “to create.” Id. at 142, 144-45. The Court then set out the
following rule for determining whether a defendant is the “maker of a statement”: “For purposes of
Rule 10b-5, the maker of a statement is the person or entity with ultimate authority over the
statement, including its content and whether and how to communicate it.” Janus, 564 U.S. at 142; see
also id. at 144 (“Without [ultimate] authority, it is not necessary or inevitable that any falsehood will
be contained in the statement”). The Court further explained:
Without control, a person or entity can merely suggest what to say, not “make” a
statement in its own right. One who prepares or publishes a statement on behalf
of another is not its maker. And in the ordinary case, attribution within a
statement or implicit from surrounding circumstances is strong evidence that a
statement was made by—and only by—the party to whom it is attributed. This
46
rule might best be exemplified by the relationship between a speechwriter and a
speaker. Even when a speechwriter drafts a speech, the content is entirely within
the control of the person who delivers it. And it is the speaker who takes
credit—or blame—for what is ultimately said.
Id. at 142-43. In applying the rule it had enunciated, the Janus Court held that Janus Capital
Management (“JCM”), a mutual fund investment adviser, could not be held liable under Rule 10b-5
for false statements included in prospectuses issued by its client mutual funds, Janus Investment
Fund. Id. at 137. Even though JCM had been “significantly involved in preparing the
prospectuses,” and even though “all of the officers of Janus Investment Fund were also officers of
JCM,” the Court held that JCM did not “make” any statements in the prospectuses: “Although
JCM, like a speechwriter, may have assisted Janus Investment Fund in crafting what Janus
Investment Fund said in the prospectuses, JCM itself did not ‘make’ those statements for purposes
of Rule 10b-5.” Id. at 138, 147-48. In explaining its reasoning, the Court stated:
Under this rule, JCM did not “make” any of the statements in the Janus
Investment Fund prospectuses; Janus Investment Fund did. Only Janus
Investment Fund—not JCM—bears the statutory obligation to file the
prospectuses with the SEC. The SEC has recorded that Janus Investment Fund
filed the prospectuses. There is no allegation that JCM in fact filed the
prospectuses and falsely attributed them to Janus Investment Fund. Nor did
anything on the face of the prospectuses indicate that any statements therein
came from JCM rather than Janus Investment Fund—a legally independent entity
with its own board of trustees.
Id. at 146-47 (internal citations omitted).
Since Janus, courts in this district have reached opposing conclusions regarding its impact on
the group-pleading/group-published documents doctrine that has long been applied to claims
against corporate insiders.7 On one end of the spectrum, Judge Sullivan held in In re UBS AG
In addition to the cases discussed in this section, several courts in this district have recognized, but have not needed to
answer, this question. See, e.g., In re Braskem S.A. Sec. Litig., -- F. Supp. 3d --, 2017 WL 1216592, at *20 (S.D.N.Y. Mar.
30, 2017) (stating that Janus “cast further doubt on the viability of” the group-pleading doctrine); In re ShengdaTech, Inc.
Sec. Litig., No. 11-cv-1918 (LGS), 2014 WL 3928606, at *10 (S.D.N.Y. Aug. 12, 2014) (“[T]here is some question
whether the group pleading doctrine has been abrogated by Janus . . . .”); Rollin v. Spartan Mullen Et Cie, S.A., No. 10-cv1586 (CM), 2011 WL 5920931, at *5 (S.D.N.Y. Nov. 23, 2011) (“Whether the Supreme Court’s decision in Janus Capital
abrogated [the group pleading doctrine . . . ] is an open question.”).
7
47
Securities Litigation that “a theory of liability premised on treating corporate insiders as a group cannot
survive a plain reading of the Janus decision.” No. 07-cv-11225 (RJS), 2012 WL 4471265, at *10
(S.D.N.Y. Sept. 28, 2012). Judge Sullivan rejected the lead plaintiff’s contention that the rule set
forth in Janus applies only to third parties and not to “corporate insiders responsible for the day-today affairs of a company,” a distinction that “does not appear in the opinion.” Id. “Although Janus
might not necessarily imply that there can be only one ‘maker’ of a statement in the case of express
or implicit attribution,” he explained, “the individual defendants must have actually ‘made’ the
statements under the new Janus standard to be held liable under Section 10(b).” Id. Similarly, Judge
Pauley held in In re Smith Barney Transfer Agent Litigation that, because “nothing in the Court’s decision
in Janus limits the key holding . . . to legally separate entities,” “only those officers whose signatures
appear on misleading statements may be liable as the ‘makers’ of those statements.” 884 F. Supp. 2d
152, 165 (S.D.N.Y. 2012) (internal citation omitted).
The other end of the spectrum can be found in Judge Rakoff’s decision in City of Pontiac
General Employees’ Retirement System v. Lockheed Martin Corp., 875 F. Supp. 2d 359 (S.D.N.Y. 2012).
There, Judge Rakoff rejected the defendant’s argument that Janus abrogated the group-pleading
doctrine, explaining that Janus
addressed only whether third parties can be held liable for statements made by their
clients. Its logic rested on the distinction between secondary liability and primary
liability, and has no bearing on how corporate officers who work together in the
same entity can be held jointly responsible on a theory of primary liability. It is
not inconsistent with Janus Capital to presume that multiple people in a single
corporation have the joint authority to “make” an SEC filing, such that a
misstatement has more than one “maker.”
Id. at 374 (citations omitted). In In re Barrick Gold Securities Litigation, Judge Scheindlin also concluded
that the group-pleading doctrine remains viable after Janus, explaining:
Janus held that the maker of a statement was the person or entity with the ultimate
authority over that statement. Because the defendant there was a separate
corporate entity, the Court held that it categorically could not be the “maker” of
the statement, as it could not, as a matter of law, have the ultimate authority over
that statement. However, it is still possible, even likely, that within an organization,
48
more than one person will have ultimate authority over a statement, especially
when those statements appear in “group-published” documents.
No. 13-cv-385 (SAS), 2015 WL 3486045, at *2 (S.D.N.Y. June 2, 2015). Because the plaintiffs had
pleaded that the individual defendants were “corporate insiders involved in the everyday business of
the company, and that the statements were made in group-published documents, such as press
releases and annual reports,” Judge Scheindlin held that the plaintiffs had adequately alleged that the
individual defendants were the “makers” of the challenged statements. Id. Nevertheless, Judge
Scheindlin recognized that the group-pleading doctrine merely creates a presumption at the pleading
stage, and that “[c]ertainly, at trial or summary judgment, plaintiffs will need to provide proof that
the individual defendants did in fact have ultimate authority over the statements in order to hold
them liable.” Id.
Although this Court agrees with Judges Rakoff and Scheindlin that nothing in Janus dictates
that only one person may have ultimate authority over a statement, the Court concludes that the
group-pleading doctrine does not survive Janus. First, the Court agrees with Judges Sullivan and
Pauley that the holding in Janus is not limited to third parties that are legally separate from a
corporate defendant. The Janus Court did not so limit its rule expressly—a task that would have
been quite simple—and it is difficult to understand why the Court would have referred to “the person
or entity with ultimate authority” in fashioning its rule, 564 U.S. at 142 (emphasis added), if it had
intended such a reading. In this Court’s view, the legal separateness of the investment adviser entity
in Janus was merely the reason why, in that case, the Supreme Court held that it could not have
exercised “ultimate authority” over the statements in the prospectuses—in other words, Janus
Investment Fund could not have been the “maker” of the statements under the rule the Court had
just set forth, because someone else (in that case, a legally separate entity) had the ultimate say on
what statements were or were not included. But it did not limit its rule to such circumstances.
49
More basically, the decision in Janus turned on the Court’s interpretation of the statutory
word “make,” and the Court expressly rejected the notion that it was sufficient for a defendant to
have been involved in “creating” the challenged statement by “participating in the drafting of” the
statement or by “prepar[ing] or publish[ing] a statement on behalf of another.” Id. at 144-46. The
group-pleading doctrine significantly predates Janus, and it was not designed to create a presumption
of ultimate authority. Instead, it creates a presumption that group-published documents are “the
collective work” of corporate insiders, see In re Am. Int’l Grp., 741 F. Supp. 2d at 530. But in Janus,
the Court held that participation in the creation of a statement was not enough. 564 U.S. at 144-45.
If undeniable proof that an individual worked on a statement does not meet Janus’s requirement that
the individual have “ultimate authority over the statement, including its content and whether and
how to communicate it,” id. at 142, a mere presumption that a person worked on a statement by
virtue of his or role within the company must also fall short.
The group-pleading doctrine has also been described as creating a presumption that grouppublished documents “are attributable” to corporate insiders. See, e.g., In re Barrick Gold, 2015 WL
3486045, at *2. But a presumption that corporate insiders, as a group, are “makers” of a statement
because the statement is deemed to be attributed to those insiders would be inconsistent with Janus’s
description of attribution as a limiting mechanism. See 564 U.S. at 142-43 (“[I]n the ordinary case,
attribution within a statement or implicit from surrounding circumstances is strong evidence that a
statement was made by—and only by—the party to whom it is attributed.” (emphasis added)). In
other words, while under Janus attribution can be a means of determining who among the many who
participated in creating and disseminating a statement had the ultimate authority over what the
statement said and whether and how it was communicated, group pleading would simply sweep in
that entire group, if not an even larger one.
50
For those reasons, and especially in light of the particularity requirements imposed on
securities fraud pleadings by Rule 9(b) and the PSLRA,8 the Court concludes that the grouppleading/group-published documents doctrine is insufficient to meet the requirements of Janus, and
is thus no longer viable. Instead of relying on the presumption created by that doctrine, a securities
fraud plaintiff must allege facts showing, either directly or circumstantially, that the individual
defendants named in the complaint possessed ultimate authority over the statements at issue. That
burden may be satisfied most easily by allegations that a given statement was attributed to a
particular defendant, but other allegations may suffice. See, e.g., In re Fannie Mae 2008 Sec. Litig., 891
F. Supp. 2d 458, 473 (S.D.N.Y. 2012) (explaining that, “[i]n the post-Janus world,” an executive may
be held accountable where he “signed the company’s statement; ratified and approved the
company’s statement; or where the statement is attributed to the executive”).
B. Personal Jurisdiction over Defendant Abreu
Defendant Abreu contends that the claims against him should be dismissed for lack of
personal jurisdiction. Because Abreu challenges the assertion of personal jurisdiction based solely
on the allegations in the amended complaint, the Court’s task is to determine whether Plaintiff has
established a prima facie showing of personal jurisdiction over him. See In re Terrorist Attacks on Sept.
11, 2001, 714 F.3d at 673 (stating that the complaint “must include an averment of facts that, if
credited by the ultimate trier of fact, would suffice to establish jurisdiction over the defendant”).
“The Second Circuit has never squarely addressed whether the [group-pleading] doctrine survives the PSLRA,
although, prior to Janus, a majority of district courts in this district held that it did.” In re UBS AG Sec. Litig., 2012 WL
4471265, at *10 (collecting cases); see also In re Refco, Inc. Sec. Litig., 503 F Supp. 2d 611, 642 (S.D.N.Y. 2007) (“[T]his
Court joins the majority of district courts in this district and others in holding that the group pleading doctrine has
survived the PSLRA.”); but see, e.g., Bond Opportunity Fund v. Unilab Corp., 99-cv-11074 (JSM), 2003 WL 21058251, at *4
(S.D.N.Y. May 9, 2003) (“[T]he PSLRA has eliminated the ‘group pleading’ doctrine.”). A number of other circuits have
held that the group-pleading doctrine was eliminated by the PSLRA. See Wilner Family Tr. v. Queen, 503 F.3d 319, 336-37
(3d Cir. 2007) (“[T]he group pleading doctrine is no longer viable in private securities actions after the enactment of the
PSLRA.”); Southland Sec. Corp. v. INSpire Ins. Solutions Inc., 365 F.3d 353, 363-65 (5th Cir. 2004) (rejecting group-pleading
doctrine as inconsistent with the PSLRA); Makor Issues & Rights Ltd. v. Tellabs, Inc., 437 F.3d 588, 602-03 (7th Cir. 2006)
(same), rev’d on other grounds, 551 U.S. 308 (2007). The Court does not reach the question here of whether the PSLRA
abrogated the group-pleading doctrine on its own, because it is unnecessary for the Court to do so. Rather, the Court
points to the PSLRA and Rule 9(b) as further support for the conclusion that the doctrine is insufficient under the rule
set forth in Janus.
8
51
1. Personal Jurisdiction Under the Exchange Act
In determining whether it may exercise personal jurisdiction over a defendant, the Court
must conduct a two-step inquiry. First, the Court must determine whether there is a “statutory basis
for exercising personal jurisdiction.” Marvel Characters, Inc. v. Kirby, 726 F.3d 119, 128 (2d Cir. 2013)
(citation omitted). A federal court applies the forum state’s personal jurisdiction rules unless a
federal statute “specifically provide[s] for national service of process.” Brown v. Lockheed Martin Corp.,
814 F.3d 619, 624 (2d Cir. 2016) (quoting PDK Labs, Inc. v. Friedlander, 103 F.3d 1105, 1108 (2d Cir.
1997)). Second, the Court must determine whether the exercise of personal jurisdiction over the
defendant would comport with due process under the Constitution. Licci ex rel. Licci v. Lebanese
Canadian Bank, SAL, 673 F.3d 50, 59-60 (2d Cir. 2012).9
The statutory basis for personal jurisdiction in securities cases involving securities listed on
domestic exchanges is found in Section 27 of the Exchange Act, 15 U.S.C. § 78aa, which “permits
the exercise of personal jurisdiction to the limit of the Due Process Clause of the Fifth
Amendment.” S.E.C. v. Unifund SAL, 910 F.2d 1028, 1033 (2d Cir. 1990) (citing Leasco Data
Processing Equip. Corp. v. Maxwell, 468 F.2d 1326, 1339 (2d Cir. 1972), abrogated on other grounds by
Morrison v. Nat’l Aust. Bank Ltd., 561 U.S. 247 (2010); see also S.E.C. v. Straub, 921 F. Supp. 2d 244,
252 (S.D.N.Y. 2013) (“In securities cases like this one involving securities listed on domestic
exchanges, Section 27 . . . establishes the exclusive basis for personal jurisdiction.”); 15 U.S.C.
§§ 77v, 78aa (providing for worldwide service of process). Thus, the sole question here is whether
due process permits the exercise of jurisdiction over Abreu.
Due process requires that if a defendant is “not present within the territory of the forum, he
[must] have certain minimum contacts with it such that the maintenance of the suit does not offend
traditional notions of fair play and substantial justice.” Int’l Shoe Co. v. Washington, 326 U.S. 310, 316
The defendant must also have been properly served. Licci, 673 F.3d at 59. Abreu does not assert that he was not
properly served with a summons and complaint in this action.
9
52
(1945) (citation omitted). The analysis consists of two components: the “minimum contacts”
analysis and the “reasonableness” inquiry. Metro. Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 567
(2d Cir. 1996) (citations omitted).
To establish the minimum contacts necessary to satisfy due process with respect to a
nonresident defendant, the plaintiff must show that its “claim arises out of, or relates to, the
defendant’s contacts with the forum . . . [and that] the defendant purposefully availed itself of the
privilege of doing business in the forum and could foresee being haled into court there.” Bank
Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 305 F.3d 120, 127 (2d Cir. 2002) (citation omitted).
Although foreseeability is a component of the minimum contacts analysis, “foreseeability alone has
never been a sufficient benchmark for personal jurisdiction under the Due Process Clause.” WorldWide Volkswagen Corp. v. Woodson, 444 U.S. 286, 295 (1980). Because the Exchange Act authorizes
worldwide service of process, the relevant contacts for purposes of the “minimum contacts” analysis
are those with the United States as a whole. See, e.g. Straub, 921 F. Supp. 2d at 253 (“When the
jurisdictional issue flows from a federal statutory grant that authorizes suit under federal-question
jurisdiction and nationwide service of process, . . . the Fifth Amendment applies, and the Second
Circuit has consistently held that the minimum contacts test in such circumstances looks to contacts
with the entire United States rather than with the forum state.” (quoting SEC v. Morton, No. 10-cv1720 (LAK)(MHD) (S.D.N.Y. Mar. 31, 2011), adopted, id., ECF No. 102 (S.D.N.Y. Nov. 3, 2011)); see
In re Magnetic Audiotape Antitrust Litig., 334 F.3d at 207 (2d Cir. 2003) (discussing analogous service of
process provision in the Clayton Act); Chew v. Dietrich, 143 F.3d 24, 28 n.4 (2d Cir. 1998) (stating that
“under the Fifth Amendment the court can consider the defendant’s contacts throughout the United
States”); accord In re Oil Spill by Amoco Cadiz Off Coast of France on Mar. 16, 1978, 954 F.2d 1279, 1294
(7th Cir. 1992) (“When the national sovereign is applying national law, the relevant contacts are the
contacts between the defendant and the sovereign’s nation. [T]he due process clause requires only
that the defendant possess sufficient contacts with the United States.”).
53
“The second part of the jurisdictional analysis asks ‘whether the assertion of personal
jurisdiction comports with ‘traditional notions of fair play and substantial justice’—that is, whether it
is reasonable under the circumstances of the particular case.” Bank Brussels Lambert, 305 F.3d at 129
(citations omitted). If the defendant’s contacts with the forum rise to the level of “minimum
contacts,” a defendant may defeat jurisdiction only by presenting “a compelling case that the
presence of some other considerations would render jurisdiction unreasonable.” Burger King Corp. v.
Rudzewicz, 471 U.S. 462, 477 (1985). In determining whether the exercise of personal jurisdiction
over a particular defendant would be reasonable, the court must evaluate “(1) the burden that the
exercise of jurisdiction will impose on the defendant; (2) the interests of the forum state in
adjudicating the case; (3) the plaintiff’s interest in obtaining convenient and effective relief; (4) the
interstate judicial system’s interest in obtaining the most efficient resolution of the controversy; and
(5) the shared interest of the states in furthering substantive social policies.” Metro. Life Ins., 84 F.3d
at 568 (citing Asahi Metal Indus. Co. v. Super. Ct., 480 U.S. 102, 113-14 (1987)).
2. Analysis
Abreu argues that the amended complaint fails to allege that he purposefully directed any
suit-related activities toward the United States. Defs.’ Mem. of Law in Supp. of Mot. to Dismiss
(ECF No. 64) (“Defs.’ Mem.”) at 49-50. In short, he argues that, even accepting the allegations that
he was involved in a bribery scheme, that scheme occurred entirely in, and was directed at, Brazil,
and thus does not establish minimum contacts with the United States. Id. at 50. Abreu further
contends that Plaintiff has not alleged any connection between him and any of the allegedly false or
misleading statements contained in documents that were filed in the United States with the SEC. Id.
The Court agrees that Abreu’s alleged involvement in bribery schemes aimed at the Brazilian
government is insufficient, on its own, to permit the exercise of personal jurisdiction against him in
the United States. See, e.g., S.E.C. v. Sharef, 924 F. Supp. 2d 539, 547 (S.D.N.Y. 2013) (“If this Court
were to hold that [the German executive’s] support for the bribery scheme satisfied the minimum
54
contacts analysis, even though he neither authorized the bribe, nor directed the cover up, much less
played any role in the falsified filings, minimum contacts would be boundless. . . . [U]nder the SEC’s
theory, every participant in illegal action taken by a foreign company subject to U.S. securities laws
would be subject to the jurisdiction of U.S. courts no matter how attenuated their connection with
the falsified financial statements. This would be akin to a tort-like foreseeability requirement, which
has long been held to be insufficient.”). However, courts have found personal jurisdiction to exist
where “an executive of a foreign securities issuer, wherever located, participates in a fraud directed to
deceiving United States shareholders.” Id. (quoting S.E.C. v. Straub, 921 F. Supp. 2d 244, 256-57
(S.D.N.Y. 2013)); see also J. McIntrye Machinery, Ltd. v. Nicastro, 564 U.S. 873, 884 (2011) (“The
question is whether a defendant has followed a course of conduct directed at the society or economy
existing within the jurisdiction of a given sovereign, so that the sovereign has the power to subject
the defendant to judgment concerning that conduct.”). “[I]t is by now well-established that signing
or directly manipulating financial statements to cover up illegal foreign action, with knowledge that
those statements will be relied upon by United States investors satisfies this test.” Sharef, 924 F.
Supp. 2d at 547.
In keeping with the above principles, courts have exercised personal jurisdiction over
individuals who orchestrated bribery schemes aimed at foreign governments and as part of that
scheme signed off on misleading management representations to company auditors and signed false
SEC filings. See Straub, 921 F. Supp. 2d at 257-58 (“Although Defendants’ alleged bribes may have
taken place outside of the United States . . . , their concealment of those bribes, in conjunction with
[the company’s] SEC filings, was allegedly directed toward the United States.”). Here, in addition to
the allegations that Abreu played a significant role in the alleged bribery schemes, Plaintiff alleges
that Abreu was a member of Bradesco’s Board of Executive Officers, which signed a press release
on July 30, 2014 that was then filed with the SEC on a Form 6-K on August 8, 2014. AC ¶¶ 31, 148.
The release, entitled “Financial Statements, Independent Auditors’ Report, Summary of the Audit
55
Committee’s Report and Fiscal Council’s Report,” Barton Decl., Ex. I, at 2, contains a portion
entitled “Management Report.” That portion describes Bradesco’s “formal and effective process for
preventing and combating corruption and bribery” and its “effective monitoring of risks and
controls,” AC ¶ 148, statements that Plaintiff challenges as misleading in light of Abreu’s and others’
contemporaneous involvement in a bribery scheme, and the Company’s failure to detect it through
its system of internal controls.10 The Management Report was signed by the “Board of Directors”
and the “Board of Executive Officers,” the latter of which included Abreu. In addition, although
Plaintiff does not allege that Abreu signed any of the other challenged statements, the amended
complaint alleges that Abreu “was involved in the preparation and review of the false and misleading
statements in Bradesco’s SEC and CVM filings.” AC ¶ 31.
In light of those allegations, the Court has little trouble concluding that, at least in signing
off on the August 8, 2014 press release while allegedly participating in the bribery scheme, Abreu
“participated in a fraud directed to deceiving United States shareholders.” See Sharef, 924 F. Supp. 2d
at 547. Plaintiff’s allegations that Abreu was involved in preparing SEC filings are sufficient to
create the inference that he knew Bradesco had securities listed and traded on a U.S. exchange, and
that its management reports would be filed with the SEC. And the allegations that Abreu served on
the Company’s “Statutory Committees for Ethical Conduct and Internal Controls and Compliance
and its Executive Committees for Disclosure and Corporate Governance” at the time of the press
release, AC ¶ 31, only provide additional support for that inference. As a result, even if the allegedly
false or misleading press release signed by Abreu was not principally directed toward the United
States, Plaintiff has adequately alleged that Abreu signed off on the press release with knowledge
that it would be filed with the SEC and be given to prospective American purchasers and sellers of
The question whether the statements in the August 8, 2014 press release are actionable, or are materially false or
misleading, under the securities laws is a separate question, which the Court will address later in this opinion. The same
is true with respect to whether Plaintiff has adequately alleged that Abreu made this statement with the requisite scienter.
10
56
its PADS, and that is enough to establish minimum contacts with the United States. See Straub, 921
F. Supp. 2d at 255-56 (“Indeed, during the period of the alleged violations, Straub allegedly signed
false management representation letters to Magyar’s auditors, and Balogh and Morvai signed
allegedly false management sub-representation letters for quarterly and annual reporting periods in
2005. Therefore, it is not only that Magyar traded securities through ADRs listed on the NYSE that
satisfies the minimum contacts standard but also that Defendants allegedly engaged in a cover-up
through their statements to Magyar’s auditors knowing that the company traded ADRs on an
American exchange, and that prospective purchasers would likely be influenced by any false financial
statements and filings. The Court thus has little trouble inferring from the SEC’s detailed allegations
that, even if Defendants’ alleged primary intent was not to cause tangible injury in the United States,
it was nonetheless their intent, which is sufficient to confer jurisdiction.”); cf. In re CINAR Corp. Sec.
Litig., 186 F. Supp. 2d 279, 305 (E.D.N.Y. 2002) (upholding exercise of personal jurisdiction over
Canadian general counsel because, as general counsel, he “must have known that the Statement was
released in connection with a secondary stock offering designed to attract American investment,”
and “must have known that the Statement was made to comply with the laws governing securities
offerings in American markets and, as such, it would be used and relied upon by American
investors”). Moreover, in challenging the statements contained within the August 8, 2014 release as
false or misleading, this litigation arises out of Abreu’s contacts with the United States.
As noted, the second prong of the Due Process analysis is whether the exercise of
jurisdiction over the defendant is reasonable under the five-factor test described in Asahi. “This
prong of the inquiry rarely defeats jurisdiction where a defendant has sufficient forum contacts, and
is largely academic in non-diversity cases brought under a federal law which provides for nationwide
service of process.” S.E.C. v. Softpoint, Inc., No. 95-cv-2951, 2001 WL 43611, at *5 (S.D.N.Y. Jan.
18, 2001) (Lynch, J.); see also Asahi, 480 U.S. at 116 (Brennan, J., concurring) (noting that only in
“rare cases” will inconvenience “defeat the reasonableness of jurisdiction”). Furthermore, once the
57
minimum contacts standard has been satisfied, a defendant may defeat jurisdiction only by
presenting “a compelling case that the presence of some other considerations would render
jurisdiction unreasonable.” Burger King, 471 U.S. at 477.
Here, Abreu makes no argument whatsoever that jurisdiction over him would be
unreasonable, and so he has failed to present the “compelling case” necessary to defeat jurisdiction.
Nevertheless, the Court has evaluated the factors underlying the reasonableness inquiry and does not
find any compelling basis to conclude that the exercise of jurisdiction over Abreu would be
unreasonable. In evaluating the reasonableness of jurisdiction, the Court is required to consider:
“(1) the burden that the exercise of jurisdiction will impose of the defendant; (2) the interests of the
forum state in adjudicating the case; (3) the plaintiff’s interest in obtaining convenient and effective
relief; (4) the interstate judicial system’s interest in obtaining the most efficient resolution of the
controversy; and (5) the shared interest of the states in furthering substantive social policies.” Metro.
Life Ins., 84 F.3d at 568 (citing Asahi, 480 U.S. at 113-14.
Because Abreu has not provided the Court with any argument on these factors, the only
potential burden the Court can imagine the litigation to impose on him is the inconvenience of
litigating in a foreign forum. In the absence of some particular argument by Abreu about the
inconvenience this litigation would pose, the Court cannot conclude that this is the “rare case” in
which inconvenience is “so substantial as to achieve constitutional magnitude.” See Asahi, 480 U.S.
at 116 (Brennan, J., concurring); Burger King, 471 U.S. at 484. With respect to the second factor,
because this is a case brought under U.S. federal law, the judicial system has a strong interest in
resolving it here. See Straub, 921 F. Supp. 2d at 259. Additionally, Plaintiff’s interest in obtaining a
convenient and efficient resolution of this dispute is self-evidently strong. 11 The Court therefore
finds that the exercise of jurisdiction over Abreu is not unreasonable. See id. (“Like each and every
11
The Court does not understand the fourth and fifth factors of the reasonableness inquiry to be relevant in this case.
58
court in this Circuit to have applied the reasonableness standard after determining that a given
defendant has the requisite minimum contacts, this Court finds that this is not the rare case where
the reasonableness analysis defeats the exercise of personal jurisdiction.”).
Accordingly, the Court concludes that Plaintiff has met its burden at this stage of the
litigation of establishing a prima facie case of personal jurisdiction over Abreu.
C. The Section 10(b)/Rule 10b-5 Claim
Defendants challenge the sufficiency of Plaintiff’s allegations as to only two elements of their
Section 10(b) claim: (i) Defendants’ materially false or misleading statements or omissions and (ii)
Defendants’ scienter.
1. Materially False or Misleading Statements or Omissions
Because the Court has already dismissed Plaintiff’s claims as they pertain to statements made
prior to March 24, 2014, the Court proceeds in this section of the opinion to analyze only those
statements or omissions alleged to have been made after that date. As summarized earlier, the
challenged statements and omissions include: (i) statements about the Company’s internal controls
over financial reporting; (ii) statements about and related to the Company’s Anti-Corruption Policy;
(iii) statements about the Company’s Code of Ethical Conduct, as well as the Code itself; (iv)
statements regarding the Company’s disclosure controls and procedures; (v) statements in Trabuco’s
SOX certifications; (vi) the alleged failure to make disclosures required by Item 3 of Form 20-F; (vii)
statements regarding the accuracy of Reference Forms filed with the Brazilian CVM; and (viii)
allegedly false denials related to Operation Zealots.
“A statement or omission is material if there is a substantial likelihood that a reasonable
shareholder would consider it important in deciding how to act.” IBEW Local Union No. 58 Pension
Tr. Fund & Annuity Fund v. Royal Bank of Scotland Grp., PLC, 783 F.3d 383, 389 (2d Cir. 2015)
(citation omitted). “In other words, in order for the misstatement to be material, ‘there must be a
substantial likelihood that the disclosure of the omitted fact would have been viewed by the
59
reasonable investor as having significantly altered the ‘total mix’ of information made available.”
ECA, Local 134 IBEW Joint Pension Tr. Of Chi. V. JP Morgan Chase Co., 553 F.3d 187, 197 (2d Cir.
2009) (quoting Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988))). Because the determination of
whether a false or misleading statement is material requires courts to “engage in a fact-specific
inquiry” that “depends on all relevant circumstances,” and because “materiality is a mixed question
of law and fact,” a complaint “may not properly be dismissed . . . on the ground that the alleged
misstatements or omissions are not material unless they are so obviously unimportant to a
reasonable investor that reasonable minds could not differ on the question of their importance.” Id.
(citations omitted); see also TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 450 (1976) (stating that the
determination of materiality “requires delicate assessments of the inferences a ‘reasonable
shareholder’ would draw from a given set of facts and the significance of those inferences to him,
and these assessments are peculiarly ones for the trier of fact”).
Notwithstanding the ordinarily fact-intensive nature of the materiality inquiry, courts have
recognized that certain kinds of statements are inactionable as a matter of law because they are “too
general to cause a reasonable investor to rely upon them.” City of Pontiac Policemen’s & Firemen’s Ret.
Sys. v. UBS AG, 752 F.3d 173, 183 (2d Cir. 2014) (citation omitted). The quintessential examples of
such inactionable “puffery” are “general statements about reputation, integrity, and compliance with
ethical norms,” particularly when such statements are “explicitly aspirational, with qualifiers such as
‘aims to,’ ‘wants to,’ and ‘should.’” Id. In addition, “[s]tatements of general corporate optimism . . .
do not give rise to securities violations” unless “they are worded as guarantees or are supported by
specific statements of fact, or if the speaker does not genuinely or reasonably believe them.” IBEW
Local, 783 F.3d at 392 (citations omitted).
“Whether a representation is ‘mere puffery’ depends, in part, on the context in which it is
made.” In Petrobras Sec. Litig., 116 F. Supp. 3d 368, 381 (S.D.N.Y. 2015); see also Novak, 216 F.3d at
315 (finding general statements that inventory was “in good shape” and “under control” actionable
60
where defendants knew contrary was true); Arkansas Teacher Ret. Sys. v. Bankrate, Inc., 18 F. Supp. 3d
482, 485 (S.D.N.Y. 2014) (“[W]hile a term like ‘high quality’ might be mere puffery or insufficiently
specific to support liability in some contexts, it is clearly a material misrepresentation when applied to
assets that are entirely worthless . . . .”). It is possible, therefore, that while challenged statements are
mere puffery when viewed in isolation, the context in which they were made could lead a reasonable
investor to “rely on them as reflective of the true state of affairs at the [c]ompany.” Petrobras, 116 F.
Supp. 3d at 381.
a. Statements About Bradesco’s ICFR and Disclosure Controls12
Plaintiff challenges statements relating to Bradesco’s internal controls over financial
reporting made in the Company’s Forms 20-F and Reference Forms (which were then filed with the
SEC on Forms 6-K). With only minor variations in wording, the challenged statements in the
Forms 20-F were essentially identical throughout the relevant period. In the section of the
Company’s 2015 Form 20-F (filed April 15, 2016) entitled “Management’s annual report on internal
control over financial reporting,” for example, the Company stated that “[o]ur internal control was
designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted
accounting principles,” and that “[o]ur management . . . has concluded that our internal control over
financial reporting was effective.” AC ¶ 142. Bradesco’s May 2015 Reference Form, by way of
further example, stated:
[T]he Administration has assessed the effectiveness of internal controls related to
the consolidated financial statements closed in December 31, 2014, and
concluded, with reasonable certainty, that the internal controls are effective and
efficient in order to ensure the completeness of the information, whereas no
significant deficiencies or material weaknesses have been identified.
AC ¶ 143. Plaintiff also challenges the statement made in each of Bradesco’s Forms 20-F that, after
12
The Court addresses these two categories of statements together because the parties have done so in their briefs.
61
an evaluation, the Company’s CEO and CFO “concluded . . . that . . . our disclosure controls and
procedures were adequate and effective to provide reasonable assurance that information required to
be disclosed by us in the reports that we file or submit under the Exchange Act of the SEC is
recorded, processed, summarized and disclosed within the time periods specified in the applicable
rules and forms.” AC ¶ 159.
Plaintiff does not adequately allege why those statements were false or misleading at the time
they were made. As an initial matter, the statements do not purport to guarantee that Bradesco’s
controls will perform perfectly in every instance; instead, they speak to “reasonable assurance” or
“reasonable certainty.” Thus, allegations that those controls must have been deficient because they
may have failed to detect some weaknesses in its financial reports or disclosures in some instances,
are not sufficient. See, e.g., Janbay v. Canadian Solar, Inc., No. 10-cv-4430 (RWS), 2012 WL 1080306,
at *9 (S.D.N.Y. Mar. 30, 2012) (“Plaintiffs rely solely on general assertions regarding the existence of
deficient controls, which fall far short of satisfying the exacting pleading requirements of Rule 9(b)
and the PSLRA.”); cf. Barrett v. PJT Partners Inc., No. 16-cv-2841 (VEC), 2017 WL 3995606, at *6
(S.D.N.Y. Sept. 8, 2017) (“Plaintiff appears to be proceeding on the premise that because Caspersen
did bad things while employed by PJT, its statements regarding the existence of its internal controls
that are designed and intended to prevent fraud are per se false. That is simply not the case.”).
Plaintiff has not alleged that Bradesco management did not, in fact, conduct the evaluations
described in those statements, that its internal controls were not “designed” to provide reasonable
assurance regarding the reliability of financial reporting, that the Company did not have internal
controls or did not execute them, or that the Company had identified but not disclosed significant
deficiencies or material weaknesses. In fact, Plaintiff alleges nothing about the design of the
Company’s ICFR structure or processes at all, nor does Plaintiff allege anything about the
management or execution of those processes. See, e.g., Janbay, 2012 WL 1080306, at *9 (finding
plaintiffs’ allegations concerning internal and disclosure controls insufficient because they “failed to
62
allege specific facts concerning the purportedly deficient internal controls, including how they were
deficient, when and why”); In re Gentiva Sec. Litig., 932 F. Supp. 2d 352, 371 (E.D.N.Y. 2013)
(“Plaintiff has not alleged any facts pertaining to the Company’s internal structure for financial
reporting, much less that [it] lacked adequate internal controls.”).
Even if it were sufficient for Plaintiff to allege that a failure in internal controls occurred, the
amended complaint fails to allege any such failure with respect to the Company’s financial reporting.
Plaintiff attempts to draw a link between the alleged bribery and Bradesco’s financial reporting by
alleging, and arguing, that the bribery had a direct impact on the Company’s financial statements in
the following manner:
Defendants’ early scheme to illegally obtain IRPJ and CSLL tax credits directly
impacted Bradesco’s financial statements, as the illegally-obtained . . . tax credits
allowed the Company to either reduce its current tax liabilities (increasing its net
income), or record a deferred tax asset on its balance sheet (increasing in total
assets). Between 2004 and 2007, the Company received more than
R$260,250,000 in illegally-obtained tax credits, which it used to strengthen its
reported financial condition. In exchange for these credits, the Company paid at
least R$2,717,000. These bribe payments (which were not accounted for as such)
had a direct impact on the Company’s reported financial condition . . . .
Pl.’s Mem. at 32-33; see also AC ¶¶ 64, 72, 146. Plaintiff adds that, “[f]urthermore, Bradesco’s tax
bribery scheme continued from 2007 to 2015, with bribe payments totaling more than R$15
million.” Pl.’s Mem. at 33; see also AC ¶¶ 73-76.
To be sure, that is a coherent theory of how the alleged bribery was linked to Bradesco’s
financial statements. Indeed, it is the only argument that Plaintiff makes in its opposition brief with
respect to this category of alleged misstatements. See Pl.’s Mem. at 32-36. It fails, however, because,
as the Court has already explained, Plaintiff fails adequately to allege that anyone within the
Company was aware that tax credits obtained prior to March 24, 2014 were in any way unlawful, see
supra Part III.A.1.a, a deficiency that precludes both a finding of scienter and the Company’s ability
to have accounted for its payments as “bribes,” as Plaintiff asserts should have been done. Similarly,
the Court has already concluded that Plaintiff has failed adequately to allege that the payments made
63
to Pagnozzi and Victor between 2007 and 2015 were bribes. Id. Moreover, the amended complaint
itself concedes that no other payments were exchanged, and that the other alleged bribery schemes
were never consummated. See AC ¶ 82 (alleging, with respect to 2014 scheme to influence
adjudication of tax compensation request, that “the scheme was never completed due to the
announcement of Operation Zealots in the spring of 2015”); AC ¶ 89 (alleging, with respect to 2014
scheme to obtain PIS and COFINS credits, that “[t]he credit request and related bribe payments
were never completed due to the announcement of Operation Zealots in Spring of 2015”); AC ¶ 90,
113 (alleging, with respect to 2014-2015 scheme to influence CARF appeal, that Angelotti and
Abreu “agreed to pay bribes,” but that “the Company abandoned its CARF appeal” when Operation
Zealots was disclosed in Spring of 2015, and nowhere alleging that any bribe payments were made).
For those reasons, even if it were sufficient to allege that the controls were not in fact effective, the
Court concludes that Plaintiff has failed to allege that Bradesco’s internal controls relating to
financial reporting were ineffective.13 See In re Sanofi Sec. Litig., 155 F. Supp. 3d 286, 402 (S.D.N.Y.
2016) (holding SOX certifications about internal controls not actionable because “plaintiffs fail to
allege any facts pertaining to Sanofi’s internal structure for financial reporting, much less that Sanofi
lacked adequate internal controls” (citation and alterations omitted)); In re PetroChina, 120 F. Supp.
3d at 359-60 (“Even if PetroChina officials were engaging in bribery, the SAC does not make any
allegations that would imply that the Company had flawed internal controls over financial reporting.
Therefore, Plaintiffs have not established that the Company’s statements concerning its internal
control over financial reporting were false.”).
13 That conclusion also disposes of Plaintiff’s challenge to management’s “conclusions” in its 20-Fs that its ICFR “was
effective.” See, e.g., AC ¶ 142. Although that statement, as described in the amended complaint, was not accompanied
by a “reasonable assurance” qualifier, Plaintiff has nevertheless failed to allege that the Company’s internal controls over
financial reporting—the subject of those statements—were ineffective.
64
For the reasons stated above, Plaintiff has failed to allege with requisite specificity why the
Company’s statements concerning its ICFR and disclosure controls were false or misleading.14
b. Risk Factors in Forms 20-F and in Reference Forms
Plaintiff also alleges that the risk factor disclosures made in Item 3.D of Bradesco’s Forms
20-F were materially false or misleading because the Company failed to disclose “(i) the risk that
public disclosure of the bribery scheme would result in Bradesco’s executives facing criminal charges
in Brazil; (ii) the risk that public disclosure of the bribery scheme would result in the Company
and/or its executives incurring fines and penalties related to the tax credits that Bradesco illegally
obtained; (iii) the risk that public disclosure of the bribery scheme would result in the Company’s
liability pursuant to the Foreign Corrupt Practices Act of 1977 and/or other criminal or civil
penalties in the United States; and (iv) the risk that public disclosure of the bribery scheme would
result in a loss of investor confidence and a corresponding decline in the price of Bradesco PADS.”
AC ¶ 167.
As noted, “an omission is actionable under the securities laws only when the corporation is
subject to a duty to disclose the omitted facts.” Stratte-McClure v. Morgan Stanley, 776 F.3d 94, 101 (2d
Cir. 2015). “Such a duty may arise when there is a corporate insider trad[ing] on confidential
information, a statute or regulation requiring disclosure, or a corporate statement that would
otherwise be inaccurate, incomplete, or misleading.” Id. (citation omitted) (alteration in original).
Item 3.D of Form 20-F requires a filing company to “prominently disclose risk factors that
are specific to the company or its industry and make an offering speculative or one of high risk, in a
section headed ‘Risk Factors.’” Int’l Disclosure Standards, SEC Release No. 1205 (Sept. 28, 1999).
To the extent that Plaintiff contends that the Company’s statements related to its disclosure controls were false or
misleading because those controls failed to result in disclosure of the alleged bribery schemes, that contention fails.
First, as explained above, those statements did not purport to guarantee that the controls would be successful in all
instances. And, in any event, the securities laws do not create a free-standing duty for a company to disclose uncharged
wrongdoing. See City of Pontiac, 752 F.3d at 184 (“As we have explained, [d]isclosure is not a rite of confession, and
companies do not have a duty to disclose uncharged, unadjudicated wrongdoing.” (alteration in original)). The Court
will address Plaintiff’s contention that Item 3.D of Form 20-F created such a duty in a later portion of this opinion.
14
65
The instructions to Item 3.D state that “[r]isk factors should be concise and explain clearly how the
risk affects the issuer or the securities.” Id. As an initial matter, while Item 3.D appears to create
some sort of disclosure duty, the scope of that duty is not well defined. In fact, Form 20-F states
that the “Risk Factors” section described in Item 3.D “is intended to be a summary of more detailed
discussion contained elsewhere in the document,” yet Plaintiff does not point to any other portion
of Form 20-F (or any other specific statute or regulation) that creates a more fulsome and detailed
affirmative disclosure obligation. Id. Form 20-F provides several examples of the kinds of risk
factors that may be included, none of which describe, or even encompass or approximate,
uncharged and/or unadjudicated illegal conduct. See id.
It is well established that “companies do not have a duty to disclose uncharged,
unadjudicated wrongdoing.” City of Pontiac, 752 F.3d at 184; see also In re UBS, 2012 WL 4471265,
at *31 (“[A]bsent an express prior disclosure, a corporation has no affirmative duty to speculate or
disclose uncharged, unadjudicated wrongdoing or mismanagement.”); In re Citigroup, 330 F. Supp. 2d
at 377 (“[F]ailure to disclose that . . revenues were derived from ‘unsustainable and illegitimate
sources’” did not violate Section 10(b) because “the federal securities laws do not require a company
to accuse itself of wrongdoing.”); In re Par Pharm., Inc. Sec. Litig., 733 F. Supp. 668, 678 (S.D.N.Y.
1990) (stating, in response to plaintiff’s argument that company should have disclosed “the
profound harmful effect that the public disclosure and/or termination of the bribery scheme would
have on [the company’s] sales, profit margins and earnings,” that “the company was not obligated to
speculate as to the myriad of consequences, ranging from minor setbacks to complete ruin, that
might have befallen the company if the bribery scheme was discovered, disclosed or terminated”); cf.
GAF Corp. v. Heyman, 724 F.2d 727, 740 (2d Cir. 1983) (stating, in a case involving alleged violations
of Exchange Act § 14(a) and SEC Rule 14a-9(a) through allegedly material omissions, that the
“proxy rules simply do not require management to accuse itself of antisocial or illegal policies”).
That well-established principle would be entirely meaningless if every reporting company were
66
required to disclose uncharged, unadjudicated conduct in the risk-factors sections of its filings. In
the absence of more particularized language in Item 3.D, or case law interpreting Item 3.D in that
way (Plaintiff provides none), the Court declines to read Item 3.D to affirmatively require disclosure
of uncharged illegal conduct in all instances.
Moreover, Bradesco’s disclosures during the relevant period did address the risks that could
result from unlawful conduct. In its 2014 and 2015 Forms 20-F, the company cautioned that
“[o]perational risk is represented by the possibility of incurring losses arising from failure,
deficiencies or the inadequacy of internal processes, people, systems and external events,” adding
that “[t]his includes legal risk associated with the activities we carry out.” E.g., Barton Decl., Ex. A
(2015 Form 20-F) at 55. Bradesco also directly addressed the risks that could result from various
corruption investigations, including that “our subsidiary Banco Bradesco BBI S.A. . . . is a party to
certain legal and administrative proceedings filed against Petrobras and other defendants” and that
“[w]e or our subsidiaries may become a party to other legal and/or administrative proceedings
against Petrobras or other companies which have not yet been filed.” E.g., Id. at 8-9. The Company
added that “[a] negative outcome of these ongoing legal proceedings or any new legal proceedings
may harm our reputation and may adversely affect our financial condition and our results of
operations.” Id. at 9. Accordingly, even assuming that Item 3.D creates a duty for companies to
disclose the risks of uncharged illegal conduct, but in light of the fact that Bradesco had no
affirmative duty to specifically accuse itself of wrongdoing, the Court finds those disclosures
sufficient to satisfy that duty.
In reaching that conclusion, the Court finds guidance in the Second Circuit’s decision in City
of Pontiac, 752 F.3d 173. There, the plaintiffs argued that the defendants’ failure to disclose an
unlawful tax scheme violated Item 503(c) of Regulation S-K, which (like Item 3.D) “requires
registrants to include in offering materials ‘a discussion of the most significant risk factors that make
the offering speculative or risky.’” City of Pontiac, 752 F.3d at 183-84. In failing to disclose the
67
scheme, the plaintiffs contended, the defendants also “rendered materially incomplete those
disclosures UBS made concerning” a DOJ investigation into “whether, from 2000-2007, UBS client
advisors entered the United States to help U.S. clients evade their tax obligations, in violation of U.S.
law.” Id. at 183-84. As the Circuit explained, the plaintiffs “argue[d], in effect, that, in addition to
disclosing the existence of an investigation, defendants were required to disclose that UBS was, in
fact, engaged in an ongoing tax evasion scheme.” Id. at 184. The court reiterated the principle that
“companies do not have a duty to disclose uncharged, unadjudicated wrongdoing,” and concluded
that, “[b]y disclosing its involvement in multiple legal proceedings and government investigations
and indicating that its involvement could expose UBS ‘to substantial monetary damages and legal
defense costs,’ as well as ‘injunctive relief, criminal and civil penalties, and the potential for
regulatory restrictions,’ UBS complied with its disclosure obligations under our case law.” Id.
So too, here, though the circumstances are somewhat different than those at play in City of
Pontiac. Here, Plaintiff does not challenge Defendants’ failure to disclose the existence of any
investigations. That is because, with the exception of the investigations disclosed in its Forms 20-F
and described above, there is no allegation or indication that the Company or any of its personnel
were aware of any investigations before they were announced to the public. See AC ¶ 2 (describing
Operation Zealots as a “clandestine investigation”); id. ¶¶ 82, 113 (alleging that Defendants
abandoned the bribery schemes when the investigation was announced in Spring 2015). By the time
the investigation was announced and covered by U.S. and Brazilian news outlets (including an article
by “a major Brazilian news outlet” that “confirmed that Bradesco was one of the large banks being
investigated in Operation Zealots”), AC ¶¶ 114-115, Bradesco no longer had a duty (if one ever
would have existed) to disclose the investigation to the public. See, e.g., In re Bank of Am. AIG
Disclosure Sec. Litig., 980 F. Supp. 2d 564, 576 (S.D.N.Y. 2013) (“[T]here is no duty to disclose
information to one who reasonably should be aware of it.” (quoting Seibert v. Sperry Rand Corp., 586
F.2d 949, 952 (2d Cir. 1978)); In re Merrill Lynch & Co., Inc. Research Reports Sec. Litig., 272 F. Supp. 2d
68
243, 249-50 (S.D.N.Y. 2003) (“[T]he Defendants cannot be held liable for failing to disclose . . .
publicly available information.”); In re KeySpan Corp. Sec. Litig., 383 F. Supp. 2d 358, 377 (E.D.N.Y.
2003) (“Where allegedly undisclosed material information is in fact readily accessible in the public
domain, . . . a defendant may not be held liable for failing to disclose this information.”).
The facts before the Circuit in City of Pontiac are also distinguishable in another manner from
those alleged here. UBS, the defendant company in City of Pontiac, had entered into a deferred
prosecution agreement with the Department of Justice and the Internal Revenue Service, which
“revealed that UBS had violated United States tax laws, and disclosed that UBS had paid a $780
million fine and admitted participation in a conspiracy to defraud the IRS.” 752 F.3d at 178. Here,
by contrast, Plaintiff does not allege that Bradesco or any of its agents (including the Individual
Defendants) have admitted any unlawful conduct, that the Company has paid any fines or been
subjected to any other sanctions, that the Company has entered into any deferred prosecution
agreements or settlements, or that the Company or any individuals have been adjudicated guilty of
any charges. At this point, there are only charges, some of which have been dismissed. Thus, the
Court does not find the fact that Bradesco’s risk factors were less specific than those made by
UBS—i.e., that UBS could be subject “to substantial monetary damages and legal defense costs,”
and well as “injunctive relief, criminal and civil penalties, and the potential for regulatory
restrictions,” id. at 184—to be dispositive here, since while the risks disclosed by UBS in that case
had materialized, no such risks have materialized with respect to Bradesco.
In the end, therefore, Plaintiff’s argument here is largely the same as the plaintiff’s argument
in City of Pontiac, namely, that instead of (or in addition to) disclosing to its investors that adverse
consequences could befall Bradesco as the result of investigations or legal proceedings, the Company
should have disclosed that it was engaged in an unlawful bribery scheme. However, as the Court has
69
already explained, and as City of Pontiac further supports, what Bradesco disclosed was enough.15 The
fact that Plaintiff has not alleged that any particular adverse consequences have befallen Bradesco to
date from the bribery charges only makes the conclusion here easier to reach than in City of Pontiac.
Separate and apart from the allegation that Bradesco breached an affirmative duty imposed
by Item 3.D to disclose particular risk factors, Plaintiff appears to allege that the risk factors that were
disclosed were rendered misleading by the underlying bribery schemes.16 That argument, to the
extent it is a distinct one, was also addressed and rejected in City of Pontiac for the same reasons
described above. See id. at 183-84; see also In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347, 36566 (2d Cir. 2010) (rejecting argument that company’s disclosures about their funds and investment
strategy “triggered a clear duty to disclose all material information on the same or related subjects,”
and explaining that the “disclosures did not trigger a generalized duty requiring defendants to
disclose the entire corpus of their knowledge regarding” the company). Courts have held, moreover,
that in order for a prior statement to give rise to a duty to disclose uncharged wrongdoing, “there
must be a connection between the illegal conduct and the [prior] misleading statements beyond the
simple fact that a criminal conviction would have an adverse impact upon the corporation’s
operations in general or the bottom line.” Menaldi, 164 F. Supp. 3d at 581 (citation omitted). As the
court in Menaldi explained:
District courts have identified such a connection in three circumstances. First a
duty to disclose uncharged wrongdoing can arise when a corporation puts the
reasons for its success at issue, but fails to disclose that a material source of its
success is the use of improper or illegal business practices. Second, a duty to
disclose may arise when a defendant makes a statement that can be understood,
by a reasonable investor, to deny that the illegal conduct is occurring. Third, a
This section of the Court’s opinion deals only with Bradesco’s purported duty to disclose its wrongdoing as a risk
factor. To the extent that the amended complaint alleges that particular statements made by Bradesco or its agents were
rendered inaccurate, incomplete, or misleading by the failure to disclose the alleged bribery, the Court addresses those
allegations elsewhere.
15
16 As the Court in In re FBR explained, “[t]hough ubiquitous in securities filings, cautionary statements of potential risk
have only rarely been found to be actionable by themselves. Rather, courts generally assess cautionary language to
determine whether that language insulates a defendant from liability under the ‘bespeaks caution’ doctrine.” 544 F.
Supp. 2d at 360-61.
70
duty to disclose can arise when a defendant states an opinion that, absent
disclosure, misleads investors about material facts underlying that belief.
Id. (internal citations omitted). None of those connections exist between Bradesco’s alleged bribery
scheme and the risk factors that the Company did disclose.
Finally, to the extent that Plaintiff also challenges the risk factors disclosed in the Company’s
Reference Forms, the above analysis applies equally to that challenge. The Reference Forms
contained the same disclosures concerning investigations and legal proceedings that the Company
included in its Forms 20-F. See, e.g., Barton Decl., Ex. H (May 2015 Reference Form) at 14. Because
Plaintiff does not identify any duty for a company to disclose in its Reference Forms information
that it need not disclose in its Forms 20-F, the Court’s analysis above leads to the same conclusion
here: Plaintiff has not pleaded any actionable misstatements or omissions related to risk factors.
c. SOX Certifications
The Court next addresses Plaintiff’s allegations that Trabuco’s SOX certifications were false
or misleading. Plaintiff challenges several portions of those certifications, which the Court will
consider in turn. First, Plaintiff challenges as false or misleading Trabuco’s certification pursuant to
SOX Section 906 that, to his knowledge, the annual reports presented on Forms 20-F “fully
compl[y] with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and
information contained in the Form 20-F fairly presents, in all material respects, the financial
condition and results of operations of the Company.” AC ¶ 163. Plaintiff has failed to plead that
that certification was false or misleading because, as already explained, the amended complaint does
not adequately allege a nexus between the alleged bribery schemes and Bradesco’s financial
condition or results of operations, or that the Company’s financial reports contained inaccuracies. See
supra Part III.C.1.a.
Plaintiff also challenges the portion of Trabuco’s SOX Section 302 certification that states
that “[t]he company’s other certifying officer and I have disclosed . . . to the company’s auditors and
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the audit committee of the company’s board of directors . . . [a]ny fraud, whether or not material,
that involves management or other employees who have a significant role in the company’s internal
control over financial reporting.” AC ¶ 162. As an initial matter, the Court notes that that language
could fairly be read to encompass only fraud that is related to ICFR. See In re FBR, 544 F. Supp. 2d
at 363 (acknowledging, but declining to reach, that question). In any event, the certification refers
specifically to disclosure of fraud to the Company’s auditors or audit committee. Plaintiff does not allege
that either Trabuco or the other certifying officer concealed any fraud from Bradesco’s auditors or
audit committee, and as a result, Plaintiff has failed to allege why that portion of the certification was
false or misleading. See In re PetroChina, 120 F. Supp. 3d at 359 (stating that complaint “does not
assert that the certifying officers neglected to inform PetroChina’s auditor of any relevant fraud”);
See also In re FBR, 544 F. Supp. 2d at 363 (“The fundamental problem with plaintiffs’ claim is that
they do not allege with particularity the basis for their belief that the individual defendants did not
disclose the insider trading fraud to FBR’s auditors and its audit committee.”). Plaintiff may not
simply assume that Bradesco’s certifying officers failed to disclose fraud to its auditors and audit
committee because they failed to disclose it to investors.
Next, Plaintiff challenges that portion of Trabuco’s Section 302 certification that stated that
he and the other certifying officer “have . . . [d]esigned such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the company, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being
prepared.” AC ¶ 162. As already explained, the amended complaint contains no allegations
concerning the design or structure of Bradesco’s internal controls. See supra Part III.C.1.a.
Accordingly, Plaintiff has failed to plead why this statement—which concerns the “design” of
controls and does not purport to guarantee that those controls will perform perfectly in every
instance—was false or misleading.
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Finally, Plaintiff challenges as false or misleading Trabuco’s Section 302 certification that,
“based on [his] 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 they were made, not misleading with respect to the period covered by this report.” AC
¶ 162. Plaintiff contends that that statement was false or misleading because Bradesco’s Forms 20-F
“did, in fact, omit material facts.” Pl.’s Mem. at 38. This statement, and Plaintiff’s corresponding
argument, merely beg the question that is the entire subject of this opinion. To the extent that the
Court finds Plaintiff to adequately have alleged that Trabuco made any actionable misstatements or
omissions in Bradesco’s Forms 20-F with the requisite scienter in other portions of this opinion,
Plaintiff may proceed both on any such misstatement or omission and this portion of Trabuco’s
SOX certification. See In re Ramp Corp. Sec. Litig., No. 05-cv-6521 (DLC), 2006 WL 2037913, at *13
(S.D.N.Y. July 21, 2006).
d. Reference Form Certifications
Plaintiff further challenges statements made by Trabuco and Angelotti17 in Bradesco’s
Reference Forms that “the set of information contained therein is a true, accurate, and complete
description of the issuer’s economic financial outcomes and of the risks inherent to its activities and
securities issued.” AC ¶ 168. Because, as already explained and reiterated, Plaintiff has not alleged
any inaccuracy or material omission with respect to Bradesco’s “economic financial outcomes,” the
Court will focus here on that portion of the statement that concerns “the risks inherent to [the
Company’s] activities and securities issued.” Bradesco’s Reference Forms contained the same
disclosures concerning investigations and legal proceedings that the Company included in its Forms
20-F. See, e.g., Barton Decl., Ex. H (“May 2015 Reference Form”) at 14; see also supra Part III.C.1.b.
17 Both Trabuco and Angelotti are identified in the Reference Forms as “person[s] in charge of the form’s contents,” and
the forms say that Trabuco and Angelotti “hereby state” the challenged statement. See e.g., Barton Decl., Ex. H (May
2015 Reference Form) at 7. The Court considers this sufficient to show, at the pleading stage, that Trabuco and
Angelotti had ultimate authority over the statement, and therefore “made” the statement within the meaning of Janus.
73
But, as with the Forms 20-F, Plaintiff contends that they should have disclosed the following more
specific risks: “(i) the risk that public disclosure of the bribery scheme would result in Bradesco’s
executives facing criminal charges in Brazil; (ii) the risk that public disclosure of the bribery scheme
would result in the Company and/or its executives incurring fines and penalties related to the tax
credits that Bradesco illegally obtained; (iii) the risk that public disclosure of the bribery scheme
would result in the Company’s liability pursuant to the Foreign Corrupt Practices Act of 1977
and/or other criminal or civil penalties in the United States; and (iv) the risk that public disclosure of
the bribery scheme would result in a loss of investor confidence and a corresponding decline in the
price of Bradesco PADS.” AC ¶ 169.
The Court acknowledges at the outset that, unlike the Company’s other risk-related
statements, this statement by Trabuco and Angelotti represents that the Company’s risk disclosures
were “complete.” Nevertheless, for substantially the same reasons described in Part III.C.1.b of this
opinion, the Court finds that Plaintiff has not adequately pleaded that this statement was false or
misleading. As discussed, Bradesco’s Reference Forms did disclose the risks that Plaintiff contends
they should have disclosed, albeit in more general terms. The Company disclosed, for instance, the
existence of anti-corruption investigations, and cautioned that “our subsidiary Banco Bradesco BBI
S.A. . . . is a party to certain legal and administrative proceedings filed against Petrobras and other
defendants” and that “[w]e or our subsidiaries may become a party to other legal and/or
administrative proceedings against Petrobras or other companies which have not yet been filed.”
May 2015 Reference Form at 8. The Company added that “[a] negative outcome of these ongoing
legal proceedings or any new legal proceedings may harm our reputation and may adversely affect
our financial condition and our results of operations.” Id. The Company also cautioned that a
“reduction in investor confidence” in relation to anti-corruption investigations “may adversely affect
the results of our operations.” Id.
74
The Court is mindful again here of the maxim that, “absent an express prior disclosure, a
corporation has no affirmative duty to speculate or disclose uncharged, unadjudicated wrongdoing
or mismanagement.” In re UBS, 2012 WL 4471265, at *31. Plaintiff contends, in essence, that
Trabuco’s and Angelotti’s statement that its risk disclosures were “complete” constituted an express
prior disclosure that gave rise to such a duty. See Pl.’s Mem. at 39 (“By choosing to speak on the
subject of ‘the risks inherent to [Bradesco’s] activities,’ Defendants had a duty to speak fully and
accurately and disclose the risks stemming from the bribery scheme.”). As explained above,
however, the Reference Forms did disclose the risks stemming from the bribery scheme; they simply
did in so in a less detailed and specific manner than Plaintiff would have liked. Because Plaintiff
provides the Court with no case law stating that a generalized statement that a company’s risk
disclosures were “complete” gives rise not only to a duty to disclose the risks that could ensue from
uncharged conduct, but also to effectively disclose the uncharged conduct itself, the Court
concludes that Bradesco’s risk disclosures were sufficiently “complete.” Accordingly, Plaintiff has
not adequately alleged that Trabuco’s and Angelotti’s Reference Form certifications were false or
misleading.
e. Code of Ethical Conduct and Anti-Corruption Statements
The Court now turns to those allegedly false or misleading statements that bear a more
direct nexus to the alleged bribery schemes, namely, Bradesco’s Code of Ethical Conduct,
statements made in Bradesco’s Forms 20-F about the Code of Ethical Conduct (which incorporated
the Code itself into the Company’s filings), and statements made in Forms 20-F as well as an August
8, 2014 press release about the Company’s approach to preventing and fighting corruption.
During the period after March 24, 2014 (the earliest date on which Plaintiff has adequately
alleged that Bradesco was knowingly involved in a bribery scheme), the Company’s Forms 20-F
state:
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We have adopted a Code of Ethics and Sectorial Codes of Ethics under the
Securities Exchange Act of 1934, as amended. Our Codes of Ethics apply to our
Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and
persons performing similar functions, to our directors, other officers, employees,
business partners, suppliers and service providers. Our Code of Ethics Conduct
are available on our website at www.bradesco.com.br/ir.
AC ¶ 152. During the period between January 27, 2014 and June 28, 2015, Bradesco’s Code of
Ethical Conduct stated, in relevant part: “is [sic] unacceptable any conduct that configure in attempt
or practice of bribery or corruption, including concealment or dissimulation of the occurrence of
such acts,” “it is forbidden to accept, obtain, finance, fund, grant, pay, promise, sponsor or
authorize, directly or indirectly, any benefit, monetary or otherwise, in any way whatsoever, in favor
or whoever that may represent improper relationship,” “it is prohibited to promise, offer or give,
directly or indirectly, benefit to the public servant or to a third-party related to him, as well as to
receive, whether on behalf of the Organization or whoever,” “[w]e must ensure compliance with our
policies, rules and controls for the prevention and combating of . . . corruption and unlawful acts of
any nature,” and “[f]acts related to any accounting aspects or frauds committed by managers and
employees of the Bank . . . must be brought to the attention of the Audit Committee.” AC ¶ 155.
The version of Bradesco’s Code of Ethical Conduct applicable from June 29, 2015 through end of
the alleged class period contained substantially the same provisions. See AC ¶ 156.
On August 8, 2014, Bradesco issued a press release, which was filed with the SEC on Form
6-K. In the Management Report section of the release, under the heading “Preventing and
Combating Corruption and Money Laundering and the Financing of Terrorism,” the Company’s
Board of Directors and Board of Executive Officers states:
Bradesco adopts a formal and effective process for preventing and combating
corruption and bribery, supported by the Code of Ethical Conduct and by the
Corporate Anti-Corruption Policy. Cultural adaptation is accomplished through
institutional communication and training programs, providing an effective
monitoring of risks and controls. Bradesco also has a complaint channel, whose
actions configured as violations are subject to applicable disciplinary measures,
regardless of hierarchical level, and without prejudice to appropriate legal
penalties.
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AC ¶ 148. In its 2014 Form 20-F (filed with the SEC on April 30, 2015), the Company stated, in
relevant part: “[w]e carry out procedures to prevent and fight any corruption acts on an ongoing
and permanent basis,” “[o]ur Board of Directors approved the Corporate Anti-Corruption Policy,
which establishes guidelines for the prevention and fight against corruption, applicable to
management and employees of the Group,” “[t]he Board of Directors also established the Corporate
Anti-Corruption Rule, with rules and procedures aimed at preventing and fighting corruption and
bribes,” “[t]he Anti-Corruption Program is supported by the Code of Ethics and by the Corporate
Anti-Corruption Policy, and the actions developed also comprise . . . raising awareness in employees
and partners through remote and in-person training as well as internal and external communications,
thus, providing an effective monitoring of risks and controls,” and “[w]e also make available
reporting channels in which any actions being construed as violations are subject to proper
disciplinary measures, regardless of the hierarchy level involved.” AC ¶ 149. Bradesco’s 2015 Form
20-F (filed April 15, 2016), stated, in part:
We continuously seek to enforce measures with a view to preventing and fighting
corruption and bribery, thus demonstrating our commitment towards operating
our business and building and maintaining relationships in an ethical manner.
The Program of Prevention and Fight against Corruption is supported by the
Code of Ethical Conduct, by the Corporate Anti-corruption Policy and by the
Ethical Conduct Committee, all approved by the Board of Directors. The AntiCorruption Corporate Standard, with rules and procedures are aimed at the
concession of gifts, sponsorships, donations, procurement and management of
business partners, which aim to prevent and combat corruption and bribery, in
compliance with the laws and regulations in force in Brazil and in the countries in
which we have business units.
AC ¶ 150.
It is no surprise that Defendants attempt to paint all of the above statements as inactionable
“puffery” that is simply immaterial as a matter of law. As the Court explained earlier, a statement
may be deemed “puffery,” and therefore be held inactionable as a matter of law, when that
statement is “too general to cause a reasonable investor to rely upon them,” and the quintessential
examples of such inactionable “puffery” are “general statements about reputation, integrity, and
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compliance with ethical norms,” particularly when such statements are “explicitly aspirational, with
qualifiers such as ‘aims to,’ ‘wants to,’ and ‘should.’” City of Pontiac, 752 F.3d at 183; cf. also U.S.
Bank Nat’l Ass’n v. PHL Variable Ins. Co., No. 12-cv-6811 (CM) (JCF), 2013 WL 791462, at *6
(S.D.N.Y. Mar. 5, 2013), report and recommendation adopted, ECF No. 197 (Apr. 24, 2013) (“’Puffing’
has been described as making generalized or exaggerated statements such that a reasonable
consumer would not interpret the statement as a factual claim upon which he or she could rely.”).
Defendants cite, for example, the Sixth Circuit’s decision in Bondali v. Yum! Brands, Inc., which stated:
[A] code of conduct is not a guarantee that a corporation will adhere to
everything set forth in its code of conduct. Instead, a code of conduct is a
declaration of corporate aspirations. To treat a corporate code of conduct as a
statement of what a corporation will do, rather than what a corporation aspires to
do, would turn the purpose of a code of conduct on its head.
620 F. App’x 483, 490 (6th Cir. 2015) (internal citation omitted). That general principle is well
established in the Second Circuit, as well. See City of Pontiac, 752 F.3d at 183. As Defendants
acknowledge, that principle inheres in the fact that codes of conduct and other aspirational
statements concerning compliance with the law do not guarantee that compliance will occur in every
instance. See, e.g., City of Brockton Ret. Sys. v. Avon Prods., Inc., No. 11-cv-4665 (PGG), 2014 WL
4832321, at *16 (S.D.N.Y. Sept. 29, 2014) (“The . . . statements from the Ethics Codes and the
Corporate Responsibility Reports offer no assurance that Avon’s compliance efforts will be
successful . . . .”).
For that reason, the Court concludes that Bradesco’s Code of Ethical Conduct is not
actionable. As another court in the district has stated, “[b]ecause a code of ethics is inherently
aspirational, it simply cannot be that every time a violation of that code occurs, a company is liable
under federal law for having chosen to adopt the code at all.” In re Braskem, 2017 WL 1216592,
at *14 (citation and alteration omitted). As is typically the case, the Company’s Code made no
guarantee that it would be followed, nor did it contain any representations of historical fact to the
effect that its officers had uniformly abided by it. Therefore, despite its relatively forceful wording,
78
it remains an aspirational and hortatory statement. See, e.g., id. (holding code of conduct stating that
“[i]t is strictly forbidden to all Members of BRASKEM [to] offer or promise . . . payments, gifts or
benefits to public officials . . . in order to obtain benefit for the company” inactionable, because
“[t]here is an important difference between a company’s announcing rules forbidding bribery and its
factually representing that no officer has engaged in such forbidden conduct”); In re PetroChina, 120
F. Supp. 3d at 360 (“Although the Company’s codes of ethics prohibit bribery and other forms of
fraudulent conduct, they do not claim that PetroChina’s officers are abiding by them.”).
The Court does not reach the same conclusion, however, with respect to the statements
made in Bradesco’s Forms 20-F and the August 8, 2014 press release about the Code of Ethical
Conduct or about the Company’s anti-corruption policies and efforts. The principle that corporate
statements about compliance with law, or statements of corporate optimism, are inactionable
puffery, does have some acknowledged limits. “Whether a representation is ‘mere puffery’ depends,
in part, on the context in which it is made.” In Petrobras, 116 F. Supp. 3d at 381; see also Novak, 216
F.3d at 315 (2d Cir. 2000) (finding general statements that inventory was “in good shape” and
“under control” actionable where defendants knew contrary was true); Arkansas Teacher Ret. Sys., 18
F. Supp. 3d at 485 (“[W]hile a term like ‘high quality’ might be mere puffery or insufficiently specific
to support liability in some contexts, it is clearly a material misrepresentation when applied to assets
that are entirely worthless.”). Here, the context in which the statements about Bradesco’s Code of
Ethical Conduct and its other anti-corruption statements were made persuades the Court that they
are not to be treated as immaterial as a matter of law at this stage of the litigation
In In re Petrobras, the court held that several statements substantially similar to the ones at
issue here were not mere puffery when viewed in context. Those statements included statements
that Petrobras had established a commission “aimed at assuring the highest ethical standards,” and
that it undertook to “conduct its business with transparency and integrity” and to “refuse any
corrupt and bribery practices, keeping formal procedures for control and consequences of any
79
transgressions.” In re Petrobras, 116 F. Supp. 3d at 381. The court rejected the defendants’ argument
that those statements were inactionable puffery in light of the context in which they were made,
explaining:
While some of the alleged statements, viewed in isolation, may be mere puffery,
nonetheless, when (as here alleged) the statements were made repeatedly in an
effort to reassure the investing public about the Company’s integrity, a reasonable
investor could rely on them as reflective of the true state of affairs at the
Company. Accordingly, the Court cannot find that all of Petrobras’ alleged
statements regarding its general integrity and ethical soundness were immaterial as
a matter of law.
Id. The Court finds that reasoning persuasive and applicable here. Bradesco did not make its
statements in a vacuum, and they should not be evaluated in one. See 17 C.F.R. § 240.10b-5(b)
(providing that it is 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” (emphasis added)).
The statements in this category were not merely about compliance with the law or ethical
norms, in general; rather, they spoke about bribery and corruption specifically. And at the time
these statements about compliance with the law, in general, and bribery, in specific, were made, the
public had learned of the vast bribery revelations stemming from Operation Car Wash. Bradesco
acknowledged in its own public filings the risks and uncertainties those high-profile investigations
could bring to its own operations and the confidence of its investors, cautioning investors that they
“may have momentarily harmed the reputation of Brazil, which could reduce investor confidence,”
and that, “[i]f uncertainty continues or a reduction in investor confidence as a result of these
investigations is material, it may adversely affect the results of our operations.” AC ¶ 46. Additional
context is found in Brazil’s passage in August 2013 of an anti-corruption law (Law No. 12,846/13), a
development that Bradesco saw fit to disclose to its investors in its 2013 Form 20-F, filed April 30,
2014. See Decl. of Johnston De F. Whitman, Jr. (ECF No. 70) (“Whitman Decl.”), Ex. 1 (2013
Form 20-F). Fewer than four months later, the Company informed its investors in the August 8,
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2014 press release that it had “adopt[ed] a formal and effective process for preventing and
combating corruption and bribery,” which included discipline for violations “regardless of
hierarchical level.” AC ¶ 148.
As in Petrobras, the Court concludes that, while at least some of the statements in this
category may be mere puffery when viewed in isolation, context shows they were made in an effort
to reassure the investing public about the Company’s integrity, specifically with respect to bribery,
during a time of concern, and that therefore “a reasonable investor could rely on them as reflective
of the true state of affairs at the Company.” See 116 F. Supp. 3d at 381. In so concluding, the Court
is guided by the Supreme Court’s frequent admonition that the issue of materiality “requires delicate
assessment of the inferences a ‘reasonable shareholder’ would draw from a given set of facts and the
significance of those inferences to him, and these assessments are peculiarly ones for the trier of
fact.” TSC Indus., 462 U.S. at 450.
The Court notes, in addition, that not all portions of these statements express mere
aspiration. As noted, the August 8, 2014 represented to investors that Bradesco had “adopt[ed] an
“effective” anti-corruption policy, which would subject violators to discipline “regardless of
hierarchical level.” AC ¶ 148. But Plaintiff has alleged that, by that date, at least Angelotti was fully
aware that the policy was not effective, since he was knowingly involved in the scheme to bribe
Leite. Moreover, as a member of the Company’s Executive Board and a senior executive, he was
aware that discipline was in fact not being imposed “regardless of hierarchical level.” Similarly,
Plaintiff adequately alleges that, by touting its Code of Ethical Conduct and its anti-corruption
policy, Bradesco sought to reinforce and reassure its investors that bribery and corruption was
“unacceptable” and “prohibited,” that the Company “must ensure compliance with our policies, rules
and controls for the prevention and combating of . . . corruption and unlawful acts of any nature,”
and that the Code applied to all levels, including the CEO and other management. AC ¶ 155
(emphasis added). But even the highest levels of management are alleged to have been involved in
81
bribery and corruption at the very same time. While it may not be reasonable for an investor to rely
on those statements as ensuring that no employee of Bradesco will ever engage in bribery or
corruption, the Court cannot conclude that reasonable investors could not at least rely on those
statements as reflecting that Bradesco’s senior-most officers—indeed, even the Vice President of the
Company’s Board of Directors in the case of Trabuco—were not simultaneously doing so.
Finally, even to the extent these statements were merely aspirational, investors could have
relied at least on the notion that the Company held such aspirations. In alleging that executives in
the highest echelons of the Company were actively involved in bribing a government official during
the time these statements were made, Plaintiff has adequately alleged that no such aspirations were
at play. See Stream SICAV v. Wang, 989 F. Supp. 2d 264, 274 (S.D.N.Y. 2013) (“It is well-settled that,
when defendants knowingly or recklessly fail to follow policies announced in their public filings,
they may cause those filings to be materially misleading in that the disclosed policy no longer reflects
actual practice.” (citation and alteration omitted)); see also In re Goldman Sachs Grp., Inc. Sec. Litig., No.
10-cv-3461 (PAC), 2014 WL 2815571, at *5 (S.D.N.Y. June 23, 2014) (holding actionable statements
that “we have extensive procedures and controls that are designed to . . . address conflicts of
interest” and “we increasingly have to address potential conflicts of interest,” because company’s
“representations about its purported controls for avoiding conflicts were directly at odds with its
alleged conduct”).18
As the Court has already explained several times in this opinion, the securities laws do not
impose on corporations a general, free-standing duty to disclose uncharged illegal conduct. E.g., City
In arguing that claims relating to this category of statements should be dismissed, Defendants rely almost entirely on
the argument that they constitute “puffery.” To the extent that Defendants contend that these statements are immaterial
for other reasons, such as that the alleged bribery scheme was not related to the core of Bradesco’s business or did not
result in material errors in its financial statements, see Defs.’ Reply Mem. in Supp. of Mot. to Dismiss (ECF No. 73), at 810, the Court is not persuaded. The Second Circuit has “consistently rejected a formulaic approach to assessing the
materiality of an alleged misrepresentation.” Hutchison v. Deutsche Bank Sec. Inc., 647 F.3d 479, 485 (2d Cir. 2011). Here, it
is sufficient that plaintiff has alleged misstatements that “call into question the integrity of the company as a whole.” See
Strougo v. Barclays PLC, 105 F. Supp. 3d 330, 349 (S.D.N.Y. 2015).
18
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of Pontiac, 752 F.3d at 184. However, “[e]ven when there is no existing independent duty to disclose
information, once a company speaks on an issue or topic, there is a duty to tell the whole truth.”
Meyer, 761 F.3d at 250. “[C]ourts have found the requisite connection between improper activity
and affirmative statements [such that a duty to disclose attached] where defendants made specific
statements that could be interpreted as suggesting that the undisclosed improper activity alleged by
plaintiffs was not occurring.” In re FBR, 544 F. Supp. 2d at 358. By choosing to speak to its
investors on the topic of bribery and other corruption, and particularly by doing so in a manner that
could be reasonably interpreted as suggesting at least that the Company’s senior-most executives
were not at the same time engaging in such activities, Bradesco was under a duty to speak the whole
truth. Because the amended complaint asserts that it did not, the Court concludes that Plaintiff has
adequately alleged that the statements about Bradesco’s Code of Ethics, and its other anti-corruption
statements made after March 24, 2014, were materially false or misleading.
Having determined that Plaintiff has adequately alleged that these statements were materially
false or misleading, the Court must determine who “made” them within the meaning of Janus, as
interpreted earlier in this opinion to preclude application of the group-pleading/group-published
documents doctrine. First, because the Management Report section of the August 8, 2014 is
expressly attributed to Bradesco’s Board of Directors and Board of Executive Officers, AC ¶ 148,
and because each of the Individual Defendants was a member of one of those boards, AC ¶¶ 2931,19 Plaintiff has adequately alleged that both the Company and each of the Individual Defendants
made those statements. With respect to each of the other statements in this category, which are
found in the Company’s Forms 20-F, the Court concludes that only Bradesco and Trabuco are their
“makers.” Trabuco is the only Individual Defendant who signed the 20-Fs, and Plaintiff does not
allege any other facts suggesting that Angelotti or Abreu had any form of ultimate authority over
19
Angelotti also separately signed the Form 6-K on which the release was filed with the SEC. AC ¶ 148.
83
those statements. See, e.g., In re Smith Barney, 884 F. Supp. 2d at 163-64 (“[C]ourts consistently hold
that signatories of misleading documents ‘made’ the statements in those documents, and so face
liability under Rule 10b-5(b).”).
f. Affirmative Denials Related to Operation Zealots
Finally, Plaintiff challenges a series of statements made in 2015 and 2016 specifically about
Operation Zealots after that investigation had been announced to the public. First, in a March 31,
2015 press release, which was attached to a Form 6-K signed by Angelotti and filed with the SEC on
April 10, 2015, Bradesco responded to an O Estado article reporting that Bradesco was one of the
companies targeted by Operation Zealots by stating that the Company “does not know details
concerning the investigative process related to the subject” and that the Company “adopts strict
internal controls to ensure the compliance of its Anticorruption Corporate Policy and of its Code of
Ethical Conduct, besides complying with the rules issued by Regulatory Bodies.” AC ¶ 171.
Second, O Estado published an article about Operation Zealots on December 4, 2015 and requested
comment from Bradesco about whether it had committed any of the alleged misconduct. AC ¶ 172.
In response to the request for comment, Bradesco stated that it “never conceded to, negotiated or
had practiced acts in violation of the internal rules of compliance as well as the applicable laws of the
Country.” Id. As alleged, that comment was attributed only to the Company (or to an unidentified
individual within the Company) in the O Estado article, and Plaintiff does not allege any facts
concerning who made, or had ultimate authority over, the comment. Finally, in a statement released
by the Company on May 31, 2016—the date on which Trabuco, Angelotti, and Abreu were indicted
on criminal charges—Bradesco issued a “Notice to the Market,” stating that “[n]o proposal, hiring
or payment have been implemented from these contacts [with the group]” and that Bradesco “has
never promised, offered or gave undue advantage to any person, including public employees, for
submission of tax affairs or of any other nature.” AC ¶ 173. The Notice to the Market also
reiterated Bradesco’s “high standards of ethical conduct.” Id. The Company subsequently filed the
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Notice to the Market with the SEC on Form 6-K on June 1, 2016. AC ¶ 174. According to the
amended complaint, “Bradesco’s denial of wrongdoing was picked up and repeated by several news
outlets, including Reuters, The Wall Street Journal, Bloomberg and Financial Times. Id. In a Form 6-K
filed with the SEC on June 9, 2016 and signed by Angelotti, Bradesco stated: “We would like to
take this opportunity to reiterate the clarifications provided in the Notice to the Market of May 31,
2016.” AC ¶ 175.
Plaintiff has adequately alleged that each of the above statements was materially false or
misleading. With respect to the March 31, 2015 press release, Defendants contend that Plaintiff
failed to allege that the Company’s statement that it “does not know details concerning the
investigative process related to the subject” was false or misleading because Plaintiff “does not allege
any facts suggesting that Bradesco knew the details of the Federal Police’s investigation in March
2015.” Defs.’ Mem. at 33. That argument relies on too narrow a reading of the Company’s
statement. While it is true that the amended complaint does not allege that Defendants knew details
about the investigation itself, the Court cannot conclude that a reasonable shareholder would not
interpret the statement to deny any knowledge of the subject of the investigation, and Plaintiff
certainly has alleged that such a denial would have been false or misleading. And, in any event,
Plaintiff alleges that Abreu and Angelotti provided sworn statements to the Brazilian Federal Police
on April 1, 2015 (the very next day), AC ¶ 178, which adds plausible support to the inference that
they knew at least something about the investigation when the March 31 statement was issued. For
the reasons explained in Part III.C.1.e, supra, the Court also concludes that Plaintiff has adequately
alleged that the comment regarding “strict internal controls” was materially false or misleading.
The remaining statements in this category—those made in the Company’s comment in the
December 4, 2015 article and in the Notice to the Market and its subsequent “reiteration”—plainly
contain denials of misconduct. Defendants do not contest that fact. Instead, they attempt to split
hairs by arguing that “Plaintiff does not allege that Bradesco ever paid anything to a government
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official.” Defs.’ Mem. at 34. That argument is unavailing. As alleged in the amended complaint,
Bradesco’s Code of Ethical Conduct expressly prohibited not only “any granting of advantage or
privilege to public servants,” but also any “offer . . . directly or indirectly” to give a “benefit to [a]
public servant or to a third-party related to him,” as well as “any conduct that configure in attempt . . .
of bribery or corruption.” AC ¶¶ 153, 155-156 (emphases added). Similarly, Plaintiff alleges that
Article 333 of the Brazilian Criminal Code makes it illegal “to offer or promise an undue advantage to a
public official, for him to conduct, omit or delay an official act.” AC ¶ 119 (emphases added).
Thus, Defendants’ statements denying that they had ever “promised” or “offered” undue advantage
to public employees and they had not violated Brazilian law or their internal policies are adequately
alleged to have been false or misleading, even if Defendants had only negotiated and offered, but
had not actually paid, bribes.
As with the previous category of alleged misstatements, the Court must determine which
defendants are adequately alleged to have “made” these statements. Because the Form 6-K
furnishing the March 31, 2015 press release to the SEC (and thereby to U.S. investors) was signed by
Angelotti, Plaintiff has adequately alleged that both Bradesco and Angelotti “made” the statements
contained within it. The same is true of the June 9, 2016 Form 6-K, also signed by Angelotti, stating
that “we would like to take this opportunity to reiterate the clarifications provided in the Notice to
the Market of May 31, 2016.” By signing that statement, Angelotti also “ratified and approved” the
Company’s May 31, 2016 statement, which has been held sufficient to satisfy the Janus rule. See In re
Fannie Mae, 891 F. Supp. 2d at 473. As a result, both the Company and Angelotti “made” that
statement.
Finally, Plaintiff does not identify any individual responsible for the December 4, 2015
statement, which is attributed in the O Estado article to an unidentified speaker at Bradesco, and
Plaintiff concedes that it “is seeking only to hold Bradesco . . . liable” for that statement. Pl.’s Mem.
at 21 n.7. Defendants argue that claims based on this statement must be dismissed because Plaintiff
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has not alleged the specific individual responsible for it. At least to the extent that argument is based
on the requirements of Rule 9(b) or Janus, the Court rejects it.20 The case law that Defendants cite
does not support that proposition. Defendants cite Avila v. Lease Financial Group, LLC, in which the
court stated that Rule 9(b) “requires the plaintiff to state . . . the identities of the parties to the
misrepresentations.” No. 11-cv-8125 (KBF), 2012 WL 3165408, at *6 (S.D.N.Y. July 31, 2012). In
attributing the statement to Bradesco, Plaintiff has fulfilled that requirement. Defendants also cite
Janus, but Janus’s rule itself acknowledges that an entity can “make” a statement. See 564 U.S. at 143
(“For purposes of Rule 10b-5, the maker of a statement is the person or entity with ultimate authority
over the statement . . . .” (emphasis added)). Indeed, the Janus court did not concern itself with
which individuals were responsible for the statements at issue, but only with which entity could be
held liable. Furthermore, Defendants’ reading of Janus would lead to the absurd result that a
corporate defendant could never be found liable for securities fraud so long as it took care to ensure
that its statements were attributed only to the company and not to an individual. The Court declines
to endorse such a result. Accordingly, Plaintiff has adequately alleged that the December 4, 2015
statement was “made” by Bradesco.
***
In sum, Plaintiff has adequately alleged that the following materially false or misleading
statements were made by the following defendants: (1) the August 8, 2014 press release (made by
Bradesco, Trabuco, Angelotti, and Abreu); (2) statements about Bradesco’s Code of Ethical Conduct
in Forms 20-F, and anti-corruption statements in Forms 20-F filed after March 24, 2014 (made by
Bradesco and Trabuco); (3) the March 31, 2015 press release filed with the SEC on April 10, 2015
(made by Bradesco and Angelotti); (4) the December 4, 2015 O Estado comment (made only by
Bradesco); and (5) the May 31, 2016 “Notice to the Market” filed with the SEC on June 1, 2016, as
20
The Court will address the effect this has on scienter in the following section of the opinion.
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well as the June 9, 2016 “reiteration” of the “clarifications provided in” the May 31 Notice (made by
Bradesco and Angelotti).
2. Scienter
Notwithstanding the above, no defendant may be held liable for any of the false or
misleading statements unless Plaintiff has stated “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).
“Scienter” has been defined by the Supreme Court as “a mental state embracing intent to deceive,
manipulate, or defraud.” Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 n.12 (1976). “In addition to
intent, recklessness is a sufficiently culpable mental state for securities fraud in this circuit.” ECA,
553 F.3d at 198 (citation omitted). “In the securities fraud context,” the Second Circuit has
“typically found it sufficient to state a claim based on recklessness if the complaint ‘specifically
allege[s] defendants’ knowledge of facts or access to information contradicting their public
statements.’” Loreley Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec., LLC, 797 F.3d 160, 177 (2d Cir. 2015)
(quoting Novak, 216 F.3d at 308. Both Rule 9(b) and the PSLRA require that “[i]n a case involving
multiple defendants, plaintiffs must plead circumstances providing a factual basis for scienter for
each defendant; guilt by association is impermissible.” In re DDAVP Direct Purchaser Antitrust Litig.,
585 F.3d 677, 695 (2d Cir. 2009); The Penn. Ave. Funds v. Inyx Inc., No. 08-cv-6857 (PKC), 2010 WL
743562, at *12 (S.D.N.Y. Mar. 1, 2010) (“[G]roup pleading of scienter . . . runs afoul of the PSLRA’s
requirement that a plaintiff ‘state with particularity facts giving rise to a strong inference that the
defendant acted with the required state of mind.’” (citation omitted)).
A plaintiff adequately alleges a “strong inference” of scienter “only if a reasonable person
would deem the inference of scienter cogent and at least as compelling as any opposing inference
one could draw from the facts alleged.” Tellabs, 551 U.S. at 324. “In determining whether this
inference can be reasonably drawn, courts must consider both the inferences urged by the plaintiff
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and any competing inferences rationally drawn from all the facts alleged, taken collectively.” ECA,
553 F.3d at 198.
A plaintiff may plead a strong inference of scienter by “alleging facts (1) showing that the
defendants had both motive and opportunity to commit the fraud or (2) constituting strong
circumstantial evidence of conscious misbehavior or recklessness.” ATSI, 493 F.3d at 99 (citation
omitted). “At least four circumstances may give rise to a strong inference of the requisite scienter:
where the complaint sufficiently alleges that the defendants (1) ‘benefitted in a concrete and personal
way from the purported fraud’; (2) ‘engaged in deliberately illegal behavior’; (3) ‘knew facts or had
access to information suggesting that their public statements were not accurate’; or (4) ‘failed to
check information they had a duty to monitor.’” ECA, 553 F.3d at 199 (quoting Novak, 216 F.3d at
311). “Where the defendant at issue is a corporation, it is possible to plead corporate scienter by
pleading facts sufficient to create a strong inference either (1) that ‘someone whose intent could be
imputed to the corporation acted with the requisite scienter’ or (2) that the statements ‘would have
been approved by corporate officials sufficiently knowledgeable about the company to know’ that
those statements were misleading.” Loreley, 797 F.3d at 177 (quoting Teamsters Local 445 Freight Div.
Pension Fund v. Dynex Capital Inc., 531 F.3d 190, 195-96 (2d Cir. 2008)).
Plaintiff does not allege the kind of motive that is recognized in this circuit as supporting a
strong inference of scienter on the part of any of the Individual Defendants, namely, a concrete and
personal benefit from the fraud. “In attempting to show that a defendant had fraudulent intent, it is
not sufficient to allege goals that are possessed by virtually all corporate insiders, such as the desire
to . . . sustain the appearance of corporate profitability or the success of an investment, or the desire
to maintain a high stock price in order to increase executive compensation.” S. Cherry St., 573 F.3d
at 109 (citation omitted). And while Plaintiff alleges that the Individual Defendants were personally
motivated to “conceal the tax bribery scheme from the public in order to avoid potential criminal
liability, prosecution and imprisonment,” AC ¶ 183, the Second Circuit has held that “the avoidance
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of personal liability motive is too speculative and conclusory to support scienter,” Kalnit v. Eichler,
264 F.3d 131, 140 (2d Cir. 2001). Such a motive, if accepted as sufficient to allege a strong inference
of scienter, would apply to every defendant in every case, effectively rendering the scienter
requirement a nullity. Accordingly, the Court considers, in turn, whether Plaintiff has alleged that
each defendant possessed scienter on the other recognized bases.
a. Abreu
The Court concludes that Plaintiff has failed to allege a strong inference of scienter as to
Abreu with respect to the August 8, 2014 press release—the only statement that he “made” within
the meaning of Janus. The amended complaint simply contains no allegation that Abreu was
involved in or knew of the alleged bribery scheme prior to his attendance at the October 9, 2014
meeting, or that he had access to facts about the alleged scheme before that time. Although Plaintiff
makes a fleeting argument that Abreu failed to check information that he had a duty to monitor,
Pl.’s Mem. at 50, that argument fails the particularity test because Plaintiff has not identified any
specific information that could have been uncovered by Abreu in the course of a reasonable
investigation at that time. See Teamsters, 531 F.3d at 196 (holding that plaintiffs’ duty-to-monitor
argument failed because “they have not specifically identified any reports or statements that would
have come to light in a reasonable investigation and that would have demonstrated the falsity of the
allegedly misleading statements”).
Thus, although Abreu “made” the anticorruption statements contained in the August 8,
2014, and that statement is actionable, Plaintiff does not allege that Abreu made the statement with
the requisite state of mind to sustain a claim against him under Section 10(b).
b. Angelotti
By contrast, Plaintiff unquestionably pleads a strong inference of scienter as to Angelotti for
all statements that he made after March 24, 2014. As described earlier, Plaintiff adequately alleges
with particularity that Angelotti was knowingly involved in the scheme to bribe Leite and then to
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influence CARF proceedings beginning on that date. That is all that is needed to allege a strong
inference of scienter. See ECA, 553 F.3d at 199 (holding that strong-inference standard may be
satisfied by alleging that a defendant engaged in deliberately illegal behavior or knew facts or had
access to information suggesting that their public statements were not accurate).
c. Trabuco
Similarly, the Court concludes that Plaintiff has alleged a strong inference of scienter as to
Trabuco, but only for statements made after October 9, 2014, the date on which he first attended a
meeting with the Bribe Facilitation Group. First, with respect to any statements made before that
date, Plaintiff has not adequately alleged that Trabuco was aware of the bribery schemes or had any
involvement in them. He did not attend the March 24, 2014 meeting, and Plaintiff does not allege
that the “papers” provided to Angelotti around the time of that meeting were provided to Trabuco.
Nor does Plaintiff adequately allege—or even argue, for that matter—that Trabuco had a duty to
monitor what went on in that single meeting in the context of all of Bradesco’s affairs.
With respect to statements made after October 9, 2014, however, Plaintiff adequately alleges
that Trabuco made them with the requisite scienter. As alleged in the amended complaint, Trabuco
attended meetings with the Bribe Facilitation Group (Pagnozzi, Tamazato, and Leite himself) on
October 9, 2014 and with Pagnozzi on November 12, 2014. The Court has considered the
alternative inference that Defendants ask the Court to adopt—namely, that because Trabuco
attended those meetings only briefly, he was not aware of the illicit dealings being discussed—but
the Court cannot conclude that the inference that Trabuco was aware of the subject of the meetings
is not at least as plausible. This is particularly so in light of the fact that Leite was in attendance
during the portion of the October 9, 2014 that Trabuco attended (why would he be there?), and that
Trabuco told Pagnozzi during the November 12, 2014 meeting to “tell our friend we are interested
in hiring you to do this.” AC ¶ 86. To be sure, there could be alternate explanations for those facts,
but where, as here, the inculpatory inference is at least as compelling as any plausible opposing
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inferences, the tie goes to the plaintiff. See Lockheed Martin, 875 F. Supp. 2d at 372 (“[A]t the motion
to dismiss stage, a tie on scienter goes to the plaintiff.”).
d. Bradesco
As noted, a plaintiff may adequately plead scienter as to a corporate defendant “by pleading
facts sufficient to create a strong inference either (1) that someone whose intent could be imputed to
the corporation acted with the requisite scienter or (2) that the statements would have been
approved by corporate officials sufficiently knowledgeable about the company to know that those
statements were misleading.” Loreley, 797 F.3d at 177 (citation omitted). “Courts routinely impute
to the corporation the intent of officers and directors acting within the scope of their authority.”
Penn. Pub. Sch. Emps. Ret. Sys. v. Bank of Am. Corp., 874 F. Supp. 2d 341, 363 (S.D.N.Y. 2012)
(quoting In re Ambec Fin. Grp., Inc. Sec. Litig., 693 F. Supp. 2d 241, 265 (S.D.N.Y. 2010)); see also In re
Marsh & McLennan, 501 F Supp. 2d at 481 (“[C]ourts have readily attributed the scienter of
management-level employees to corporate defendants.”). Because Trabuco and Angelotti were
senior officers of Bradesco at the time they made the statements with scienter, and Plaintiff does not
allege that they were acting outside the scope of their authority in making the statements, the Court
concludes that their scienter should be imputed to Bradesco as a corporate entity.
The Court still must consider whether Plaintiff has adequately alleged scienter as to Bradesco
with respect to the December 4, 2015 comment in the O Estado article. That comment was not
attributed to any particular individual, and Plaintiff has not filled in that gap through the allegations
in the amended complaint. As a result, it is impossible for the Court to impute any individual’s
scienter to Bradesco with respect to that statement. Moreover, the Court cannot conclude that
Plaintiff has adequately alleged that the statement would have been approved by a corporate official
knowledgeable enough about the company to know that the statement was misleading. Plaintiff
alleges nothing about Bradesco’s internal processes for making statements to the press. While it is
certainly conceivable that Trabuco, Angelotti, or Abreu (the only officials alleged to have known
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about the bribery scheme at that time) approved, or would have approved, the statement, mere
possibility is insufficient to give rise to a strong inference of scienter. Accordingly, all claims relating
to the December 4, 2015 comment made by Bradesco in the O Estado article are dismissed.
3. Summary of Section 10(b) Analysis
The Court concludes its discussion of Plaintiff’s Section 10(b) claims by summarizing what
has and has not survived Defendants’ motion to dismiss.
a. Summary of Dismissed Claims
First, because Plaintiff has failed adequately to allege a bribery scheme in which Bradesco or
any of its agents were knowingly involved prior to March 24, 2014, all claims relating to statements
made prior to that date are dismissed.
Second, because Plaintiff has not adequately alleged that they were materially false or
misleading, all claims challenging the following categories of statements are dismissed:
(1) statements in Bradesco’s Forms 20-F and Reference Forms concerning the Company’s ICFR and
disclosure controls (see supra Part III.C.1.a); (2) the risk factors disclosed in the Company’s Forms
20-F and its Reference Forms, as well as representations that the risk factors were “complete” (see
supra Part III.C.1.b and d); (3) Trabuco’s SOX certifications, except for any certifications made after
October 9, 2014 attesting that Bradesco’s reports “d[id] 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 they were made, not misleading with respect to the period covered by
this report” (see supra Part III.C.1.c); and (4) Bradesco’s Code of Ethical Conduct (see supra Part
III.C.1.e).
Third, because Plaintiff has failed to allege a strong inference of scienter as to Abreu in
connection with the only statement he made, Plaintiff’s Section 10(b) claim against Abreu is
dismissed.
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Fourth, because Plaintiff has not adequately alleged that Trabuco possessed scienter prior to
October 9, 2014, all claims against him for statements made prior to that date are dismissed.
Fifth, because Plaintiff has not alleged corporate scienter with respect to the December 4,
2015 O Estado comment, all claims related to that comment are dismissed.
Finally, because the Court has concluded that the group-pleading doctrine is inapplicable
after Janus, all remaining claims survive only as against the defendants specifically identified in the
following section.
b. Summary of Surviving Claims
The following statements survive as against the following defendants: (1) the August 8, 2014
press release (as against Bradesco and Angelotti); (2), statements about Bradesco’s Code of Ethical
Conduct (but not the Code itself) and anti-corruption statements in Forms 20-F filed after October
9, 2014, and certifications made in post-October 9, 2014 filings attesting that the reports “d[id] 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 they were made, not misleading with
respect to the period covered by this report” (as against by Bradesco and Trabuco); (3) the March
31, 2015 press release filed with the SEC on April 10, 2015 (as against by Bradesco and Angelotti);
and (4) the May 31, 2016 “Notice to the Market” filed with the SEC on June 1, 2016, as well as the
June 9, 2016 “reiteration” of the “clarifications provided in” the May 31 Notice (as against Bradesco
and Angelotti).
D. The Section 20(a) Claim
In addition to its claims for primary liability pursuant to Section 10(b) and Rule 10b-5,
Plaintiff seeks to hold each of the Individual Defendants liable as “controlling persons” pursuant to
Section 20(a) of the Exchange Act. As explained above, the requirements for pleading control
person liability against a defendant under Section 20(a) are “(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
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meaningful sense, a culpable participant in the controlled person’s fraud.” Barclays, 750 F.3d at 236.
Plaintiff has pleaded certain primary violations of Section 10(b) and Rule 10b-5 by Bradesco,
Trabuco, and Angelotti, as detailed above, thus meeting the first element. Accordingly, the
remaining question is whether Plaintiff has adequately alleged the second and third elements of
control person liability under Section 20(a) as to any of the defendants who did not make the
statements underlying those primary violations. The Court need not determine whether Trabuco or
Angelotti were controlling persons with respect to the statements they made, however, because “a
party may not ultimately be held liable under both Section 10(b) and Section 20(a) for the same
underlying conduct.” In re Alstom SA Sec. Litig., 454 F. Supp. 2d 187, 210-11 (S.D.N.Y. 2006).
Determining whether an individual defendant is a “controlling person” is “a fact-intensive
inquiry that generally should not be resolved on a motion to dismiss.” In re BioScrip, Inc. Sec. Litig., 95
F. Supp. 3d 711, 741 (S.D.N.Y. 2015) (citation and alteration omitted). “Control over a primary
violator may be established by showing that the defendant possessed ‘the power to direct or cause
the direction of the management and policies of a person, whether through the ownership of voting
securities, by contract, or otherwise.” S.E.C. v. First Jersey Sec., Inc., 101 F.3d 1450, 1472-73 (2d Cir.
1996) (quoting 17 C.F.R. § 240.12b-2). In order for an individual to incur Section 20(a) liability, he
“must not only have control over the primary violator, but have control over the transaction in
question.” In re Smith Barney, 884 F. Supp. 2d at 166. “Thus, it is not sufficient for [a plaintiff[ to
allege that [a defendant] has control person status; instead, [the plaintiff] must assert that [the
defendant] exercised actual control over the matters at issue.” Id.; see also In re Global Crossing, Ltd. Sec.
Litig., No. 02-cv-910, 2005 WL 1907005, at *12 (S.D.N.Y. Aug. 8, 2005) (Lynch, J.) (“To be liable as
a control person, the defendant must actually possess, in fact, rather than in theory, the ability to
direct the actions of the controlled person.” (citation omitted)).
“Neither director status nor mere membership on an audit committee, standing alone, is
sufficient to demonstrate actual control over a company or an allegedly fraudulent transaction.” City
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of Westland Police & Fire Ret. Sys. v. MetLife, Inc., 928 F. Supp. 2d 705, 720-21 (S.D.N.Y. 2013) (citation
omitted). However, corporate officers “usually are presumed to possess the ability to control the
actions of their employees,” and “directors and officers who sign registration statements or other
SEC filings are presumed to control those who draft those documents.” In re Bioscrip, 95 F. Supp. 3d
at 741 (citation and alterations omitted).
1. Trabuco
Plaintiff has adequately alleged a Section 20(a) claim against Trabuco. The Court reaches
this conclusion in recognition of the principle that control is a fact-intensive inquiry not generally
suitable to resolution on a motion to dismiss, and in light of the fact that corporate officers “usually
are presumed to possess the ability to control the actions of their employees.” See, e.g., id. As
Bradesco’s CEO, Trabuco may fairly be understood to be Angelotti’s employer, giving rise to the
presumption of control over Angelotti’s actions. Additionally, as the Court has already concluded,
Plaintiff has alleged culpable participation by Trabuco in the dissemination of many of the
statements that have survived, on a primary-violation basis, Defendants’ motion to dismiss.
Plaintiff’s Section 20(a) claim, therefore, survives as against Trabuco.
2. Angelotti
By contrast, the Court concludes that Plaintiff has not pleaded a viable Section 20(a) claim
against Angelotti. As explained, Angelotti’s position as an officer and a member of the Company’s
Executive Board is insufficient, on its own, to establish control in the relevant sense. And the only
other primary violator, Trabuco, cannot be fairly characterized as (nor does Plaintiff allege that he is)
Angelotti’s employee. Moreover, Plaintiff’s conclusory allegation that Angelotti was “in [a]
position[ ] to control the contents of Bradesco’s SEC and CVM filings,” AC ¶ 180, is insufficient as
a matter of law. See, e.g., In re Global Crossing, 2005 WL 1907005, at *12 (Lynch, J.) (“Conclusory
allegations of control are insufficient as a matter of law.”). Plaintiff further attempts to allege
control on the part of Angelotti by pleading that, as a member of Bradesco’s Executive Disclosure
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Committee, he “was charged with: (i) supporting Bradesco’s senior management in appraising the
disclosure of significant transactions and information relating to the Company; and (ii) examining
reports in order to ensure that they are prepared in accordance with controls and procedures defined
for their preparation.” AC ¶ 181. But the allegation that Angelotti was charged, by virtue of his
status as a member of a particular committee, with “supporting” senior management’s appraisals of
disclosures and with “examining” reports does not show that he exercised actual control over the
dissemination of the alleged misstatements that he did not himself make or over the people who
drafted or otherwise signed off on those misstatements.21 As a result, Plaintiff’s Section 20(a) claim
is dismissed as against Angelotti.
3. Abreu
For similar reasons as those discussed immediately above with respect to Angelotti, Plaintiff
has failed adequately to allege that Abreu was a “controlling person” within the meaning of Section
20(a). As with Angelotti, Abreu’s mere status as a member of Bradesco’s Executive Board and its
committees is not sufficient to establish actual, de facto, control. See In re Global Crossing, 2005 WL
1907005, at *12 (“Because the power to direct the management and policies of a person must be a
real, de facto power and not just de jure, officer or director status alone does not constitute control.”
(citation and alteration omitted)); cf. also id. at *13 (“Allegations that a person was one of multiple
directors of the primary violator does not raise an inference of control over that entity.”). Further,
Plaintiff makes the same allegations concerning Abreu’s responsibilities as a member of the
Company’s Disclosure Committee, and those allegations are as insufficient as to Abreu as they were
with respect to Angelotti.
Plaintiff additionally alleges that, as a member of the Company’s Ethics Committee, Abreu
“was charged with . . . proposing actions to ensure the enforcement of Bradesco’s Corporate and
The fact that Angelotti signed some of Bradesco’s statements is irrelevant to the Section 20(a) analysis, because the
Court has already sustained claims for primary liability against Angelotti for those statements.
21
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Sector Codes of Ethics, and of the corporate policies, especially the Corporate Anticorruption
Policy.” AC ¶ 181 (alterations omitted). The Court assumes the truth of that allegation, but even
so, Abreu’s alleged responsibility to “propos[e] actions” is a far cry from control over the
misstatements that he did not himself make, or over the individuals who did make them. Finally, in
the Court’s view, neither Trabuco nor Angelotti can fairly be characterized as Abreu’s employee, and
therefore no presumption that Abreu exercises control over them is appropriate here.
IV.
CONCLUSION
For the foregoing reasons, Defendants’ motion to dismiss is GRANTED IN PART and
DENIED IN PART.
Plaintiff has pleaded a claim under Section 10(b) of the Exchange Act and Rule 10b-5
thereunder with respect to the following statements and as against the following defendants: (1) the
August 8, 2014 press release (as against Bradesco and Angelotti); (2) statements about Bradesco’s
Code of Ethical Conduct (but not the Code itself) and anti-corruption statements in Forms 20-F
filed after October 9, 2014, and certifications made in post-October 9, 2014 filings attesting that the
reports “d[id] 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 they were made,
not misleading with respect to the period covered by this report” (as against by Bradesco and
Trabuco); (3) the March 31, 2015 press release filed with the SEC on April 10, 2015 (as against by
Bradesco and Angelotti); and (4) the May 31, 2016 “Notice to the Market” filed with the SEC on
June 1, 2016, as well as the June 9, 2016 “reiteration” of the “clarifications provided in” the May 31
Notice (as against Bradesco and Angelotti).
Plaintiff has also pleaded a claim under Section 20(a) of the Exchange Act against Trabuco.
In all other respects, Defendants’ motion to dismiss is granted. The dismissal includes all
claims against Defendant Abreu.
Because the Court cannot conclude that further amendment of the complaint would be
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futile, the Court grants Plaintiff leave to file a second amended complaint solely to cure the
deficiencies identified in this opinion no later than 30 days from the date of this order. See Loreley,
797 F.3d at 191.
Discovery in this action will remain stayed until further order of the Court. If Plaintiff does
not file a second amended complaint within 30 days from the date of this order, the Court expects
to set a status conference to initiate discovery shortly thereafter.
The Clerk of Court is directed to terminate the motion pending at ECF No. 63.
SO ORDERED.
Dated: September 29, 2017
New York, New York
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GREGORY H
GREGORY H. WOODS
GOR
United States District Judge
nited
99
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