# Doubleline Capital LP v. Odebrecht Fin., Ltd.

> District Court, S.D. Illinois · August 8, 2018 · 323 F. Supp. 3d 393

URL: https://www.frixlaw.com/law-library/cases/7249267

## Case

- **Full name:** DOUBLELINE CAPITAL LP, DoubleLine Income Solutions Fund, and DoubleLine Funds Trust (on behalf of its: 1) DoubleLine Core fixed Income Fund Series 2) DoubleLine Emerging Markets Fixed Income Fund Series and 3) DoubleLine Shiller Enhanced Cape® Series) v. ODEBRECHT FINANCE, LTD., Construtora Norberto Odebrecht, S.A., Odebrecht Engenharia E Construção S.A., and Odebrecht, S.A.
- **Court:** District Court, S.D. Illinois
- **Decided:** August 8, 2018
- **Citations:** 323 F. Supp. 3d 393
- **Precedential status:** Published
- **Opinion:** Opinion of the court by Woods
- **Judges:** Woods
- **Cited by:** 64 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/7249267

## How later opinions describe it (automated extraction)

- finding that plaintiffs had sufficiently alleged a duty to disclose where corporate statements listed three legitimate reasons for competitive advantage but omitted illegal bribery scheme
- holding that when party fails to address claim in opposition to motion to dismiss, those claims are considered abandoned
- holding plaintiffs abandoned their securities fraud claim because they failed to address defendant’s arguments in response to a motion to dismiss
- holding when party fails to address claim in opposition to motion to dismiss, those claims are considered abandoned
- finding waiver of argument that was not raised in opening brief

## Opinion text

GREGORY H. WOODS, United States District Judge
In 2014, Brazil found itself embroiled in what has become a widely publicized scandal. Brazilian authorities launched an investigation (Operation "Lava Jato" or "Car Wash") into a sprawling bribery and kickback scheme. Construction and engineering conglomerates were accused of bribing government officials in order to secure lucrative contracts. Not initially implicated in the scandal, Defendant Odebrecht, S.A. and several of its subsidiaries later joined the ranks of those targeted by Brazilian prosecutors and police investigators. Odebrecht's CEO was arrested, indicted, and sentenced to prison in connection with his participation in the scheme. Odebrecht itself pleaded guilty to charges brought against it in the Eastern District of New York. Plaintiffs, who purchased substantial quantities of Notes issued *407 by Defendant Odebrecht Finance, Ltd. and guaranteed by Defendant Construtora Norberto Odebrecht ("CNO"), saw the value of their holdings drop precipitously after news of Defendants' participation in the bribery scheme. Plaintiffs filed suit, asserting claims against Defendants under Section 10(b) and 20(a) of the Exchange Act, as well as various state law claims. Defendants Odebrecht Finance, CNO, and Odebrecht Engenharia E Construção S.A. ("OEC") have moved to dismiss Plaintiffs' claims. Because Plaintiffs adequately plead that CNO's failure to disclose its participation in the bribery scheme rendered its explanation for its success materially misleading, Plaintiffs' Section 10(b) claim with respect to that statement survives. And because Plaintiffs sufficiently plead their intentional fraudulent conveyance claim, that claim also survives dismissal. Defendants' motion is granted with respect to Plaintiffs' remaining claims against the moving Defendants.
I. BACKGROUND 1
A. The Parties
Plaintiff DoubleLine Capital LP is a Delaware limited liability company. Second Amended Complaint (ECF No. 41) ("SAC") ¶ 11. It brings claims on behalf of its advisory client. Id. Plaintiff DoubleLine Income Solutions Fund is a Massachusetts business trust. Id. ¶ 12. Plaintiff DoubleLine Funds Trust is a Delaware statutory trust. Id. ¶ 13. It brings claims on behalf of DoubleLine Core Fixed Income Fund Series, DoubleLine Emerging Markets Fixed Income Fund Series, and DoubleLine Shiller Enhanced Cape® Series. Id.
Defendant Odebrecht, S.A. ("Odebrecht") is a Brazil-based corporation. Id. ¶ 14. Through its subsidiaries, Odebrecht operates in the construction, engineering, infrastructure, chemical, utilities, and real estate businesses. Id. ¶ 29. Odebrecht and its subsidiaries conduct business in Brazil and twenty-seven other countries, including the United States. Id. Marcelo Odebrecht has served as the company's president and Chief Executive Officer ("CEO") since 2009. Id. ¶¶ 30, 43. Hilberto Silva is the head of Odebrecht's Division of Structured Operations. Id. ¶ 30.
Defendant Construtora Norberto Odebrecht, S.A. ("CNO") is a subsidiary of Odebrecht. Id. ¶ 15. Prior to and during 2009, Marcelo Odebrecht served as CNO's CEO. Id. ¶ 43. CNO primarily handles large-scale infrastructure construction projects, including highways, railways, bridges, tunnels, airports, and power plants. Id. ¶¶ 1, 15. It is the largest engineering and construction firm in Latin America, and among the largest globally. Id. ¶ 31. CNO is Brazil's largest exporter of services and the world's fifteenth largest "international contractor." Id. ¶ 32. With its roots in Brazil, CNO has branched out into other countries. Id. Its international revenues increased from 30% in 1992 to 54.3% in 2012. Id.
Defendant Odebrecht Engenharia e Construção S.A. ("OEC") is also a subsidiary of Odebrecht and the parent company of CNO. Id. ¶ 16.
Defendant Odebrecht Finance, Ltd. ("Odebrecht Finance") is a wholly owned subsidiary of Odebrecht and incorporated under the laws of the Cayman Islands. Id. ¶ 17. As of March 31, 2012, the corporation had a net capital deficit of $386,659. Id. ¶ 34. Odebrecht Finance has no "legitimate *408 assets." Id. ¶ 35. Rather, its only listed assets are long-term receivables from Odebrecht and other "Odebrecht-related entities of questionable solvency." Id. According to Plaintiffs, Odebrecht and CNO have treated Odebrecht Finance as "their own piggy-bank, sweeping every dime out of the company in exchange for only a small number of utterly worthless 'receivables.' " Id. ¶ 36. Plaintiffs allege on information and belief that Odebrecht Finance has been insolvent since its incorporation. Id. ¶ 34.
Odebrecht Finance is a shell company and was organized for the "sole purpose" of raising investment funds for CNO through the issuance of bonds. Id. ¶¶ 17, 33. From 2010 through 2014, the company issued billions of dollars in notes, all of which were guaranteed by CNO. Id. ¶ 37. Between May 6, 2013 and March 31, 2015, Plaintiffs purchased significant quantities of two bonds issued by Odebrecht Finance: (1) 7.125% Notes due on June 26, 2042 (the "7.125% Notes"), and (2) 7.50% Perpetual Notes (the "7.50% Notes"). Id. ¶¶ 24-26. Each of the Notes was "unconditionally and irrevocably guaranteed" by CNO. Id. ¶ 24. Odebrecht Finance immediately conveyed all of the proceeds from sales of the notes to CNO and Odebrecht without receiving anything of equivalent value in return. Id. ¶ 39. Those proceeds were used for CNO's "general corporate purposes" and as additional equity investments in other Odebrecht subsidiaries. Id. ¶ 36.
B. Defendants' Alleged Bribery and Kickback Scheme
Between 2001 and 2016, CNO and Odebrecht paid at least $800 million in bribes to government officials in Brazil and at least a dozen other countries. Id. ¶ 40. These bribes were paid "in order to influence the award of more than 100 large construction contracts to CNO." Id. In furtherance of this scheme, Defendants established the Division of Structured Operations (the "Division") as a "standalone division" of Odebrecht in 2006. Id. ¶ 41. The Division had one purpose: to act as a "bribe department," making "illicit payments" to government officials in exchange for public contracts for CNO. Id. ¶ 42. From 2006 to 2009, Marcelo Odebrecht approved the Division's payments. Id. ¶ 43. After Marcelo became the CEO of Odebrecht in 2009, Hilberto Silva became the head of the Division. Id. Silva reported directly to Marcelo, providing Marcelo with periodic updates of the bribes paid by the Division. Id.
Of the $788 million that was paid by the Division in bribes from 2001 through 2016, $349 million was paid to Brazilian officials and political parties. Id. ¶¶ 49-50. The Division paid, for example, $20 million to Guido Mantega, Brazil's former Finance Minister, and other officials to secure a $184 million transportation project for CNO. Id. ¶ 51. The Division also paid $9.7 million to Paulo Roberto Costa, a Brazilian legislator, in exchange for a $142 million public construction contract for CNO. Id. ¶ 52. In all, Defendants received over $1.9 billion in benefits from the contracts secured by the bribes to Brazilian officials. Id. ¶ 50. The Division also paid approximately $439 million to officials and political parties outside of Brazil. Id. ¶ 53. Defendants obtained contracts valued in excess of $1.4 billion as a result. Id. Overall, Defendants benefited in excess of $3.3 billion from contracts secured by bribes between 2001 and 2016. Id. ¶ 49.
The money used to make the bribes was obtained through various "off the books" means, including: (1) collection of standing overhead charges from clients; (2) attributing overcharges and fees to service providers and subcontractors as legitimate without including them in project budgets; (3) undeclared retainers and success fees for the purchase of company assets; and (4)
*409 self-insurance and self-guarantee transactions. Id. ¶ 46. After the funds were generated, they were not recorded. Id. Rather, the funds were sent by the Division to a series of offshore entities that were not identified as related entities in CNO or Odebrecht's financial statements. Id.
The Division laundered the bribe payments through a network of banks located in countries with "strict bank-secrecy laws." Id. ¶ 48. The Division also funneled the money through various "dummy corporations" that transacted with "friendly" banks. Id. ¶ 54. By 2010, one of the banks used by the Division located in Antigua collapsed. Id. ¶ 55. Division executives Fernando Migliaccio and Luiz Eduardo Soares then purchased the majority interest in another Antigua bank, and that bank began to charge Odebrecht a 2% "commission" to launder the bribe payments. Id. ¶¶ 43, 55.
The Division did not record the bribe payments in CNO and Odebrecht's accounting records. Id. ¶ 44. Rather, the Division used two "shadow" systems to track the payments. Id. The "MyWebDay" system was used to generate payment requests, process payments, and create spreadsheets documenting the payments. Id. The "Drousys" system was used by Division employees to communicate with each other and "other co-conspirators" using secure email and instant messaging. Id. Both of these systems were accessible only by Division members. Id. Neither CNO nor Odebrecht reported the bribe payments in their reported financial results, and the payments were also concealed from external auditors. Id. ¶ 45.
In 2014, Brazilian law enforcement began investigating bribes accepted by executives of a state-owned oil company, Petrobras, in an operation coined Lavo Jato, or "Operation Car Wash." Id. ¶¶ 6, 56, 81. Initially, Odebrecht and CNO were not targets of that investigation. Id. ¶ 56. After the investigation began, Defendants concealed and destroyed evidence of their own bribe payments. Id. ¶ 57. In addition, Odebrecht bribed Antiguan Prime Minister Gaston Browne so that he would prevent Brazilian authorities from obtaining subpoenaed documents from Antigua banks through which the Division had laundered bribe money. Id. ¶ 60.
By the time of Operation Car Wash, the Division ran a "substantial portion" of the bribery scheme in the United States. Id. ¶ 58. In light of the investigation, Marcelo Odebrecht told Silva to flee Brazil and to continue the Division's work outside of the grip of Brazilian authorities. Id. Specifically, Marcelo told Silva, "I think you all should go abroad to work because here, when you use the phone you will be scared, when you use the computer you will be afraid. You will be afraid your offices will be bugged ... [a]nd you will fall asleep wondering whether the next day the police will come for you." Id. (alterations in original). Silva stayed in Brazil, but Migliaccio and Soares moved to Miami and "got cover jobs" working in Odebrecht's office there. Id. By 2015, due to Silva's medical issues, Migliaccio and Soares were operating the Division. Id. ¶ 59. Migliaccio and Soares conducted some business for the Division in the Dominican Republic, but a majority of the bribe-related work was conducted from Florida. Id.
According to the second amended complaint, it was not until June 19, 2015, when Marcelo Odebrecht was arrested, that Odebrecht and CNO were implicated in the scandal. Id. ¶ 82. Silva, Migliaccio, and Soares were also arrested by Brazilian law enforcement. Id. ¶ 63. They, along with Marcelo, all agreed to cooperate with prosecutors in exchange for leniency. Id.
C. CNO's GAAP Violations
Plaintiffs allege that many of Defendants' public statements were rendered *410 false or misleading as a result of the undisclosed bribery scheme. Among those statements are CNO's quarterly and annual financial statements. According to Plaintiffs, those statements were false and misleading because they did not comply with Brazilian generally accepted accounting principles ("GAAP"). Id. ¶ 65. Specifically, Plaintiffs allege four ways in which CNO's financial statements violated Brazilian GAAP.
First, Plaintiffs allege that the 2009 through 2015 financial statements failed to provide for "the clearly foreseeable and estimable financial obligations arising from [CNO's] ongoing illegal bribery scheme." Id. ¶ 68. According to Plaintiffs, the illicit bribery scheme carried with it "a knowable and estimable range of possible civil, criminal and financial penalties and consequences." Id. ¶ 70. Paragraph 37 of the Conceptual Structure for the Preparation and Presentation of the Financial Statements promulgated by the Brazilian Accounting Standards Committee (Comitê de Pronunciamentos Contábeis or "CPC") recognizes that certain liabilities may only be measured "using a high degree of estimation." Id. ¶ 69. A "provision" must be identified as a charge against income under the Brazilian Technical Pronouncement CPC 25 Provisions, Contingent Liabilities and Assets when "(1) it is probable that a present obligation for a past event or conduct exists; (2) which will more likely than not require a future disbursement to settle the obligation; and (3) a reasonable estimate of the required disbursement to settle the obligation can be made after weighing all possible outcomes or ranges of outcomes." Id. 2 Because the potential financial consequences of the bribery scheme were estimable, Plaintiffs allege that CNO's failure to accrue a provision for those estimated consequences and to simultaneously charge the estimate against income violated CPC 25. Id. ¶ 70.
Second, and related to the first, Plaintiffs allege that CNO failed to disclose the illegal bribery scheme and its "clearly foreseeable and estimable expected financial costs" in the notes to the company's publicly filed financial statements. Id. ¶ 71. Brazilian GAAP, and CPC 25 in particular, requires a separate disclosure in the financial statement notes that includes a "(1) brief description of the nature of the provision or contingent liability, including an expected timeline during which disbursement will be made to settle the obligation; and (2) an indication of any uncertainties related to the value or amount of settlement of the liability, including the main assumptions adopted related to future events." Id. ¶ 72. This disclosure in the notes is required even if a company does not accrue a provision because there is no present obligation or it is impossible to create a sufficiently reliable estimate of the cost of such a liability. Id. ¶ 73. Because CNO failed to disclose any information related to the bribery scheme, Plaintiffs allege that CNO has separately violated this provision of CPC 25.
Third, Plaintiffs allege that CNO's financial statements violated Brazilian GAAP because they failed to disclose the revenues from foreign and domestic contracts that the company obtained as a result of the bribes that it paid separately from CNO's other contract revenue. Id. ¶ 74. CPC 00 ( Conceptual Structure for the Preparation and Presentation of the Financial Statements ) explains that common practice is to separately disclose different types of revenue "to assist investors *411 in assessing the ability of a business to generate cash in the future and distinguish revenues that arise in the normal course of the entity's business from revenues stemming from contingent activities that may not be repeated on a regular basis." Id. ¶ 75. Plaintiffs allege that investors and others would not "necessarily" have expected contract revenue obtained by fraud to be a reliable indicator of future revenue. Id. ¶ 76.
Finally, Plaintiffs allege that CNO's financial statements were prepared in violation of Brazilian GAAP because they failed to disclose the monies that were paid in bribes. Id. ¶ 77. CPC 00 (Basic Conceptual Pronouncement) and CPC 17 (Construction Contracts) require that the books and financial records of a company reflect the "assets and expenses directly associated with generating particular contract revenue." Id. Those assets and expenses must also be reflected in a company's income statement in the same period as the revenue. Id. By concealing the costs of the CNO contracts (the bribes), Plaintiffs allege, CNO failed to comply with GAAP. Id. Plaintiffs further allege that CNO was required to disclose the bribe funds in the notes to its financial statements, yet failed to do so. Id. ¶ 78.
D. Other False and Misleading Statements
Plaintiffs also allege that Defendants misrepresented CNO's financial status from March 23, 2011 through May 6, 2016 (the "Relevant Period"). Id. ¶ 83. The allegedly false and misleading statements were contained in offering memoranda, public statements including press releases, and statements made directly to Plaintiffs. Id.
1. Offering Memoranda
Odebrecht Finance initially sold its Notes in private offerings pursuant to various offering memoranda. Id. ¶ 84. Those offering memoranda disclosed CNO's financial condition, including that a majority of the company's revenues were from large-scale engineering and construction projects completed for governmental and quasi-governmental entities. Id. According to the second amended complaint, Odebrecht Finance was responsible for all of the statements in the offering memoranda as the issuer of the Notes. Id. ¶¶ 100, 113, 129. Plaintiffs allege that various statements in the offering memoranda were false or misleading, as follows.
a. 7.50% Notes Offering Memorandum
The offering memorandum issued on November 15, 2011 in connection with the Odebrecht Finance 7.50% Notes ("7.50% Notes OM") included the following financial information for CNO: CNO's unaudited financial statements for the six-month periods ended June 30, 2010 and June 30, 2011; CNO's audited financial statements for the years ended December 31, 2009 and December 31, 2010; and CNO's audited financial statements for the years ended December 31, 2009 and December 31, 2008. Id. ¶¶ 85-86. According to the second amended complaint, those financial results were false and misleading because they violated Brazilian GAAP, as discussed earlier in Section I.C. Id. ¶ 86. The 7.50% Notes OM falsely stated that the reported financial information was prepared "in accordance with Brazilian GAAP." Id. ¶ 87.
Plaintiffs further allege that the 7.50% Notes OM was materially false and misleading because it failed to disclose that the reported financial results were "unsustainable" and the product of a "massive and illegal bribery scheme." Id. ¶ 86.
According to the second amended complaint, the 7.50% Notes OM contained additional false and misleading statements. The OM's disclosure of CNO's "competitive strengths" is alleged to have been false and misleading because the financial *412 figures were overstated, as described earlier, and the disclosure concealed the existence and scope of the bribery scheme and the attendant risks. Id. ¶ 89. That disclosure read as follows:
Our Competitive Strengths
We believe that our main competitive strengths include the following:
Leadership Position
We are Latin America's largest engineering and construction company as measured by our gross revenues in 2009, according to ENR. Our geographic diversification, extensive operations and leading market share in Brazil enable us to capitalize on additional business opportunities as they arise.
* * *
Financial Strength
We believe that our financial performance has been consistent, enabling us to rely primarily on our cash flow from operations to grow our business. Our EBITDA margins (which we define as EBITDA as a percentage of our net service revenues) for the six-month period ended June 30, 2010, 2009, 2008, and 2007 were 10.8%, 9.7%, 14.0%, and 10.3%, respectively. Our cash and cash equivalents and financial investments totaled R $2,513.9 million (U.S. $1,395.4 million) and R $3,135.0 million (U.S. $1,740.2 million) as of June 30, 2010 and as of December 31, 2009, respectively. We are focused on maintaining the relatively strong financial position and liquidity we have as compared to many of our competitors.
Id. ¶ 88.
The 7.50% Notes OM also allegedly made false and misleading statements about CNO's "diversification." Id. ¶ 90. Those statements read:
Diversification
We have expanded our business internationally in order to broaden our client base and diversify the risks inherent in an excessive reliance on the Brazilian market, as well as to increase the share of our revenues denominated in dollars and other currencies. As of June 30, 2010, we had 157 ongoing projects: Brazil (70); Angola (33); Venezuela (12); Peru (10); Panama (8); the Dominican Republic (5); the United States (5); Portugal (3); Argentina (3); Libya (2); Mozambique (2); Colombia (2); and other (2).
The percentage of our gross service revenues derived from international projects increased from approximately 30% in 1992 to 57.9% in the six-month period ended June 30, 2010. We believe our diversification provides us with revenue growth opportunities, while reducing our exposure to one single market and related risks including political risks.
Strong and Diversified Backlog
We define backlog to include payments under contracts that we have signed for a particular project and for which an identified source of funding exists, but have not been recognized as revenue by us. As of June 30, 2010, (1) our backlog represented U.S. $21,519.6 million, or more than two years of future services based on our performance of 2009 and (2) we expect to complete approximately 20% of our total backlog by the end of 2010.
Our backlog includes a diversified portfolio of engineering and construction projects in various infrastructure sectors and different types of construction undertakings in numerous countries.
Id. The 7.50% Notes OM also described CNO's prior success in securing international contracts:
During the last five years, we have successfully secured important international projects not only in Brazil, but also in Argentina, Angola, Colombia, the Dominican Republic, Libya, Mozambique, *413 Panama, Peru, the United States, Portugal, Venezuela, and certain countries in the Middle East. New projects awarded during the six-month period ended June 30, 2010, had a total contract amount of U.S. $2,853.8 million (plus acquisitions on existing contracts of U.S. $3,276.8 million), of which U.S. $4,633.3 million is for projects located in Brazil and U.S. $1,497.3 million is for projects located outside Brazil.
Id. ¶ 95. Plaintiffs allege that these statements were false and misleading because they failed to disclose the fact that the contracts had been secured by bribes. Id. ¶¶ 91, 96. The statements also aided in concealing the existence and scope of the bribery scheme and the attendant risks. Id. ¶¶ 91, 96.
Plaintiffs additionally allege that the 7.50% Notes OM's statement that CNO's "bid success rate for Venezuelan operations is high and reflects our selectivity in bidding for new work in Venezuela" was false and misleading in that it attributed CNO's success in Venezuela to the company's "selectivity" rather than the $98 million in illegal bribes paid to Venezuelan officials between 2006 and 2015. Id. ¶ 93-94. The OM also explained that CNO had "a large and diversified backlog in Venezuela, which currently ranks the country, together with Angola, as our two most important foreign markets in terms of future revenues." Id. ¶ 93. The statement regarding Angola's ranking is alleged to have been false and misleading because it failed to disclose that CNO's success in that country was due to more than $50 million in bribe payments to Angola officials between 2006 and 2013. Id. ¶ 94.
Other allegedly false and misleading statements in the 7.50% Notes OM portrayed CNO's successes as the result of CNO's "experience," "reputation," "technological capabilities," or other "legitimate" factors. Id. ¶ 98. Specifically, the OM stated:
We are the largest engineering and construction company in Latin America as measured by 2009 revenues. Most of our ongoing construction projects were awarded through a competitive bidding process. While price generally is the most important factor that determines whether we will be awarded a contract through competitive bidding procedures, other important factors in competitive bidding procedures include health, safety and environmental protection records, service quality, technological capacity and performance, as well as reputation, experience, access to funding sources and client relationships.
* * *
... we believe that we have a competitive advantage with respect to other Brazilian engineering and construction companies as a result of our experience, reputation, capacity, efficiency, trained personnel, size, financial resources and technological capabilities.
* * *
We believe that we are able to make competitive bids in Brazil and internationally for three principal reasons. First, our engineering capabilities and experience enable us to accurately assess the nature and extent of the work required to complete our projects, to create efficient engineering plans and, on occasion, to offer most costeffective alternatives to proposed plans of governmental authorities in invitations for bids. Second, our decentralized management approach has generally allowed us to efficiently manage our projects. Third, our projects are often eligible for funding from the Brazilian government for *414 service exports and from multilateral financial institutions.
Id. ¶ 97.
In addition to the false and misleading statements regarding CNO's financials, Plaintiffs allege that the 7.50% Notes OM contained false and misleading statements regarding Odebrecht Finance's condition. Id. ¶ 100. Odebrecht Finance disclosed in its financial statements that it was insolvent and "entirely dependent" on OEC, CNO, and Odebrecht for funding. Id. However, Odebrecht Finance neglected to disclose that the prospect that it would repay the Notes was "materially diminished" because the other Defendants on which Odebrecht Finance was dependent were subject to "serious undisclosed risks" as a result of the bribery scheme. Id.
Plaintiffs relied on these statements in purchasing the 7.50% Notes. Id. ¶ 99.
b. 7.125% Notes Offering Memorandum
The 7.125% Notes were sold pursuant to an offering memorandum issued on July 4, 2012 (the "7.125% Notes OM"). Id. ¶ 101. That offering memorandum contained CNO's audited financial statements for the years ending December 31, 2010 and 2011, and its unaudited financial statements for the first quarter of 2012. Id. ¶ 102. Plaintiffs allege that the 7.125% Notes OM contained many of the same false and misleading statements found in the 7.50% Notes OM. The 7.125% Notes OM's reported net income and revenues for CNO for 2011 and the first quarter of 2012 were false and misleading because, like the 7.50% Notes OM, they violated Brazilian GAAP, as discussed in Section I.C. Id. Plaintiffs also allege that, like the 7.50% Notes OM, the 7.125% Notes OM failed to disclose that CNO's financial results "were unsustainable" and the product of the bribery scheme. Id. The 7.125% Notes OM was also false and misleading because it stated that the financial figures were prepared "in accordance with Brazilian GAAP," when, in fact, the figures were prepared in violation of those principles. Id. ¶ 103.
The 7.125% Notes OM, like the 7.50% Notes OM, made various allegedly false and misleading disclosures regarding CNO's "competitive strengths," its successes in obtaining international contracts, and the reasons for the company's success. Id. ¶¶ 104-05, 107-12. The 7.125% Notes OM stated:
Leadership Position
We are Latin America's largest engineering and construction company as measured by our gross revenues in 2010, according to ENR. Our geographic diversification, extensive operations and leading market share in Brazil enable us to capitalize on additional business opportunities as they arise.
* * *
Financial Strength
We believe that our financial performance has been consistent, enabling us to rely primarily on our cash flow from operations to invest in our business. Our EBITDA margins (which we define as EBITDA as a percentage of our net service revenues) for the three-month periods ended March 31, 2012 and 2011 were 10.2% and 9.9%, respectively, and for the years ended December 31, 2011 and 2010 were 10.7% and 11.1%, respectively. The sum of our cash and cash equivalents and financial investments totaled R $5,006.0 million (U.S. $2,747.4 million) at March 31, 2012, compared to R $6,831.1 million (U.S. $3,749.0 million) and R $4,717.1 million (U.S. $2,588.8 million) at December 31, 2011 and 2010, respectively. We are focused on maintaining a relatively strong financial position and liquidity we have as compared to many of our competitors.
Diversification *415 We have expanded our business internationally in order to broaden our client base and diversify the risks inherent to a strong exposure to the Brazilian market, as well as to increase the share of our revenues denominated in dollars and other currencies. At March 31, 2012, we had 185 ongoing projects: Brazil (80); Angola (33); Venezuela (18); Peru (9); the Dominican Republic (10); Panama (7); Argentina (6); the United States (7); Portugal (1); Mozambique (4); Colombia (2); Mexico (2); Ecuador (2) and other (4).
The percentage of our gross service revenues derived from international projects has increased from approximately 30.0% in 1992 to 54.5% in the three-month period ended March 31, 2012. We believe our diversification provides us with revenue growth opportunities, while reducing our exposure to one single market and related risks, including political risks.
Strong and Diversified Backlog
We define backlog to include payments under contracts that we have signed for a particular project and for which an identified source of funding exists, but have not been recognized as revenue by us. At March 31, 2012, our backlog represented U.S. $33.7 billion, or more than two and a half years of future services based on our performance of 2011. We expect to complete approximately 20% to 25% of our total backlog by the end of 2012.
Our backlog includes a diversified portfolio of engineering and construction projects in various infrastructure sectors and different types of construction undertakings in numerous countries.
Id. ¶ 104. These statements were allegedly false because they overstated the financial figures and failed to disclose the bribery scheme. Id. ¶ 105.
With respect to CNO's success in contracting, the 7.125% Notes OM stated:
Our bid success rate for Venezuelan operations is high and reflects our selectivity in bidding for new work in Venezuela. We have a large and diversified backlog in Venezuela, which currently ranks the country, together with Angola, as our two most important foreign markets in terms of future revenues.
Id. ¶ 107. As with the 7.50% Notes OM, this representation was allegedly false and misleading because it attributed CNO's successful bidding to the company's "selectivity" rather than the bribery scheme. Id. ¶ 108. The statement also omitted the bribes paid to Angolan officials. Id.
Additionally, the 7.125% Notes OM described CNO's other international success:
During the last five years, we have successfully secured important projects not only in Brazil, but also in Argentina, Angola, Colombia, the Dominican Republic, Mozambique, Panama, Peru, the United States, Portugal, Venezuela, and certain countries in the Middle East. New projects awarded during the three-month period ended March 31, 2012 had a total contract amount of U.S. $2,024.8 million, of which U.S. $212.1 million is for projects located in Brazil and U.S. $1,812.7 million is for projects located outside Brazil. These new projects include: (1) Cibao Sur, Dominican Republic (U.S. $298.8 million); (2) the Ecovias Santiago road, Dominican Republic (U.S. $295.6 million); (3) Gas Anaco, Venezuela (U.S. $316.6 million); (4) the São Paulo Metro Line V, Brazil (U.S. $212.1 million); and (5) the Morar Feliz Project, Brazil (U.S. [$]45.3 million).
Id. ¶ 109. Plaintiffs allege that this statement was false and misleading because it overstated the financial information (due to violations of Brazilian GAAP) and failed to disclose that the contracts described *416 were secured only because of the bribery scheme. Id. ¶ 110. As with the 7.50% Notes OM, the 7.125% Notes OM also misleadingly attributed CNO's successful bidding to the company's "experience," "reputation," "technological capabilities," and other "legitimate" factors rather than to the bribery scheme. Id. ¶ 112. In that respect, the OM stated:
We are the largest engineering and construction company in Latin America as measured by 2010 revenues. Most of our ongoing construction projects were awarded through a competitive bidding process. While price generally is the most important factor that determines whether we are awarded a contract through competitive bidding procedures, other important factors in competitive bidding procedures include health, safety and environmental protection records, service quality, technological capacity and performance, as well as reputation, experience, access to funding sources and client relationships.
* * *
... we believe that we have a competitive advantage with respect to other Brazilian engineering and construction companies as a result of our experience, reputation, capacity, efficiency, trained personnel, size, financial resources and technological capabilities.
* * *
We believe that we are able to make competitive bids in Brazil and internationally for three principal reasons: First, our engineering capabilities and experience enable us to accurately assess the nature and extent of the work required to complete our projects, to create efficient engineering plans and, on occasion, to offer more costeffective alternatives to proposed plans of governmental authorities in invitations for bids. Second, our decentralized management approach has generally allowed us to effectively manage our projects. Third, our projects are often eligible for funding from the Brazilian government for service exports and from multilateral financial institutions.
Id. ¶ 111.
Plaintiffs additionally allege that Odebrecht Finance's own financial statements in the 7.125% Notes OM were false and misleading. Id. ¶ 114. The OM explained:
The issuer's ability to make payments on the notes depends on its receipt of payments from us.
The issuer's principal business activity is to act as a financing vehicle for Odebrecht's activities and operations. The issuer has no substantial assets, and accordingly, holders of the notes must rely on our cash flow from operations to pay amounts due in connection with the notes. The ability of the issuer to make payments of principal, interest and any other amounts due on the notes is contingent on its receipt from us of amounts sufficient to make these payments, and, in turn, on our ability to make these payments. In the event that we are unable to make such payments for any reason, the issuer will not have sufficient resources to satisfy its obligations under the indenture governing the notes.
Id. ¶ 33 & n.3. The OM also stated: "To fund its activities, the Company relies on the operational structure of ODB and its operations depend on the remittance of funds from ODB and from other related parties of the Odebrecht Organization." Id. ¶ 34 & n.4. These disclosures omitted the diminished likelihood of Odebrecht Finance's repayment of the Notes due to Odebrecht Finance's total dependence on OEC, CNO, and Odebrecht, which faced "serious undisclosed risks" because of the bribery scheme. Id. ¶ 114.
Plaintiffs relied on all of these statements in purchasing the 7.125% Notes. Id. ¶ 113.
*417 c. 4.375% Notes Offering Memorandum
In addition to the 7.50% and 7.125% Notes, Defendants sold 4.375% Notes due on April 25, 2025 pursuant to an offering memorandum dated June 3, 2013 (the "4.375% Notes OM"). Id. ¶ 115. Plaintiffs did not purchase those notes. Id. Nonetheless, Plaintiffs allege that the false statements and omissions in the 4.375% Notes OM affected the market price of the notes that Plaintiffs did purchase. Id.
As with the other offering memoranda, the 4.375% Notes OM contained CNO's financial information, including audited financial statements for years ended December 31, 2011 and December 31, 2012. Id. ¶ 116. Plaintiffs allege that those financial results were "overstated" because they violated Brazilian GAAP, as discussed earlier in Section I.C. Id. ¶¶ 116, 119. Plaintiffs also allege that the 4.375% Notes OM, like the 7.50% and 7.125% Notes OMs, omitted the fact that the financial results were "unsustainable" in light of the bribery scheme and falsely stated that CNO's financial statements were prepared "in accordance with Brazilian GAAP." Id. ¶¶ 116-17.
The 4.375% Notes OM contained disclosures regarding CNO's "competitive strengths," its diversification and backlog, and its successful bidding that were nearly identical to the disclosures made in the 7.50% and 7.125% Notes OMs. See id. ¶¶ 118-19, 121-23, 125. Plaintiffs allege that those disclosures were false and misleading because they overstated CNO's financial results, failed to disclose that the contracts were secured with bribes, and falsely attributed the company's successes to various legitimate factors rather than the illegal scheme. Id. ¶¶ 119, 122, 124, 126-28. Plaintiffs also allege that the 4.375% Notes OM contained false statements related to Odebrecht Finance's financial results because the OM failed to disclose the "materially diminished" possibility that the entity would repay the notes due to its reliance on OEC, CNO, and Odebrecht, which were subject to the risks inherent in the bribery scheme. Id. ¶ 129.
d. 5.250% Notes Offering Memorandum
Defendants also sold Odebrecht Finance 5.250% Notes pursuant to a July 15, 2014 offering memorandum (the "5.250% Notes OM"). Id. ¶ 130. 3 That OM contained CNO's financial statements for the three-month period ended March 31, 2014 and for the year ended December 31, 2013. Id. ¶ 131. These financial results are alleged to have been false and misleading because they were prepared in violation of Brazilian GAAP, as described in Section I.C. Id. Like the other OMs, the 5.250% Notes OM was also materially misleading because it failed to disclose the unsustainability of the financial results and falsely stated that the financial statements were prepared "in accordance with Brazilian GAAP." Id. ¶¶ 131-32. The 5.250% Notes OM additionally contained statements regarding CNO's "competitive strengths," its diversification and backlog, and its successful bidding that were nearly identical to the disclosures made in the other offering memoranda. See id. ¶¶ 133, 136, 138. Those statements were false and misleading, Plaintiffs allege, because they overstated CNO's financial information, failed to disclose the bribery scheme, and falsely attributed CNO's success to legitimate factors and not to the true underlying cause-the bribery scheme. Id. ¶¶ 134, 137, 139. The 5.250% Notes OM also contained the same misleading statements in Odebrecht Finance's *418 financial disclosures as the other offering memoranda: the OM failed to disclose the "materially diminished" possibility of repayment of the notes that was the result of Odebrecht Finance's complete dependence on OEC, CNO, and Odebrecht and, in turn, those entities' risks associated with the bribery scheme. Id. ¶ 140.
2. Statements Made in Conference Calls and Meetings
Plaintiffs allege that various false and misleading statements were made in quarterly and annual financial reports and press releases. Id. ¶ 141. Plaintiffs "received, reviewed and relied upon" those financial reports. Id. The reports were also often discussed during conference calls hosted by CNO, many of which were attended by Plaintiffs. Id.
On March 23, 2011, Odebrecht and CNO held a conference call to discuss the Odebrecht Finance Notes. Id. ¶ 142. Odebrecht's Chief Financial Officer ("CFO") at the time, Luciano Nitrini Guidolin, and CNO's CFO Jayme Fonseca participated in the call, as did Plaintiffs. Id. During the call, potential tender offers and consent fees for covenant changes for investors were discussed. Id. The next day, on March 24, 2011, Plaintiffs' representatives met with CNO employees at DoubleLine headquarters in Los Angeles, California. Id. ¶ 143. They discussed CNO's operating results and business prospects. Id. Plaintiffs allege that the "disclosures" that the CNO representatives made during that meeting were false and misleading because they failed to disclose information regarding the bribery scheme. Id.
The following year, on January 11, 2012, Plaintiffs' representatives met with CNO representatives in Cancun, Mexico at a conference hosted by Santander. Id. ¶ 144. CNO again discussed its financial results and business prospects, including the funding of "sister subsidiaries." Id. Again, the CNO representatives omitted information regarding the bribery scheme. Id.
Three years later, on March 24, 2015, Plaintiffs attended a J.P. Morgan securities conference in Miami. Id. ¶ 175. CNO gave a presentation at that conference regarding its business and operations. Id. In its presentation, CNO made no mention of the fact that its business model was based on the illegal bribery scheme. Id.
3. CNO's Financial Statements
Plaintiffs allege that CNO's reported financial statements for the year ended December 31, 2011, its Earnings Release December 2012 , its first and third quarter 2013 financial statements, its Earnings Release - September 2013 containing the third quarter 2013 financial information, annual financial statements for the year ended December 31, 2013, and its first, second, and third quarter 2014 financial statements all violated Brazilian GAAP as described in Section I.C. Id. ¶¶ 145, 148, 151, 155, 158-59, 163, 166, 170. Each of those financial statements is also alleged to have omitted any disclosure that the reported financial results were "unsustainable" and only the product of the bribery scheme. Id. ¶¶ 145, 148, 151, 155, 158-59, 163, 166, 170.
Those financial statements are also alleged to have misleadingly explained CNO's credit ratings. The notes to CNO's December 31, 2011 annual financial statements stated:
The Company's credit has been monitored and analyzed by the main credit rating agencies for many years and, since its first rating, the Company has obtained consecutive upgrades on both the local and global scales.
Id. ¶¶ 146, 156, 164, 171. The notes to CNO's Earnings Release December 2012 reported the following:
*419 On May 23, 2012, Standard & Poor's raised CNO's Global and National ratings to investment grade, at BBB- and brAAA respectively. With this upgrade, CNO achieve [sic] the triple-investment grade, across the three main rating agencies.
Id. ¶ 149. The notes to CNO's first quarter 2013 financial statements described the company's credit ratings as follows:
The Company's credit has been monitored and analyzed by the main credit rating agencies for many years and, since its first rating, the Company has obtained consecutive upgrades on both the local and global scales.
In December 2009, the rating agency Moody's started to cover the Company, and assigned a Baa3 investment grade rating on the global scale and Aa1.br on the Brazilian national scale.
In October 2010, the rating agency Fitch Ratings assigned a BBB-investment grade rating on the global scale and AA+ on the Brazilian national scale.
In June 2011, the rating agency Standard & Poor's assigned a BB+ rating on the global scale and br AA+ on the national scale.
Id. ¶ 152. The notes to CNO's third quarter 2013 financial statements similarly stated:
The Company's credit has been monitored and analyzed by the main credit rating agencies for many years and, since its first rating, the Company has obtained consecutive upgrades on both the local and global scales.
In December 2009, the rating agency Moody's started to cover the Company, and assigned a Baa3 investment grade rating on the global scale and an Aa1.br rating on the Brazilian national scale. In May 2012, the rating agency Standard & Poor's assigned a BBB- rating on the global scale and a br AAA rating on the national scale. In September 2013, the rating agency Fitch Ratings upgraded the Company's rating to BBB on the global scale and AAA on the Brazilian national scale.
Id. ¶ 156. The notes to CNO's annual financial statements for the year ended December 31, 2013, as well as a contemporaneously disseminated presentation entitled Earnings Release - December 2013 , described the company's credit ratings in nearly identical language. Id. ¶¶ 160, 162.
CNO's financial statements for 2014 contained similar disclosures. The notes to the financial statements contained in CNO's first quarter 2014 Earnings Release explained:
The Company's credit has been monitored and analyzed by the main credit rating agencies for many years and, since its first rating, the Company has obtained consecutive upgrades on both the local and global scales.
In December 2009, the rating agency Moody's started to cover the Company, and assigned a Baa3 investment grade rating on the global scale and Aa1.br on the Brazilian national scale. In May 2012, the rating agency Standard & Poor's assigned a BBB- rating on the global scale and br AAA on the national scale. In September 2013, the rating agency Fitch Ratings assigned a BBB investment grade rating on the global scale and AAA on the Brazilian national scale. In May 2014, the rating agency Standard & Poor's upgraded Company's Credit Risk from BBB- to BBB on the global scale, maintaining the br AAA on the national scale.
Id. ¶ 163-64. The notes to CNO's second quarter 2014 financial statements, as well as a contemporaneously disseminated report entitled Earnings Release - 2nd Quarter 2014 , contained a nearly identical disclosure. Id. ¶¶ 166-67, 169. And the notes to CNO's third quarter 2014 financial *420 statements, dated November 13, 2014, reported the following:
The Company's credit has been monitored and analyzed by the main credit rating agencies for many years and, since its first rating, the Company has obtained consecutive upgrades on both the local and global scales.
In December 2009, the rating agency Moody's started to cover the Company, and assigned a Baa3 investment grade rating on the global scale and Aa1.br on the Brazilian national scale.
In October 2010, the rating agency Fitch Ratings upgraded the Company's ratings to BBB- investment grade on the global scale and to AA+ on the Brazilian national scale. In September 2013, the rating agency upgraded the Company's rating to BBB on the global scale and AAA on the Brazilian national scale.
In May 2012, the rating agency Standard & Poor's assigned a BBBrating on the global scale and br AAA on the national scale. In May 2014, the rating agency Standard & Poor's upgraded the Company's rating to BBB investment grade on the global scale and assigning a stable outlook.
Id. ¶¶ 170-71.
Plaintiffs allege that all of these statements regarding CNO's credit ratings were false and misleading because they failed to disclose that the credit ratings were achieved "only by concealing" the bribery scheme. Id. ¶¶ 147, 150, 153, 157, 161, 163, 165, 168, 169, 172. Had the bribery scheme been disclosed, the second amended complaint predicts, CNO would not have obtained its favorable credit ratings. Id. In fact, CNO's credit ratings "would have been downgraded significantly." Id.
Following the dissemination of the third quarter 2014 financial statements, CNO hosted a conference call with investors and analysts to discuss the first quarter results. Id. ¶ 173. In connection with that call, CNO released its Earnings Release 3rd Quarter 2014 , which was referenced during the call and which contained the same financial information and credit rating disclosures as the 2013 annual financial statements. Id. Plaintiffs allege that the Earnings Release was false and misleading for the same reasons as the third quarter financial statements. Id. The Earnings Release also falsely stated that the "Petrobras investigation has not impacted CNO, despite of [ sic ] the negative watch given by Fitch to all heavy construction companies." Id. However, the second amended complaint alleges, to the contrary, that Odebrecht and CNO "were embroiled" in that investigation and "were certain to be charged criminally or civilly by Brazilian and a host of other governments." Id. ¶ 174.
4. Odebrecht's 2014 Annual Report
Plaintiffs allege that Odebrecht's annual report for 2014 contained various false and misleading statements. First, Plaintiffs allege that the report failed to disclose the bribery scheme and instead falsely described Odebrecht as "being built on a foundation of public service" when it stated:
For 70 years, the ethos of service has been the decisive hallmark that sets the Odebrecht Group apart. It is impossible to translate that ethos into words, but it can be easily identified in the conduct of people who are always willing to perceive, understand, and meet the needs of others, whether they are a client, a co-worker or anyone linked to their work or personal lives.
Identifying and bringing in people endowed with that constant and steadfast desire to serve others has been Odebrecht's main drive for seven decades. Thanks to them, things became simple, and everything else ensures naturally:
*421 the client's satisfaction, support for national development, the generation of social wealth, and the Group's survival, growth, and perpetuity.
Odebrecht's history is the story of people with the ethos of service. People who apply it on a daily basis, no matter what. It is in their blood, so for them, any time is a good time for serving others. For them, service is an ongoing commitment.
Id. ¶ 176.
Second, Plaintiffs allege that the annual report's statements regarding Odebrecht's Code of Conduct were false and misleading. Id. ¶ 180. The annual report stated:
Code of Conduct
The Odebrecht Group's Code of Conduct contains concepts and guidelines in addition to TEO that reflect developments in global legislation. Therefore, it is a Group policy that must be adhered to in a disciplined manner by all Odebrecht Members. It particularly guides their external relations, as well as applying to the entire value chain in all of the Businesses, geographic regions and societies in which we are present.
Id. ¶ 177. Section 5 of the Code of Conduct referenced in the annual report provides:
All Team Members of the Organization are prohibited from:
• financing, funding or in any way sponsoring the practice of illegal acts;
• using any person as an intermediary to disguise or hide his or her identity and real interest in order to practice illegal acts;
• offering, promising, granting, authorizing, accepting or receiving, either directly or indirectly, any type of benefit, payment, gift or form of entertainment that:
• conflicts with the Organization's Policies or guidelines; or
• may be interpreted as conferring some type of inappropriate advantage, tip, bribe or payment in violation of any law, including inappropriate and/or illegal payments to any individual, whether associated with a public, private or nonprofit entity; or
• violates any law or regulation to which an Organization Company is subject.
Id. ¶ 178. The Code of Conduct specifically prohibits bribery by providing that "[i]t is prohibited to offer gifts or benefits, including trips, to public officials or private individuals or their family members with the intention of improperly influencing or rewarding a decision." Id. ¶ 179. The annual report's statement regarding the Odebrecht Code of Conduct is alleged to have been false and misleading when made because Odebrecht and its senior executives, including Marcelo Odebrecht, were "well aware" of the bribery scheme. Id. ¶ 180.
Plaintiffs also allege that, despite the annual report's statement that all Odebrecht employees are required to adhere to the Code of Conduct, Odebrecht and its senior management were not only aware that the Division was operating a "shadow accounting system" to conceal the illegal bribes, but Odebrecht's CEO, Marcelo, established the scheme and oversaw the Division. Id. ¶ 182. This directly violated another provision of the company's Code of Conduct regarding accounting records. Id. That provision states:
The reliability and transparency of the accounting practiced by the Companies at the Organization are considered crucial.
Commonly accepted legislation, standards and accounting principles should be rigorously observed in order to guarantee consistent records and reports that will permit the disclosure and evaluation *422 of the Company's operations and results.
Id. ¶ 181.
Section 11 of the Code of Conduct further provides, "In their business actions, the Organization's Team Members should respect and obey the laws and regulations of each country or region in which they operate." Id. ¶ 183. Odebrecht and its senior management's participation in the bribery scheme violated Section 11 because the scheme was unlawful in all of the countries in which Odebrecht and CNO operated. Id. ¶ 184.
Finally, Plaintiffs allege that the 2014 annual report's summary of Odebrecht and CNO's financial results was false and misleading. Id. ¶ 185. CNO's reported gross revenue exceeded $14 billion and its reported EBITDA was $1.35 billion. Id. Those numbers were false and misleading because they (1) failed to recognize the hundreds of millions of dollars paid in bribes as expenses required to secure the contracts that generated the reported revenues, in violation of GAAP; (2) included the illegally obtained revenues in violation of GAAP; and (3) failed to disclose the unsustainability of the reported results or that the results were the product of the illegal bribery scheme. Id.
E. The Bribery Scheme is First Revealed
On June 19, 2015, Brazilian police arrested Marcelo Odebrecht. Id. ¶ 187. Reuters reported the arrest in an article that same day entitled "Odebrecht Bonds Spiral South on Executive Arrest." Id. That article explained:
Multi-point price drops in bonds issued by Odebrecht dominated LatAm credit markets' attention on Friday following news that the Brazilian construction firm's CEO had been arrested.
The move marked the first time an Odebrecht executive had been detained by the police in connection with the kick-back scandal embroiling state-owned oil company Petrobras and linked the firm close to the so-called "Car Wash" scandal.
The company's bonds were marked down about 10 points immediately following the news, but have since come off their lows to trade some four points weaker on the day, traders said.
Id. The market price of the Odebrecht Finance Notes fell dramatically that day as a result of the disclosure. Id. ¶ 189. The value of the 7.125% Notes fell from a close of $86.25 on June 18, 2015 to $80.50 at close on the day of Marcelo's arrest-a 6.7% loss. Id. The value of the 7.50% Notes likewise fell, from a close of $87.47 on the previous day to $78.75-a 10.0% loss. Id. ¶ 189 n.38.
The day after Marcelo's arrest, the New York Times reported:
Brazilian police on Friday arrested one of the country's richest men, Marcelo Odebrecht, the fallout broadens in an investigation into corruption at the state-run oil giant Petrobras.
The investigation, which is looking into whether subcontractors may have colluded with top Petrobras executives to overbill the company and pay bribes, has touched the highest levels of government and business.
In the latest development, Mr. Odebrecht, the billionaire chief executive of the Odebrecht conglomerate, was arrested with three other senior company executives and the chief executive of Andrade Gutierrez, another major construction conglomerate. The federal prosecutor accused the executives of knowing that their companies paid bribes to politicians that added up to 710 million reais ($230 million).
"We have material proof that they knew about the practice of overbilling contracts *423 with Petrobras and they participated directly in the division of contracts with the cartel," a police investigator, Igor Romário de Paula, said in a news conference Friday.
Id. ¶ 188.
Two days later, on June 22, 2015, Odebrecht issued a press release to "express its indignation" at Marcelo's arrest, which it claimed was "illegal." Id. ¶ 190. The press release stated:
The Odebrecht Group, for respecting for its Clients, Partners, Investors, Financial Institutions, Suppliers, Users of its Services, Friends and Team Members, hereby expresses its indignation at the arrest of five of its executives and the search and seizure warrants served last Friday (June 19) at some of our subsidiaries as part of the 14th stage of Operation Lava Jato ("Car Wash"; a Brazilian corruption scandal involving alleged payoffs and the state-owned oil giant Petrobras).
The court order approving the arrest of our executives and the search and seizure warrants demonstrates that, since the beginning of Lava Jato over a year ago, the Federal Police have not presented, as alleged in the court order, any new evidence that justifies the forceful measures taken, which were completely unnecessary and for that very reason, illegal.
Id. The press release further explained:
[T]he Odebrecht Group never hindered the investigations in any way. To the contrary, its executives have always made themselves available to authorities to provide any clarifications. In fact, four of the five arrested executives had traveled to the headquarters of the Federal Police in Brasília and provided testimony in the course of the Lava Jato investigations conducted by the Superior Court of Justice and the Federal Supreme Court. They have also furnished all requested documents and formally offered to testify before the Federal Court in the State of Paraná-testimony that they were never invited to provide, but which certainly would have clarified all of the points raised.
Id. ¶ 192.
According to the second amended complaint, the press release statements were false and misleading. Contrary to the press release's suggestion, Defendants were well aware of Marcelo Odebrecht's role in the bribery scheme and that his arrest was in fact justified. Id. ¶ 191. Further, the press release's statement that Odebrecht "never hindered the investigations in any way" was also false; Odebrecht had "done everything that it could to impede the investigations." Id. ¶ 193. For example, Marcelo Odebrecht had directed employees to delete records that could reveal illegal activities. Id. Odebrecht had also paid an Antigua government official's representative millions of dollars to prevent incriminating documents from being turned over to international authorities. Id. Odebrecht had also intentionally destroyed encryption keys that were needed to access evidence stored on a "secret email system." Id.
The press release was effective: the market price of the Odebrecht Finance Notes rose "significantly." Id. ¶ 194. The value of the 7.125% Notes increased from $79.77 on June 22, 2015 to $80.97 the following day and to $81.85 on June 24, 2015-a two-day gain of 2.6%. Id. Similarly, the 7.50% Notes increased in value from $80.50 on June 22, 2015 to $82.50 on June 23, 2015 and $83.67 on June 24, 2015-a two-day gain of 3.9%. Id. ¶ 194 n.39.
Odebrecht had not entirely escaped hot waters, however. On June 24, 2015, after the market had closed, Reuters reported the following:
*424 Brazilian police said on Wednesday they intercepted a note from the jailed chief executive of Odebrecht SA to his lawyers asking to "destroy email," after he became the highest-profile executive arrested in Brazil's largest ever corruption investigation.
The handwritten note, reproduced by Federal Police and posted in court documents online, says "destroy email drilling rigs."
Marcelo Odebrecht, head of Brazil's largest engineering and construction conglomerate, was arrested Friday in a sweeping investigation into a kickback scheme at the state-run oil company Petrobras.
Id. ¶ 195. That same day, Odebrecht attempted to preempt the drop in bond prices that would likely result from the email disclosure by issuing another press release. Id. ¶ 196. According to that press release,
there is nothing in Marcelo Odebrecht's note to suggest that any illegality has been committed. Besides being uncharacteristic of the executive, it would make no sense to suggest "destroying" (not the contents, as intended, but literally, as interpreted the police authority) emails that were seized during the operation conducted in November 2014, which were widely investigated and made public. Destroying something that is already in the custody of the PF and Judge Sergio Moro makes no sense. In other words, the term "destroy" must have a different meaning.
Finally, Odebrecht regrets that an attempt was made to create a procedural issue regarding an expression that was clearly taken out of context. Through a petition and personal contact, the company's lawyers have attempted to show the police that it makes no sense to raise suspicions about the subject, but unfortunately they have opted to publicize it and lend a whiff of scandal to a note that merely contains a client's instructions to his lawyers-thereby violating the [confidential] relationship that the law guarantees to all Brazilian citizens.
Id. (alteration in original). Odebrecht issued a second press release on June 24, 2015. Id. ¶ 197. That release, entitled "Note of Clarification," stated:
Odebrecht would like to clarify that there are false rumors circulating that its executives have threatened authorities and public officials, as well as the future of the Brazilian Republic, in response to the investigations of Operation Lava Jato ["Car Wash"; a Brazilian corruption scandal involving payoffs and the state-owned oil giant Petrobras].
It is untrue, for example, that the CEO of Odebrecht SA, Marcelo Odebrecht, linked the future "of the Republic" to the arrest warrant issued against him, a warrant this [sic] manifestly illegal.
Similarly, it is also a complete fiction that the Chairman of the Board of Directors of Odebrecht SA, Emílio Odebrecht, warned that more cells would be required to hold politicians whom he would denounce in Brazil and abroad.
The Odebrecht Group and its executives have never hindered the ongoing investigations in any way and have always been available to the authorities to provide information. Odebrecht remains at the authorities' disposal to help ensure that these matters are cleared up quickly, convinced that the truth will come out and that justice will prevail.
Id. (alteration in original). Both of the June 24, 2015 press releases contained false and misleading statements. Id. ¶ 198. The first press release was false and misleading because Marcelo Odebrecht did in fact direct employees of Odebrecht and CNO to destroy documents that were evidence of Defendants' criminal activities. Id.
*425 The second press release was false because it falsely claimed that Marcelo Odebrecht was arrested illegally and that Odebrecht had not attempted to impede the investigation into its conduct. Id. ¶ 197. As a result of the disclosure that Marcelo Odebrecht ordered the destruction of incriminating evidence, the price of the 7.125% Notes and the 7.50% Notes suffered a three-day loss of 7.1% and 5.9%, respectively. Id. ¶ 199 & n.41. Plaintiffs allege that the losses would have been more extensive had Odebrecht not issued the misleading press releases. Id. ¶ 199.
F. Additional Details of Defendants' Unlawful Conduct Are Disclosed
On July 21, 2015, the Dow Jones Newswire reported that Brazilian police had found notes in Marcelo Odebrecht's phone that tied Odebrecht and CNO to bribes paid to Brazilian officials. Id. ¶ 200. The report was released after the market closed. Id. The following day, the 7.125% Notes declined in price from $75.38 to $74.00. Id. The 7.50% Notes declined in price from $81.50 to $80.25. Id. ¶ 200 n.43.
On July 22, 2015, also after the close of the market, the Wall Street Journal reported that Swiss prosecutors had initiated an investigation into Odebrecht and CNO. Id. ¶ 201. The article also reported that Odebrecht and CNO had paid bribes to Brazilian and Petrobras officials. Id. The following day, the price of the 7.125% Notes dropped from $74.00 to $71.00, and the price of the 7.50% Notes dropped from $80.25 to $75.75. Id. ¶ 201 & n.45.
On July 24, 2015, news sources reported that Brazilian prosecutors were prepared to file formal charges against Marcelo Odebrecht in connection with the bribery scheme. Id. ¶ 202. After the market closed that day, it was reported that charges had been filed against Marcelo. Id. The 7.125% Notes declined further in price, from $71.00 to $67.00. Id. The 7.50% Notes also declined in price, from $75.75 to $72.25. Id. ¶ 202 n.48.
The following month, on August 20, 2015, The Economist issued an article that resulted in a further decline in the value of the Odebrecht Finance Notes. Id. ¶ 203. That article read:
Last year McKinsey, an American consulting firm, published a highly flattering interview with Emílio Odebrecht, the chairman, which was headed: "Principles and values have helped this Brazilian familyowned conglomerate thrive."
Odebrecht's boosters will surely be regretting their words of praise, especially the bit about principles and values, now that the firm has become caught up in a huge bribery scandal that is engulfing Brazil. On August 16th mass street protests were held, for the third time this year, in which 800,000 people railed against corruption and called for the removal of President Dilma Rousseff. Prosecutors allege that, in return for padded contracts with Petrobras, a state-controlled oil giant, a "gang" of Brazil's biggest builders funneled cash to politicians from Ms Rousseff's Workers' Party and its coalition allies.
The scheme has cost Petrobras 6 billion reais ($1.7 billion), its auditors reckon. But it is Brazilian builders that have taken the most direct hit. Two large ones have already filed for bankruptcy; and a handful of construction bosses are in custody awaiting trial, including Emílio Odebrecht's son Marcelo, their firm's chief executive .... The younger Mr Odebrecht has been charged with corruption and money-laundering.
The knocks have kept coming. Last month the authorities opened an unrelated investigation into whether Luiz Inácio Lula da Silva, Ms Rousseff's predecessor, had lobbied illegally to help Odebrecht win juicy foreign contracts *426 since leaving office in 2010. On August 14th the police raided Odebrecht's offices in an investigation into alleged corruption over the contract to build the Arena Pernambuco, one of the stadiums in which Brazil staged the 2014 football World Cup. In all these cases Mr Odebrecht, his company and the politicians involved all protest their innocence.
Id. (omission in original). Following the release of this article, the price of the 7.125% Notes dropped from $64.50 on August 20, 2015 to $62.00 the following day and $60.75 on August 24, 2015. 4 Id. Similarly, the 7.50% Notes declined in price from $69.00 on August 20, 2015 to $67.25 on August 21, 2015. Id. ¶ 203 n.49. The price remained $67.25 on August 24, 2015. Id.
On December 10 and 11, 2015, Odebrecht issued a press release announcing that Marcelo Odebrecht had resigned from his position as the company's CEO. Id. ¶ 204. The press release falsely reported, however, that Marcelo was innocent of the criminal charges against him. Id. The press release explained:
After 6 months in detention and given the developments in his court case, Marcelo Odebrecht yesterday decided to formally resign from his post as President and CEO of Odebrecht S.A., as well as the chairmanship of Braskem, Odebrecht Oil & Gas, Odebrecht Real Estate Developments and Odebrecht Environmental.
The Board of Odebrecht S.A. has officialized the appointment of Newton de Souza, who will continue as President and CEO of Odebrecht S.A. and Chairman of the abovementioned companies.
Odebrecht believes that Marcelo's unjust and unnecessary preventive detention will be revoked, which will enable him to devote himself to his family and concentrate on his defense. Odebrecht has full confidence that at the end of the current legal proceedings, Marcelo Odebrecht's innocence will be officially recognized.
Id. Plaintiffs allege that this press release was false and misleading because Odebrecht knew that Marcelo was not innocent of the charges and that his arrest was "neither unjust nor unnecessary." Id. ¶ 205. Following the disclosure of Marcelo's resignation, the price of the 7.125% Notes dropped from $53.00 on December 10, 2015 to $51.75 on December 14, 2015. Id. ¶ 206. The price of the 7.50% Notes dropped from $57.00 to $55.75. Id. ¶ 206 n.51. Plaintiffs allege that the decline would have been significantly greater in the absence of Odebrecht's false and misleading press release. Id. ¶ 206.
On February 23, 2016, news sources began reporting that Odebrecht's bribery scheme may not have been limited to Brazil. Id. ¶ 207. On that date, Reuters reported that Brazilian law enforcement was investigating possible bribes that were paid to the president of Peru by Odebrecht and CNO. Id. Also that day, the Buenos Aires Herald reported allegations by the Brazilian investigators that Odebrecht had paid bribes to Argentina's Secretary of Transportation Ricardo Jaime in order to secure his aid in obtaining public works contracts in that country. Id. ¶ 208. Following this news, the price of the 7.125% Notes declined from $49.24 to $43.00, and the price of the 7.50% Notes declined from $48.75 to $44.50. Id. ¶ 210 & n.54.
On March 8, 2016, the Wall Street Journal reported that Marcelo Odebrecht was sentenced to nineteen years of prison time for his role in the bribery scheme. Id. ¶ 211. Two weeks later, on March 22, 2016, *427 various news outlets reported that the Brazilian police were targeting Odebrecht in their corruption investigation. Id. ¶ 212. News sources also reported that day that several Odebrecht executives and other employees had been arrested for their participation in the bribery scheme. Id. News outlets further reported a deal that was struck between Odebrecht and the Brazilian prosecutors whereby Odebrecht agreed to cooperate with and assist the prosecutors in their investigations. Id. The next day, the Wall Street Journal reported that "[j]ailed billionaire construction mogul Marcelo Odebrecht is ready to turn state's evidence in a massive Brazilian corruption probe that threatens to upend the government of President Dilma Rousseff and land her predecessor Luis Inácio Lula da Silva in jail." Id. ¶ 213. These disclosures marked a "stark contrast" to Odebrecht and CNO's previous false statements that the companies were not involved in the bribery scandal. Id. ¶ 214. As a result, the price of the 7.125% Notes declined significantly further, from $49.25 on March 21, 2016 to $44.00 on March 22, 2016. Id. The 7.50% Notes also suffered, dropping in price from $51.00 on March 21, 2016 to $44.50 on March 23, 2016. Id. ¶ 214 n.57.
On May 2, 2016, Standard & Poor's issued a press release over the Dow Jones Newswire after the market closed indicating that the rating agency had downgraded the ratings of the Odebrecht Finance Notes, including the 7.125% Notes and the 7.50% Notes, from "B+" to "BB-." Id. ¶¶ 215-16. The press release also reported that Standard & Poor's had placed the Odebrecht Finance Notes, including the 7.125% Notes and the 7.50% Notes, on negative Creditwatch. Id. The agency explained that it was the ongoing corruption investigation that led to the downgrade. Id. ¶ 215.
The next day, Fitch Ratings similarly issued a press release announcing that it too had downgraded the bonds issued by Odebrecht Finance, from "BB" to "B+/RR4." Id. ¶ 216. That press release explained the downgrade and the reasons for the downgrade as follows:
Fitch has downgraded to "B+/RR4" from "BB" the approximately USD3.1 billion issuances of Odebrecht Finance Ltd. (OFL), which OEC unconditionally and irrevocably guarantees. The "B+/RR4" rating of OFL's unsecured public debt reflects average recovery prospects in the event of a default, ranging between 31% - 50%.
* * *
KEY RATING DRIVERS
The downgrade reflects the increased risks and uncertainties associated with the non-publication of OEC's 2015 financial statements at the end of April 2016. OEC's independent auditor requested additional information on the latest phases of the Lava-Jato (Car-Wash) investigation and further checks have delayed the publication of the company's financial statements.
The rating action also reflects the prolonged uncertainty of any potential impact on OEC's credit profile stemming from the investigations on the corruption scandal. This has led to low visibility on the company's short- and medium-term future operating performance and liquidity. Fitch believes these risks are not commensurate with the "BB" rating category.
The Negative Watch reflects OEC's challenges to mitigate vulnerabilities due to the publishing delay of its 2015 financial statements, with potential debt payment acceleration of USD2.7 billion. Investors of five out of the eight OFL bonds could declare an event of default (EoD) if the bonds reach a low threshold of 25% of the outstanding bond. This would trigger a 60-day cure period for *428 OEC to publish the accounts. Otherwise, bondholders could notify the company of another EoD.
On a preliminary basis, OEC released to the market total debt of BRL3.6 billion and cash of BRL2.5 billion at the end of 2015. Fitch estimates that bondholders could request the anticipated payment of approximately 80% of this debt.
Id.
The same day that Fitch announced its downgrade of the Odebrecht Finance Notes, Moody's did the same. Id. ¶ 217. Moody's' press release announced that it had downgraded the notes, including the 7.125% Notes and the 7.50% Notes, from "Ba2" to "B2." Id. The reasons for the downgrade were explained as follows:
The downgrade to B2 was prompted by increased credit risk and rising financial constraints for OEC as a result of the evolving corruption investigations in the country, with potential monetary fines and other business sanction affecting the company's liquidity and operating sustainability. The company's ratings also reflect the business challenges related to the ongoing investigations, which create management distractions that may hinder efforts to improve operations and corporate governance amid the already challenging industry fundamentals.
The rating remains on review reflecting continued concern about potential liquidity pressures that could arise as a consequence of not providing timely financial statements. The company's debt agreements include covenants for the provision of audited financial statements. As such, extended delays in providing audited financial statements carries the risk that creditors may take actions that could eventually lead to payment acceleration.
* * *
Additional rating actions will consider any further developments in the ongoing corruption investigation and the passage of time without clear progress towards normal production of financial statements. Failure to make sure progress over the next couple of months may lead to further downgrade.
OEC's ratings could be downgraded if Moody's perceives a higher risk arising from the developments of those investigations, such as lower liquidity to meet its debt service requirements or a backlog deterioration that would prospectively result in a higher leverage and weaker business profile.
Id.
The ratings downgrades by these credit rating agencies were a primary factor in yet another drop in the market price of the Odebrecht Finance Notes. Id. ¶ 218. The 7.125% Notes declined from $33.50 on May 2, 2016 to $31.00 on May 3, 2016 and to $28.00 on May 4, 2016. Id. The 7.50% Notes dropped in price from $39.10 on May 2, 2016 to $33.00 on May 3, 2016 and $31.00 on May 4, 2016. Id. ¶ 218 n.59. Another factor identified as a contributing cause to the significant decline was CNO's failure to file its 2015 financial statements by the deadline. Id. ¶ 220. On May 3, 2016, two Reuters articles reported that CNO had missed the filing deadline because of concerns about the bribery investigations. Id.
Following the credit rating downgrades, on May 6, 2016, the Brazilian Federal Public Prosecutors Office formally indicted Marcelo Odebrecht. Id. ¶ 221. The Esmerk Brazil News reported the indictment:
Brazil's Federal Public Prosecutors Office (MPF) has indicted Marcelo Odebrecht, Leo Pinheiro (OAS) and Ricardo Pessoa (UTC) for alleged corruption practices. The indictment is part of the Lava Jato corruption investigation, which involves Petrobras. Together with the businessmen, MPF has also indicted *429 other people, such as former senator Gim Argello. According to MPF, they are accused of being involved in the payment of money laundering, active and passive corruption, among other crimes. MPF has also requested the seizure of BRL 7.50mn (EUR 1.88mn USD 2.14mn) and EUR 200,000, in addition to the payment of BRL 70mn in fines. The investigation has also found evidence of the involvement of Toyo Setal.
Id. This led to a further decrease in the market value of the Odebrecht Finance Notes. Id. ¶ 222. The 7.50% Notes dropped from $29.75 on May 6, 2016 to $28.50 on May 9, 2016. Id.
On June 13, 2016, Fitch Ratings announced a further downgrade of the ratings of the Odebrecht Finance Notes:
Fitch has downgraded to "B-/RR4" from "B+/RR4" approximately USD 3.1 billion issuances of Odebrecht Finance Ltd. (OFL), which OEC unconditionally and irrevocably guarantees. The "B-/RR4" rating of OFL's unsecured public debt reflects average recovery prospects in the event of a default, ranging between 31% - 50%.
* * *
The downgrade reflects the difficulty OEC continues to face monetizing receivables with banks and multi-lateral agencies, which has diminished its cash position relative to historical levels. OEC's cash position stood at BRL 6 billion (USD 1.9 billion) as of March 31, 2016, which is a sharp decline from USD 4.4 billion at the end of 2014. In order to protect its liquidity, OEC has reduced activities on projects that are facing any type of issues.
The Negative Watch incorporates the challenges imposed by the rapid cash burn during the first quarter of 2016. The depletion of cash also makes the company very vulnerable to fines from Brazilian authorities and/or countries abroad.
Id. ¶ 224.
G. Defendants Admit Their Role in the Bribery Scheme
Odebrecht issued a press release on December 1, 2016 entitled "Odebrecht Apologizes for its Mistakes." Id. ¶ 225. In that press release, the company admitted its criminal actions:
Odebrecht acknowledges its participation in illicit actions in its business activities.
It does not matter that we gave in to external pressure. Nor is it relevant that there are behaviors that the private and public sectors must resist and correct in their relationships. What matters is that we acknowledge our involvement. We were complicit and did not fight these practices, as we should have. This was a grave error. We violated our own principles and transgressed against the values of honesty and ethics.
We will not let this happen again.
Odebrecht apologizes, particularly for its failure not to have acted sooner. Odebrecht's ability to manage and execute that is recognized by our clients, the competency and commitment of our professionals, and the quality of our products and services should have been the basis for avoiding these mistakes.
Odebrecht has learned from these mistakes and is evolving. We are committed, with great conviction, to reform.
Id.
On December 21, 2016, Odebrecht entered into a plea agreement with the United States Attorney for the Eastern District of New York. Id. ¶ 226. Pursuant to that plea agreement, the company pleaded guilty to violating the anti-bribery provisions of the Foreign Corrupt Practices Act, 15 U.S.C. § 78dd-3. Id. Odebrecht *430 also agreed to pay a penalty of $2.6 billion and agreed to have its operations monitored by an independent compliance monitor. Id.
The plea agreement contained a lengthy twenty-three-page statement of facts regarding the bribery scheme. Id. ¶ 227. By entering into the plea agreement, Odebrecht "agree[d] and stipulate[d]" that the facts outlined in the statement of facts were "true and accurate" and that it would not challenge the facts set forth in the plea agreement. Id. ¶¶ 227-28. The statement of facts included details of $349 million that were paid to Brazilian officials and politicians as bribes for awards of public construction contracts to CNO and other Odebrecht subsidiaries. Id. ¶ 229. Defendants admitted that they obtained over $1.9 billion in contracts as a result of the bribes. Id. Specifically, Defendants paid more than $20 million to Brazilian officials, including a "high-level elected official" identified as "Brazilian Official 4," in exchange for the officials' aid in ensuring that Defendants continued working on a large public transportation project in the country. Id. ¶ 230. Defendants' profit from that project was approximately $184 million. Id. Also, between 2011 and 2014, Defendants paid $9.7 million in bribes to a "high-level official within the legislative branch of government in Brazil" for that official's help in ensuring the continuation of a Rio de Janeiro construction project. Id. ¶ 231. Defendants' profits from that project were about $142 million. Id.
The statement of facts in the plea agreement also contained detailed information regarding bribes paid to officials in countries other than Brazil:
Angola . Between 2006 and 2013, Defendants paid more than $50 million in bribes to government officials in Angola in order to secure public works contracts. Defendants realized benefits of approximately $261.7 million as the result of these bribes;
Argentina . Between 2007 and 2014, Defendants paid more than $35 million in bribes (directly and indirectly) from Defendant CNO's Division of Structured Operations to government officials in Argentina related to at least three public infrastructure projects for which Defendants were awarded the contracts, resulting in approximately $278 million in benefits to Defendants;
Colombia . Between 2009 and 2014, Defendants (through Defendant CNO's Division of Structured Operations) paid more than $11 million in bribes to government officials that illicitly caused Defendants to be awarded public construction contracts generating more than $50 million in revenues to Defendants;
Dominican Republic . Between 2001 and 2014, Defendants paid more than $92 million in bribes to government officials and intermediaries working on their behalf to secure public construction contracts in the Dominican Republic, thereby obtaining illicit benefit of more than $163 million;
Ecuador . Between 2007 and 2016, Defendants paid more than $33.5 million in bribes to government officials in Ecuador, realizing benefits of more than $116 million in exchange;
Guatemala . Between 2013 and 2015, Defendants paid approximately $18 million in bribes to government officials in Guatemala, including an $11.5 million payment to a governmental official representing a percentage of the value of a governmental construction contract the official steered to Defendants in exchange for the bribe;
Mexico . Between 2010 and 2014, Defendants paid corrupt Mexican government officials approximately $18 million in bribes in order to secure public works *431 contracts, including a $6 million bribe to an official of Pemex, Mexico's stateowned petroleum company, in exchange for the official's assistance in winning a contract. Defendants received benefits of more than $39 million from these bribes;
Mozambique . Between 2011 and 2014, Odebrecht paid approximately $900,000 in bribes to government officials in Mozambique;
Panama . Between 2010 and 2014, Defendants paid more than $59 million in bribes to Panamanian governmental officials, obtaining contracts worth more than $175 million resulting from these bribes;
Peru . Between 2005 and 2014, Defendants paid approximately $29 million in bribes to government officials in Peru, receiving benefits of more than $143 million in return; and
Venezuela . Between 2005 and 2016, Defendants paid approximately $98 million in bribes to Venezuelan officials in order to obtain and retain public works contracts.
Id. ¶ 232 (citations omitted).
The statement of facts also included various details regarding Defendants' attempts to conceal or destroy evidence of their criminal activities. Id. ¶ 233. Among those facts was that Marcelo Odebrecht instructed Odebrecht and CNO employees to delete records that could expose unlawful activities. Id. 5 The statement of facts further identified an executive of the Division ("Odebrecht Employee 4") who, in 2015, agreed to pay an Antigua government official $4 million to refrain from providing international investigators with banking documents that contained evidence of the bribery scheme. Id. ¶ 234. An individual identified as Odebrecht Employee 3 thereafter made three of the agreed-upon payments of one million Euros. Id. The statement of facts further explained that, in January 2016, Defendants intentionally destroyed physical encryption keys that were required to access the My WebDay system, which held evidence of the bribery scheme. Id. ¶ 235. In the plea agreement, Odebrecht admitted that it was "responsible for the acts of its officers, directors, employees, and agents." Id. ¶ 227.
H. Allegations of Loss Causation
Plaintiffs allege loss causation by pleading the materialization of the risks inherent in the concealed bribery scheme and by pleading corrective disclosures. Id. ¶¶ 243, 244.
1. Risk Materialization
Plaintiffs allege that Defendants' misstatements and omissions caused the price of the Odebrecht Finance Notes to be "artificially inflated" at the time that Plaintiffs purchased those notes. Id. ¶ 238. Had investors been aware of the bribery scheme, the Notes would have traded at "dramatically lower prices." Id. Specifically, Plaintiffs allege that the Odebrecht Finance Notes' values were artificially inflated as a result of the undisclosed bribery scheme, CNO's false financial statements, and Odebrecht Finance's false financial statements. Id. ¶ 240. These misstatements concealed the risks related to the exposure of the bribery scheme and to CNO and Odebrecht's "preparation and dissemination of false financial statements."
*432 Id. ¶ 241. According to Plaintiffs, it was foreseeable that the undisclosed bribery scheme would lead to the following: ratings agency downgrades, deteriorating liquidity, regulatory investigations, criminal prosecutions of Defendants and their employees, civil regulatory actions carrying substantial fines or penalties, and Defendants' inability to timely file financial statements. Id. ¶ 242. Plaintiffs allege that the value of their investment in the Odebrecht Finance Notes was adversely affected when these concealed risks materialized. Id. ¶ 243.
2. Corrective Disclosures
As an alternative to risk materialization, Plaintiffs allege loss causation through the various corrective disclosures that exposed the truth of Defendants' bribery scheme. Id. ¶ 244. Plaintiffs allege that the series of partial disclosures caused Plaintiffs to suffer "significant losses" as the price of the Odebrecht Finance Notes plummeted with each disclosure. Id. Those disclosures are: (1) disclosures regarding the arrest of Marcelo Odebrecht for his role in the bribery scheme, id. ¶¶ 187-94; (2) the disclosure regarding the evidence seized from Marcelo Odebrecht's phone, id. ¶ 200; (3) the disclosure of the Swiss investigation into Odebrecht and CNO, id. ¶ 201; (4) the disclosure that formal charges had been filed against Marcelo Odebrecht, id. ¶ 202; (5) the August 20, 2015 Economist article, id. ¶ 202; (6) the December 10, 2015 disclosure that Marcelo Odebrecht had resigned as Odebrecht's CEO, id. ¶¶ 155-56; (7) the February 23, 2016 disclosures regarding the international nature of Defendants' bribery scheme, id. ¶ 207; (8) the March 22 and 23, 2016 disclosures, id. ¶¶ 212-14; (9) the May 2 and 3, 2016 announcements by the three credit rating agencies of their downgrade of the Odebrecht Finance Notes, id. ¶¶ 215-18; and (10) the May 6, 2016 disclosure of Marcelo Odebrecht's formal indictment, id. ¶¶ 221-24.
Plaintiffs allege that the decline in prices of the Odebrecht Finance Notes that followed each of these partial disclosures are "directly attributable" to the disclosures, as well as to the materialization of the concealed risks. Id. ¶ 245. Had Plaintiffs been aware of the undisclosed information or "the truth behind [Defendants'] material misstatements," they would not have purchased the Odebrecht Finance Notes at the prices at which they did. Id. According to the second amended complaint, "the timing and magnitude of the price declines in the Odebrecht Finance Notes negates any inference that the losses suffered by Plaintiffs were caused by changed market conditions, macroeconomic or industry factors, or Company-specific facts unrelated to Defendants' fraudulent conduct." Id. ¶ 247.
I. Reliance Allegations
In purchasing the Odebrecht Finance Notes, Plaintiffs relied on Defendants' false statements, including those made directly to Plaintiffs during the March 23, 2011 conference call, the March 24, 2011 meeting at Plaintiffs' headquarters, and the January 11, 2012 Santander conference, as well as those made in earnings releases and telephone conferences that discussed those releases. Id. ¶ 248.
Plaintiffs also allege that the fraud-on-the-market presumption of reliance applies. Id. ¶ 249. Alternatively, Plaintiffs allege that, because Defendants violated a duty to disclose material information, the presumption of reliance established in Affiliated Ute Citizens of the State of Utah v. United States , 406 U.S. 128 , 92 S.Ct. 1456 , 31 L.Ed.2d 741 (1972), applies. Id. ¶ 250.
J. Safe Harbor
Finally, Plaintiffs allege that the safe harbor for forward-looking financial statements does not apply to any of the allegedly *433 false and misleading statements pleaded. Id. ¶ 251.
H. Procedural History
Plaintiffs initiated this action on June 16, 2017. ECF No. 1. On September 1, 2017, Plaintiffs amended their complaint. ECF No. 26. Defendants CNO and Odebrecht Finance moved to dismiss the amended complaint on October 31, 2017. ECF No. 37. In response to that motion, Plaintiffs filed a second amended complaint on November 21, 2017. ECF No. 41. On January 12, 2018, Defendants Odebrecht Finance, CNO, and OEC moved to dismiss the second amended complaint. ECF No. 49. Plaintiffs opposed that motion on March 5, 2018, and Defendants filed a reply on March 26, 2018. ECF Nos. 52, 55. Odebrecht, S.A. has not appeared in this action.
II. LEGAL STANDARD
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, 127 S.Ct. 1955 , 167 L.Ed.2d 929 (2007) ). To determine plausibility, courts follow a "two-pronged approach." Ashcroft v. Iqbal , 556 U.S. 662 , 679, 129 S.Ct. 1937 , 173 L.Ed.2d 868 (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 cause of action, supported by mere conclusory statements, do not suffice." Harris v. Mills , 572 F.3d 66 , 72 (2d Cir. 2009) (brackets and internal quotation marks omitted) (quoting Iqbal , 556 U.S. at 678 , 129 S.Ct. 1937 ). 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 , 129 S.Ct. 1937 ). 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 , 129 S.Ct. 1937 .
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) (citing Novak , 216 F.3d at 306 ). 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 *434 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, 127 S.Ct. 2499 , 168 L.Ed.2d 179 (2007).
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 , 774 (2d Cir. 1991).
III. DISCUSSION
A. Federal Securities Fraud Claims
Plaintiffs bring claims against all Defendants under Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, as well as claims for control person liability against Odebrecht and OEC.
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 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) (per curiam) (quoting Halliburton Co. v. Erica P. John Fund, Inc. , --- U.S. ----, 134 S.Ct. 2398 , 2407, 189 L.Ed.2d 339 (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, 100 S.Ct. 1108 , 63 L.Ed.2d 348 (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, 131 S.Ct. 1309 , 179 L.Ed.2d 398 (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.").
*435 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 , 131 S.Ct. 1309 (quoting 17 C.F.R. § 240 .10b-5(b) ). 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) (quoting Roeder v. Alpha Indus., Inc. , 814 F.2d 22 , 26 (1st Cir. 1987) ); 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 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 and internal quotation marks 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 ).
1. Statute of Limitations
Defendants move to dismiss Plaintiffs' federal claims on several grounds, with a threshold argument that the claims are time-barred.
The statute of limitations is an affirmative defense as to which Defendants carry the burden of showing that Plaintiffs failed to plead timely claims. See Staehr v. Hartford Fin. Servs. Grp. , 547 F.3d 406 , 425 (2d Cir. 2008) ("The lapse of a limitations period is an affirmative defense that a defendant must plead and prove."). Dismissal of a complaint based on an affirmative defense at the pleading stage is warranted only if "it is clear from the face of the complaint, and matters of which the court may take judicial notice, that the plaintiff's claims are barred as a matter of law." Id. (quoting Conopco, Inc. v. Roll Int'l , 231 F.3d 82 , 86 (2d Cir. 2000) ); accord Ellul v. Congregation of Christian Bros. , 774 F.3d 791 , 798 n.12 (2d Cir. 2014).
Claims sounding in fraud that are brought under the Securities Exchange Act "must be filed within the earlier of five years from the alleged violation or two years 'after discovery of the facts constituting the violation.' " Charles Schwab Corp. v. Bank of Am. Corp. , 883 F.3d 68 , 94 (2d Cir. 2018) (quoting 28 U.S.C. § 1658 (b) ); see Merck & Co., Inc. v. Reynolds , 559 U.S. 633 , 637, 130 S.Ct. 1784 , 176 L.Ed.2d 582 (2010) (holding that a private securities fraud claim is timely if the complaint is filed "no more than two years after the plaintiffs 'discovered the facts constituting the violation.' " (brackets omitted) (citing 28 U.S.C. § 1658 (b)(1) ) ).
*436 " '[W]hen the circumstances would suggest ... the probability that' a violation of the securities laws has occurred-a situation sometimes called 'storm warnings'-[courts] deem the plaintiff on inquiry notice and assume that a reasonable person in his or her shoes would conduct further investigation into the potential violation." Fed. Hous. Fin. Agency for Fed. Nat'l Mortg. Ass'n v. Nomura Holding Am., Inc. , 873 F.3d 85 , 119 (2d Cir. 2017) (alterations in original) (quoting Lentell v. Merrill Lynch & Co., Inc. , 396 F.3d 161 , 168 (2d Cir. 2005) ). A "storm warning" triggering inquiry notice "need not detail every aspect of the alleged" securities law violation. Staehr , 547 F.3d at 427 . Rather, it only triggers the duty to investigate if it "relates directly to the misrepresentations and omissions the [p]laintiffs ... allege in their action against the defendants." Newman v. Warnaco Grp., Inc. , 335 F.3d 187 , 193 (2d Cir. 2003) (citing Morin v. Trupin , 809 F.Supp. 1081 , 1097 (S.D.N.Y. 1993) ).
Under prior law, such inquiry notice would trigger the running of the statute of limitations. See Staehr , 547 F.3d at 426 . The Supreme Court held in Merck , however, that the statute of limitations period does not begin to run until the plaintiff actually learns of the violation or "a reasonably diligent plaintiff would have discovered the facts constituting the violation, including scienter-irrespective of whether the actual plaintiff undertook a reasonably diligent investigation." City of Pontiac Gen. Emps.'Ret. Sys. v. MBIA, Inc. , 637 F.3d 169 , 174 (2d Cir. 2011) (quoting Merck , 559 U.S. at 653 , 130 S.Ct. 1784 ). The point at which inquiry notice is triggered is still relevant. See Merck , 559 U.S. at 653 , 130 S.Ct. 1784 ("In determining the time at which 'discovery' of [the facts constituting the violation] occurred, terms such as 'inquiry notice' and 'storm warnings' may be useful to the extent that they identify a time when the facts would have prompted a reasonably diligent plaintiff to begin investigating."). Nonetheless, the clock does not start to tick on the statute of limitations until "such a reasonable investor conducting such a timely investigation would have uncovered the facts constituting a violation." City of Pontiac , 637 F.3d at 174 . A plaintiff is deemed to have discovered the facts constituting the violation only after "a reasonably diligent plaintiff would have sufficient information ... to adequately plead [its claim] in a complaint." Schwab , 883 F.3d at 94 (alterations in original) (quoting City of Pontiac , 637 F.3d at 175 ).
Plaintiffs initiated this action on June 16, 2017. The "violation" that Defendants allegedly committed was their failure to disclose the bribery scheme. Therefore, for Plaintiffs' federal securities fraud claims to be timely, Plaintiffs must not have discovered the facts of Defendants' knowing participation in that scheme earlier than June 16, 2015.
Defendants argue that Plaintiffs were aware of the bribery scheme as early as late 2014. In support, Defendants cite to various news articles and a transcript of deposition testimony given by individuals in a criminal case in Brazil. See Defs.' Mem. in Support of Motion to Dismiss (ECF No. 51) ("Defs.' Mem.") at 12-14; Declaration of Michael B. Carlinsky (ECF No. 50) ("Carlinsky Decl."), Exs. D-I. For purposes of evaluating Defendants' timeliness argument, the Court may, and does, take judicial notice of the fact of these news reports and testimony, "without regard to the truth of their contents." Staehr , 547 F.3d at 425 ; see id. at 427 ("It is unremarkable that courts consider the extent of media coverage in deciding when inquiry notice for securities fraud claims was triggered."); see also Global Network Commc'ns, Inc. v. City of New York , 458 F.3d 150 , 157 (2d Cir. 2006) ("A court may take judicial notice of a document filed in *437 another court not for the truth of the matters asserted in the other litigation but rather to establish the fact of such litigation and related filings." (citation omitted) ); LC Capital Partners, LP v. Frontier Ins. Grp., Inc. , 318 F.3d 148 , 155 (2d Cir. 2003) (taking judicial notice of National Underwriter article in evaluating whether plaintiffs had inquiry notice).
The articles pointed to by Defendants provide some information regarding the bribery scheme, but that information is insufficient to have permitted Plaintiffs to plead their claims with the particularity demanded of Rule 9(b). For example, an October 20, 2014 article published by Bloomberg explained that Odebrecht S.A. was "among the companies winning the[ ] inflated Petrobras contracts." Carlinsky Decl., Ex. D at 7 (Bloomberg News Enterprise, Brazil Fixated as "Human Bomb" Revelations Rock Elections , Oct. 20, 2014). However, the article provides no details regarding Odebrecht's involvement in the bribery scheme. In fact, the article goes on to explain that Odebrecht denied its involvement and maintained that the company had in fact "complied with bidding rules in all the Petrobras contracts it has won over the decades." Id. Defendants also point to a November 14, 2014 article published by Reuters that reported a raid by Brazilian police of Odebrecht and another firm in which police seized " potentially incriminating documents" and arrested eighteen people. Carlinsky Decl., Ex. E at 1 (Reuters, Petrobras ex-director arrested, shares sink amid graft scandal , Nov. 14, 2014) (emphasis added). Yet the incriminating nature of the documents was not confirmed, and a reasonable investor provided with this tidbit of information would not be able to plead a Section 10(b) claim with particularity.
Other news articles that Defendants cite to include a December 29, 2014 Reuters article indicating that Odebrecht was among the list of companies " implicated in a police investigation into the alleged kickback scheme" and that Petrobras had blocked payments to the company; a February 4, 2015 article published by a Canadian source, The Globe and Mail, reporting that "Brazilian police are investigating a fraud estimated to be worth billions of dollars, in which senior managers at companies such as Odebrecht allegedly paid off Petrobras directors in order to obtain contracts with the company"; a February 20, 2015 online Wall Street Journal article reporting that Odebrecht was among "companies that prosecutors allege took part in the corruption, but weren't among those prosecutors [were] seeking repayment from"; a March 11, 2015 Reuters article explaining that Brazil's comptroller general had " opened a case against 10 additional firms that may be involved in a massive corruption scheme at state-run oil firm Petroleo Brasileiro SA" and that the "case runs against ... Odebrecht"; and an April 22, 2015 Reuters article reporting the conviction of Paulo Roberto Costa, a former Petrobras director. Carlinsky Decl., Exs. H, J-M (emphasis added).
These articles may have been sufficient to trigger inquiry notice, but they do not provide the who, what, where, when, and how that securities fraud plaintiffs must plead. 6 The articles show that Odebrecht *438 was being investigated for potential fraud but do not provide details regarding the specific bribes that were paid, the date on which they were paid, or the identities of the officers or directors of the Defendant companies that were responsible for those payments or who knew of those payments. See Fed. Hous. Fin. Agency v. JPMorgan Chase & Co. , 902 F.Supp.2d 476 , 488 (S.D.N.Y. 2012) ("[D]escriptions ... of government and private investigations are insufficient, alone, to permit a claim to be brought on any individual certificate.").
Furthermore, the February 20, 2015 and March 11, 2015 articles explain that Odebrecht denied the allegations of wrongdoing. See Carlinsky Decl., Exs. K. at 1, M at 2. These express denials of the reported allegations could have allayed a reasonable investor's concerns. See, e.g., In re Chicago Bridge & Iron Co. N.V. Sec. Litig. , No. 17-cv-1580 (LGS), 2018 WL 2382600 , at *5 (S.D.N.Y. May 24, 2018) (declining to dismiss complaint on statute of limitations ground when the defendants "countered" statements in "many news reports of delays and accounting irregularities" with explicit denials of any wrongdoing); Milman v. Box Hill Sys. Corp. , 72 F.Supp.2d 220 , 229 (S.D.N.Y. 1999) ("[C]ourts have been reluctant to find that public disclosures provided inquiry notice where those disclosures were tempered with positive statements."); Siebert v. Nives , 871 F.Supp. 110 , 115 (D. Conn. 1994) (finding that disclosure of FDIC investigation did not trigger inquiry notice where company simultaneously announced that it had revised its policies to meet investigators' concerns); cf. Monroe Cty. Emps.'Ret. Sys. v. YPF Sociedad Anonima , 15 F.Supp.3d 336 , 352-53 (S.D.N.Y. 2014) (finding "reassurances" by defendants did not delay the running of the statute of limitations when those reassurances "expressed optimism" but "did not suggest that nationalization was no longer a material risk" and "concerned future investment plans and thus had no bearing on whether the Registration Statement omitted material information").
Defendants also rely on statements made in various court filings in other cases. For example, Defendants point to allegations in a December 8, 2014 complaint filed against Petrobras in the Southern District of New York in the case of Katlman v. Petrobras , No. 14-cv-09662 (JRS). Carlinsky Decl., Ex. F. That complaint alleged that Petrobras executives accepted bribes from contractors, including Odebrecht. Id. ¶ 8. It also alleged that "Petrobras' senior executives inflated the value of the Company's construction contracts for the sole purpose of receiving kickbacks from companies such as Odebrecht S.A....." Id. ¶ 3. The complaint alleged that "Odebrecht's offices were subsequently searched, and documents were seized that concerned Odebrecht grossly overbilling Petrobras in an $835 million contract." Id. ¶ 8. A second complaint relied upon by Defendants is a consolidated amended complaint filed in the same case on March 31, 2015. Carlinsky Decl., Ex. G. That amended complaint alleged that Odebrecht was "part of the cartel" that rigged the Petrobras bribery scheme. Id. ¶ 76.
The filing of a complaint containing allegations of the underlying fraud may start the clock on the two-year statute of limitations. See Eton Park Fund, L.P. v. Am. Realty Capital Props., Inc. , No. 16-cv-9393 (AKH), 2017 WL 4898226 , at *4 (S.D.N.Y. Aug. 14, 2017) (concluding that plaintiffs' Exchange Act claims accrued upon the filing of a complaint for defamation in a New York State court that alleged *439 that defendant "had acted with scienter by intentionally making errors in its 2013 financial disclosures"); see also Hopkinson v. Estate of Siegal , No. 10-cv-1743 (LBS), 2011 WL 2935876 , at *2 (S.D.N.Y. July 12, 2011) (explaining, on reconsideration of the dismissal of a complaint as time-barred, that complaint filed in another action "was sufficient to put [p]laintiff on notice of the fraud"). Here, the allegations in the other complaints likely pointed reasonably diligent investors to the probability that Odebrecht had defrauded its investors. See Staehr , 547 F.3d at 411 ("When there is no actual knowledge, but 'the circumstances would suggest to an investor of ordinary intelligence the probability that she has been defrauded, a duty of inquiry arises, and knowledge will be imputed to the investor who does not make such an inquiry." (quoting Dodds v. Cigna Sec. , 12 F.3d 346 , 350 (2d Cir. 1993) ) ). However, that is no longer sufficient to trigger the statute of limitations, see Merck , 559 U.S. at 653 , 130 S.Ct. 1784 , and, absent more detailed allegations of the bribery scheme, these complaints cannot have provided Plaintiffs with notice of the securities-law violation. 7
In addition to the complaints against Petrobras, Defendants argue that Plaintiffs should have discovered the violation from a transcript of the October 22, 2014 deposition testimony of Paulo Roberto Costa, former Petrobras executive, and Alberto Yusseff, a black market money launderer. Carlinsky Decl., Ex. I. That transcript was filed on the public docket of Katlman v. Petrobras , No. 14-cv-09662 (JRS), on April 17, 2015. Carlinsky Decl. ¶ 10. The testimony provides greater details regarding the bribery scheme, including that high-ranking executives of Odebrecht were aware of the bribes being paid. See Carlinsky Decl., Ex. I at 5, 8, 31. Plaintiffs argue that it is entirely unclear from the record currently before the Court that a reasonable investor in Plaintiffs' position would have uncovered that transcript prior to June 16, 2015. The Court agrees. The transcript is one of fifteen exhibits to a declaration. See No. 14-cv-09662 (JRS), ECF No. 155. Assuming that the news reports placed Plaintiffs on inquiry notice prior to the filing of the deposition testimony, there are no facts presented to the Court to support a finding as a matter of law that a reasonably diligent investor, conducting a reasonably diligent investigation, would have discovered the declaration and the attached transcript prior to June 16, 2015-a mere two months after the transcript was filed. Cf.
*440 Pension Tr. Fund for Operating Eng'rs v. Mortg. Asset Securitization Transactions, Inc. , 730 F.3d 263 , 279 (3d Cir. 2013) (concluding, based on detailed facts presented to the court, that it would have taken a reasonable institutional investor in RMBS using a "proprietary process" that involved analyzing "court filings" two months to uncover loan-quality misrepresentations in offering documents).
Finally, Defendants contend that the drops in the market value of the Odebrecht Finance Notes following the above disclosures "warned" Plaintiffs about Defendants' misconduct. Defs.' Mem. at 13. While a "sharp decline" in the value of securities over a short period of time may be a factor giving rise to inquiry notice, Newman , 335 F.3d at 195 , Defendants cite to no authority holding that such a decline is also enough under Merck to inform a reasonably diligent investor of a securities-law violation.
In sum, none of the public reports of the ongoing investigation into Odebrecht shows, as a matter of law, that a reasonably diligent investor in Plaintiffs' position would have discovered Defendants' participation in the bribery scheme prior to June 16, 2015. Accordingly, the Court declines to dismiss Plaintiffs' Exchange Act claims as time-barred.
2. Actionable Statements and Omissions
Substantively, Defendants attack Plaintiffs' allegations on the basis that they do not plead actionable misstatements or omissions. "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 and internal quotation marks omitted). Therefore, for a misstatement to be material, there must be "a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the 'total mix' of information made available." Matrixx , 563 U.S. at 38 , 131 S.Ct. 1309 (quoting Basic Inc. v. Levinson , 485 U.S. 224 , 231-32, 108 S.Ct. 978 , 99 L.Ed.2d 194 (1988) ); accord ECA, Local 134 IBEW Joint Pension Tr. of Chi. v. JP Morgan Chase Co. , 553 F.3d 187 , 197 (2d Cir. 2009). 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." ECA , 553 F.3d at 197 (quoting Goldman v. Belden , 754 F.2d 1059 , 1067 (2d Cir. 1985) ). This is because the determination of whether a false or misleading statement or omission 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." Id. (citations omitted); see also TSC Indus., Inc. v. Northway, Inc. , 426 U.S. 438 , 450, 96 S.Ct. 2126 , 48 L.Ed.2d 757 (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").
a. Defendants' Duty to Disclose the Bribery Scheme
Plaintiffs allege that the various misstatements they identify were false and misleading because of Defendants' failure to disclose its participation in the bribery scheme. Accordingly, the threshold question to be answered is whether Defendants had a duty to disclose the bribery scheme.
"[A]n omission is actionable under the securities laws only when the *441 corporation is subject to a duty to disclose the omitted facts." Stratte-McClure v. Morgan Stanley , 776 F.3d 94 , 101 (2d Cir. 2015) (quoting In re Time Warner Inc. Sec. Litig. , 9 F.3d 259 , 267 (2d Cir. 1993) ). "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 and internal quotation marks omitted) (alteration in original). Therefore, where a company does not have an obligation to speak, but chooses to speak on a topic, it assumed "a duty to be both accurate and complete." Caiola v. Citibank, N.A., N.Y. , 295 F.3d 312 , 331 (2d Cir. 2002) ; see also In re Morgan Stanley Info. Fund Sec. Litig. , 592 F.3d 347 , 366 (2d Cir. 2010) (explaining that once a corporation makes "a disclosure about a particular topic, whether voluntary or required, the representation must be complete and accurate" (citation omitted) ). Thus, companies "can control what they have to disclose under [Section 10(b) and Rule 10b-5] by controlling what they say to the market." Matrixx , 563 U.S. at 45 , 131 S.Ct. 1309 . Indeed, in the absence of an express prior disclosure, a corporation has no affirmative duty to disclose "uncharged, unadjudicated wrongdoing." City of Pontiac Policemen's & Firemen's Ret. Sys. v. UBS AG , 752 F.3d 173 , 184 (2d Cir. 2014). Nor must a corporation disclose illegal

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/7249267. Public record. Not legal advice.