In re Grana Y Montero S.A.A. Sec. Litig.
| Decision Date | 13 August 2021 |
| Docket Number | 17-CV-01105 (LDH) (ST) |
| Parties | In re GRAÑA Y MONTERO S.A.A. SECURITIES LITIGATION This document relates to ALL ACTIONS |
| Court | U.S. District Court — Eastern District of New York |
This is the consolidation of two actions seeking relief under the Securities Exchange Act of 1934 (the “Exchange Act”) on behalf of all purchasers of Graña y Montero S.A.A. (“Graña” or the “Company”) American Depository Shares (“ADSs”) from July 24, 2013 through February 24 2017. See 2d Consolidated Am. Compl., ECF No. 86; see also Order, No. 17-cv-1105 (E.D.N.Y. Mar. 5 2018), ECF No. 16, 17. On August 18, 2020, the District Court granted the parties' motion for preliminary approval of the proposed settlement. See Order, No. 17-cv-1105 (E.D.N.Y. Aug. 18, 2020). On October 27, 2020, the parties filed this motion for final approval of the proposed settlement and its related facets. See Mot. for Final Settlement Approval (“Final Approval”), ECF No. 118. The Honorable LaShann DeArcy Hall referred this motion to me for a Report and Recommendation. See Order, No. 17-cv-1105 (E.D.N.Y. Nov. 2, 2020). For the reasons stated below, the undersigned recommends that the Motion for Final Settlement Approval and related relief be GRANTED.
Lead Plaintiff Treasure Finance Holding Corp. (“Treasure Finance”) and Plaintiff Marcia Goldberg (“Goldberg”) (collectively “Plaintiffs”), brought this securities class action on behalf of all those who purchased American Depository Shares[1] (“ADSs”) of Graña y Montero S.A.A. (“Graña”) from July 24 2013 through February 24, 2017 (the “Class Period”), against Graña, Mario Alvarado Pflucker (“Alvarado”), Monica Miloslavich Hart (“Hart”), José Graña Miró Quesada (“José Graña”), and Hernando Graña Acuña (“Hernando Graña”) (collectively, “Individual Defendants”) for alleged violations Securities Exchange Act of 1934 (the “Exchange Act”). See 2d Am. Compl. at 1, ECF No 86.
The Individual Defendants were senior executive officers of Graña during the Class Period. Id. ¶ 27-30. Alvarado served as Graña's Chief Executive Officer and a member of its Board of Directors until March 2, 2017. Id. ¶ 27. Hart served as Graña's Chief Financial Officer. Id. ¶ 28. José Graña is a former member of Graña's Board of Directors, and from 1996 until February 27, 2017, served at its Chairman. Id. ¶ 29. Defendant Hernando Graña is a former member of Graña's Board of Directors and also served as the Chairman of the Board of Directors of various Graña subsidiaries, including the Company's oldest and most profitable construction subsidiary, GyM S.A. (“GyM”). Id. ¶ 30.
Graña is a Paruvian holding corporation who's ADSs have traded on the New York Stock Exchange (“NYSE”) since July 24, 2013. See Id. ¶ 1-2. Graña, through its subsidiaries, provides various professional services to major infrastructure and energy projects in Latin America. See id. ¶ 2, 26. Between 2005 and 2011, Graña participated in multiple consortia led by Odebrecht S.A. (“Odebrecht”), a global construction conglomerate based in Brazil. Id. ¶ 3. The consortia entered into concession agreements[2] for high value public works projects in South America. Id.
Throughout the Class Period, Graña portrayed its success at winning these governmental contracts as legitimate; the direct result of a competitive bidding process in which their reputation as an industry leader, and importantly that of Odebrecht, was an indispensable part. Id. ¶ 4. Graña's success in obtaining these lucrative projects through its consortium with Odebrecht generated approximately $475 million in gross proceeds through the initial public offering (“IPO”) of Graña's ADSs, reaching a Class Period high of $22 per ADS by September 19, 2013. Id. ¶ 6.
Plaintiffs allege that Graña, along with Odebrecht and others, obtained the lucrative government projects through bribery and fraud, which it purposefully concealed in order to artificially inflate the value of its ADSs. Id. ¶ 5-6. Specifically, they allege that from 2005 to 2015, Graña contributed to Odebrecht's payment in the millions of dollars to Peruvian public officials to ensure their award of several major infrastructure projects, which then raised the price of their ADSs. Decl. of David A. Rosenfeld and Corey D. Holzer ( ) ¶ 17, ECF No 118-3 (internal citations omitted). This included: $13.5 million paid to then Peruvian President Alan García and other high-ranking Transportation Ministry officials, to ensure that they won the contract for the Lima Metro project (id. ¶ 18, ECF No 118-3 (internal citations omitted)); $750, 000 paid to an unnamed Peruvian official, and two payments of $31 million and $4.3 million to then Peruvian President Alejandro Toledo, related to the contract for the IIRSA[3]South project (id. ¶ 18 (internal citations omitted)); and, as a member of a construction cartel named the Construction Club, 2.92% of the total value of each highway maintenance and rehabilitation contract, paid to Peru's Vice Minister of Transportation and a conspiring lobbyist (Id. ¶ 20 (internal citations omitted)).
In March of 2016, Odebrecht's bribery scheme, along with Graña's participation therein, began to be revealed. Id. ¶ 21. Odebrecht, in response to their status as the subject of separate bribery and corruption probes, ceded management of the Southern Gas Pipeline to its consortium partners, which included Graña. Pls.' Att'y Decl. ¶ 21, ECF No 118-3; 2d Am. Compl. ¶ 7, ECF No 86. Further, it was reported by various new outlets that Odebrecht was considering selling its controlling interest in Braskem S.A. (“Braskem”), a Brazilian petrochemical company. Id.
On December 21, 2016, the U.S. Department of Justice announced that Odebrecht had pled guilty to violating the anti-bribery provisions of the Foreign Corrupt Practices Act (“FCPA”). Pls.' Att'y Decl. ¶ 22, ECF No 118-3. In relevant part, Odebrecht confessed to paying at least $29 million in bribes to public officials to secure two major infrastructure projects in Peru in 2005 and 2008, i.e., the IIRSA South and Lima Metro projects, thus indirectly implicating Graña in the bribery. Id. Graña, in conference calls, public interviews, and in their Securities and Exchange Commission (“SEC”) filings, denied any wrongdoing. Id. Nonetheless, the price of Graña ADS's fell from $7.75 on December 21, 2016, to $5.02 on January 11, 2017, to $4.41 on January 12, 2017. 2d Am. Compl. ¶ 8, 10, ECF No 86.
On February 24, 2017, a Peruvian news magazine reported that Graña knew about a $20 million payment made by Odebrecht in order to win the IIRSA South contract. Id. ¶ 23. That same day, despite Graña's continued denials, the value of Graña ADSs fell approximately 35%. Pls.' Att'y Decl. ¶ 23, ECF No 118-3; see 2d Am. Compl. ¶ 14, ECF No 86. Plaintiffs allege that Hart and Alvarado certified that the Company's financial results were accurate and that there were no known material weaknesses in internal controls, despite being aware of numerous warning signs regarding Odebrecht's illicit activities. 2d Am. Compl. ¶ 256, ECF No 86.
On February 27, 2017, Alvarado, José Graña, and Hernando Graña all resigned from their respective leadership positions, leading to an even greater decline in the price of Graña ADSs. Id. . Later that year, on December 4, 2017, José Graña and Hernando Graña were criminally charged in a Peruvian court for their participation in the bribery schemes. 2d Am. Compl. ¶ 232-233, 238-239, ECF No 86. Eventually, to aid in their goal of becoming effective collaborators[4], both admitted their respective culpability. Pls.' Att'y Decl. ¶ 24-26, ECF No 118-3.
On February 27, 2017, Plaintiff Jose Manuel Valencia Peralta (“Peralta”) filed the initial complaint (“Peralta Compl., ” ECF No. 1) against Graña, Alvarado, and Hart, alleging violations of the Exchange Act (15 U.S.C. § 78j(b) and 78t(a)), and SEC Rule 10b-5 (17 C.F.R. § 240.10b-5), and published notice of the same[5] (see Decl. of David A. Rosenfeld in Supp. Of Mot. for Consolidation, Ex. A (“Peralta Notice”), ECF No. 9-1). The following month, on March 23, 2017, Goldberg filed a related class action complaint (“Goldberg Compl.”) alleging the same violations. Goldberg Compl., No. 17-cv-1643-JMA-ARL (E.D.N.Y. Mar. 23, 2017), ECF No. 1. On April 28, 2017, Treasure Finance filed a timely motion for, inter alia, appointment as Lead Plaintiff. Pls.' Att'y Decl. ¶ 29, ECF No 118-3; see Treasure Finance's Mot. for Appointment, ECF No. 7. On March 5, 2018, the District Court issued an order appointing Treasure Finance as Lead Plaintiff, appointing Robbins Geller Rudman & Dowd, LLP (“Robbins Geller”) and Holzer & Holzer, LLC (“Holzer”) as Lead Counsel, and consolidating the two related cases. Order, No. 17-cv-1105 (E.D.N.Y. Mar. 5, 2018), ECF No. 16, 17.
On May 29, 2018, Plaintiff's filed a consolidated amended class action complaint (“Amended Complaint”), adding José Graña, and Hernando Graña as individual defendants. See Am. Compl., ECF No. 22; see José Graña Proposed Summons, ECF No. 28; see Hernando Graña Proposed Summons ECF No. 29. Thereafter, on July 12, 2018, Plaintiffs moved for an order pursuant to Federal Rule of Civil Procedure 4(f)(3) directing service of process by alternate means on the Individual Defendants, who are all Peruvian citizens. Pls.' 1st Mot. to Compel, ECF No. 34. Specifically, Plaintiffs asked the Court for an order: (1) permitting service on Hart through either Graña's counsel Simpson Thatcher & Bartlett LLP, or Graña's registered agent for service of process; and, (2) permitting service on the remaining Individual Defendants by either...
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