In re Satyam Computer Servs. Ltd. Sec. Litig.

• Decision Date: 02 January 2013
• Docket Number: No. 09 MD 2027(BSJ).,09 MD 2027(BSJ).
• Citation: 915 F.Supp.2d 450
• Parties: In re SATYAM COMPUTER SERVICES LTD. SECURITIES LITIGATION.
• Court: U.S. District Court — Southern District of New York

915 F.Supp.2d 450

In re SATYAM COMPUTER SERVICES LTD. SECURITIES LITIGATION.

No. 09 MD 2027(BSJ).

United States District Court,

S.D. New York.

Jan. 2, 2013.

Gerald S. Ohn, Joseph W. Cotchett, Mark Cotton Molumphy, Cotchett, Pitre & McCarthy, Burlingame, CA, Heather Marla Tashman, William E. Mahoney, Jr., Stradley, Ronon, Stevens & Young LLP, Philadelphia, PA, Joseph Thomas Kelleher, Keith R. Dutill, Neal Robert Troum, Stradley, Ronon, Stevens & Young, LLP, Malvern, PA, William Bernard Federman, Federman & Sherwood, Oklahoma City, OK, Christopher L. Nelson, Darren J. Check, David Kessler, Joshua E. D'Ancona, Neena Verma, Sean M. Handler, Sharan Nirmul, Benjamin Jay Hinerfeld, Kessler Topaz Meltzer & Check, LLP, Radnor, PA, Mary Sikra Thomas, Grant & Eisenhofer, PA, Wilmington, DE, Murielle Jacqueline Steven, Marc Ian Gross, Pomerantz Haudek Block Grossman & Gross LLP, Joseph Gentile, Ronen Sarraf, Sarraf Gentile LLP, Robert I. Harwood, Samuel Kenneth Rosen, Harwood Feffer LLP, Keith Martin Fleischman, The Fleischman Law Firm, Deborah A. Elman, Grant & Eisenhofer P.A., Michael Howard Rogers, Alan Ian Ellman, Christopher J. Keller, Felicia Yvonne Mann, Louis Gottlieb, Stefanie Jill Sundel, Labaton Sucharow, LLP, Michael Petrusic, Steven B. Singer, Bernstein Litowitz Berger & Grossmann LLP, Ralph M. Stone, Stone Bonner & Rocco LLP, New York, NY, for Plaintiffs.

Stuart A. Mack, Stuart Mack, Esq., Rohit Sabharwal, Sabharwal & Associates, Fraser Lee Hunter, Jr., Wilmer, Cutler, Hale & Dorr, L.L.P., Irwin Howard Warren, Weil, Gotshal & Manges LLP, Jeffrey S. Jacobson, Debevoise & Plimpton, LLP, New York, NY, Charu Ambat Chandrasekhar, Wilmer Cutler Pickering Hale & Dorr, L.L.P., Washington, DC, Gordon C. Atkinson, Nicole Lutes Fuentes, Cooley Godward Kronish LLP, San Francisco, CA, Brian James Massengill, Dana S. Douglas, Michele Odorizzi, Stanley J. Parzen, Mayer Brown LLP, Chicago, IL, Iddo Harel, John C. Goodchild, III, Morgan Lewis & Bockius LLP, Philadelphia, PA, for Defendants.

Opinion and Order

BARBARA S. JONES, District Judge.

This case arises out of a massive fraud at Satyam Computer Services Ltd. (“Satyam” or the “Company”), involving thousands of forged invoices, business contracts and bank statements, dual sets of account books, and SEC filings overstating the Company's assets by a total of more than $1 billion. Before the Court are motions to dismiss two related complaints. The first is a consolidated class action against Satyam, certain officers and outside directors, the Company's outside auditors, and other entities, alleging violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. §§ 78j(b) and 78t(a), SEC Rule 10b–5, 17 C.F.R. § 240.10b–5 (“Rule 10b–5”), and sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (“Securities Act”), 15 U.S.C. §§ 77k, 77 l(a)(2), and 77 o (the “Class action”).¹ The second is an action brought by Aberdeen Claims Administration, Inc., on behalf of investors in Aberdeen Claims Trust and Aberdeen Claims Trust II, against Satyam, the Officer Defendants, the PwC Defendants, and the Maytas Defendants, alleging violations of sections 10(b) and 20(a) of the Exchange Act and Rule 10b–5 and common law claims for fraud, negligence, and negligent misrepresentation (“Aberdeen action”). The Director Defendants have moved to dismiss the Exchange Act and Securities Act claims against them in the First Amended Consolidated Class Action Complaint (“FACC”) ², and the Maytas Defendants have moved to dismiss the section 20(a) claim asserted against them in the FACC and the section 20(a) and common law claims asserted against them in Aberdeen's Second Amended Complaint (“SAC”).³ For the reasons provided below, the motions to dismiss the FACC and the SAC are GRANTED.

BACKGROUND⁴

I. Prior Proceedings

On April 28, 2009, this Court consolidated a group of actions brought by individuals and institutional investors to hold accountable the perpetrators of the Satyam fraud. (Dkt. No. 4.) ⁵ On May 12, 2009, the Court appointed the Global Institutional Investors group ⁶ as Lead Plaintiff of this action and the law firms of Grant and Eisenhofer P.A., Bernstein Litowitz Berger & Grossman LLP, Barrow Topaz Kessler & Check LLP, and Labaton Sucharow LLP, as Lead Counsel for the class. (Dkt. No. 8.) On July 17, 2009, Lead Plaintiffs filed their first Consolidated Class Action Complaint against the Company, the Officer Defendants, the AC Defendants, the SA Defendants, the PwC Defendants, and the Maytas Defendants. (Dkt. No. 19.) The parties briefed Defendants' motions to dismiss that complaint. The Class filed the FACC on February 17, 2011. (Dkt. No. 253.)

Aberdeen filed its initial complaint in the Eastern District of Pennsylvania on November 13, 2009. (Dkt. No. 1 in 10–cv–2877.) Shortly thereafter, Aberdeen filed its First Amended Complaint on December 12, 2009. (Dkt. No. 14 in 10–cv–2877.) The action was transferred to the Southern District of New York on April 12, 2010. (Dkt. No. 15 in 10–cv–2877.) Aberdeen filed the SAC on February 18, 2010. (Dkt. No. 254.)

II. The PartiesA. Plaintiffs

i. Lead Plaintiffs

Public Employees' Retirement System of Mississippi (“MPERS”), Mineworkers' Pension Scheme (“MPS”), SKAGEN AS (“SKAGEN”), Sampension KP Livsforsikring A/S (“Sampension”) (collectively, “Lead Plaintiffs”) represent a class of investors who (a) purchased or otherwise acquired Satyam ADSs on the New York Stock Exchange (“NYSE”) and/or (b) were investors residing in the United States who purchased or otherwise acquired Satyam common stock on the National Stock Exchange of India (“NSE”) or the Bombay Stock Exchange (“BSE”) between January 6, 2004, and January 6, 2009 (the “Class Period”) and who were damaged by the purportedly fraudulent conduct alleged in the FACC.

MPERS manages billions of dollars of assets for the benefit of more than 75,000 retired public employees of the State of Mississippi and for the future benefit of more than 250,000 current and former public employees. (FACC ¶ 17.) The FACC alleges that MPERS purchased Satyam common stock on Indian stock exchanges during the Class Period at artificially inflated prices and suffered damages as a result of Defendants' alleged fraudulent conduct. (FACC ¶ 17.)

The MPS is a registered pension scheme registered in the United Kingdom which pays income to more than 255,000 members in retirement. (FACC ¶ 18.) SKAGEN is a Norwegian mutual fund manager that handles billions of dollars in assets. (FACC ¶ 19.) Sampension is a Danish pension fund that manages billions of dollars in assets for the benefit of employees in the Hellerup, Denmark local government, as well as employees in the graphical arts industry. (FACC ¶ 20.) The FACC alleges that MPS, SKAGEN, Sampension, and additional named plaintiff IBEW purchased Satyam ADSs on the NYSE during the Class Period at artificially inflated prices and suffered damages as a result of Defendants' allegedly fraudulent conduct. (FACC ¶¶ 18–21.)

ii. Additional Named Plaintiffs

International Brotherhood of Electrical Workers Local Union # 237 (“IBEW”) is a New York union pension fund responsible for managing approximately $30 million for the Niagara Falls, New York, electrical workers union. (FACC ¶ 21.)

Brian F. Adams (“Adams”) is a former Satyam employee who participated in two of the Company's five employee stock option plans in existence during the Class Period. (FACC ¶ 22.) Adams purports to represent a sub-class all current and former employees who, during the Class Period, acquired and exercised options to purchase Satyam ADSs or ordinary shares through one of Satyam's five employee stock options plans pursuant to the allegedly false and misleading statements made by Defendants and who suffered damages as a result of the fraudulent conduct alleged in the FACC (the “sub-class”). (FACC ¶¶ 23, 342.)

The relevant employee stock option plans are:

1) Associate Stock Option Plan (“ASOP–Ordinary”): The plan offers options to purchase Satyam ordinary shares and was annexed as an exhibit to the Company's May 7, 2001 Registration Statement. Securities issued pursuant to the ASOP–Ordinary plan were subject to the Form F–3 filed by Satyam on February 25, 2005, which was last amended on May 9, 2005. (FACC ¶ 340a.)

2) Associate Stock Option Plan B (“ASOP–B”): The plan offers options to purchase Satyam ordinary shares and was annexed to the Company's Form 20–F filed on April 28, 2006. Securities issued pursuant to this plan were subject to the Form F–3 filed by Satyam on February 25, 2005, which was last amended on May 9, 2005. (FACC ¶ 340b.)

3) Associate Stock Option Plan ADS (“ASOP–ADS Plan”): The plan offers options to purchase Satyam ADSs and was attached to the Form 20–F filed on April 28, 2006. Securities issued pursuant to this plan were subject to the Form F–3 filed by Satyam on February 25, 2005, which was last amended on May 9, 2005. (FACC ¶ 340c.)

4) Associate Stock Option Plan–RSUs ADS (“RSU–ADS Plan”): This plan offers options to purchase Satyam ADSs and was attached to the registration statement filed on January 12, 2007. (FACC ¶ 340d.)

5) Associate Stock Option Plan–RSUs (“RSU–Ordinary Plan”): This plan offers options to purchase Satyam ordinary shares and was filed with the Form 20–F on April 30, 2007. (FACC ¶ 340e.)

The FACC alleges that Adams acquired options under the ASOP–ADS and RSU–Ordinary plans, but exercised options to purchase Satyam securities under only the ASOP–ADS plan. (FACC ¶¶ 23, 342.)

iii. Aberdeen

Aberdeen Claims Administration, Inc. (“Aberdeen”) is the trustee for the Aberdeen Claims Trust and Aberdeen Claims Trust II (“Trusts”), which are in turn the assignees of the rights of the various investors in the Trusts to pursue claims in this action. (SAC ¶¶ 24, 26.) Individuals who invested in the Trusts purchased Satyam common stock on the BSE and/or the NSE, and/or purchased ADSs on the NYSE. (SAC ¶ 27.) Roughly 20 entities...