Salim v. Mobile Telesystems PJSC
| Decision Date | 01 March 2021 |
| Docket Number | 19-CV-1589 (AMD) (RLM) |
| Parties | SHAYAN SALIM, Individually and on behalf of all others similarly situated, Plaintiffs, v. MOBILE TELESYSTEMS PJSC, ANDREI A. DUBOVSKOV, ALEXEY V. KORNYA, and ANDREY KAMENSKY, Defendants. |
| Court | U.S. District Court — Eastern District of New York |
Before the Court is Mobile Telesystems PJSC's ("MTS") motion to dismiss the Second Amended Complaint ("SAC"). For the reasons that follow, the motion is granted.1
On March 19, 2019, the plaintiff brought this class action on behalf of himself and all others similarly situated against MTS and three executives—Andrei Dubovskov, Alexey Kornya, and Andrey Kamensky.2 (ECF No. 1.) On April 6, 2020 the plaintiff filed the SAC.3 (ECF No. 31.)
From 2004 through 2012, MTS paid bribes to an Uzbek government official in order to secure operating licenses in the Uzbek telecommunications market. In the SAC, the plaintiffs allege that between 2014 and 2019 (the "Class Period"), MTS issued false and misleading statements about the company's potential liability for the bribery scheme, the effectiveness of the company's internal controls and compliance structure, and the company's cooperation with U.S.investigators. (ECF No. 31 ¶¶ 3-9.) According to the SAC, the defendants' misstatements and omissions artificially inflated MTS's stock price, causing the plaintiffs to suffer a loss after the company entered into a Deferred Prosecution Agreement ("DPA") with the Department of Justice ("DOJ") in 2019. (Id. at ¶¶ 12- 13.) The plaintiffs claim that the defendants violated Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and that defendants Dubovskov, Kornya and Kamensky (the "Individual Defendants") violated Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a).4 (Id. ¶ 14.)
MTS moves to dismiss, arguing that the plaintiffs have not alleged any actionable misstatements or omissions, and that they did not sufficiently plead scienter. (ECF No. 33.)
MTS is a Moscow-based telecommunications company that provides services in Russia, Ukraine, Turkmenistan and Armenia. (ECF No. 31 at ¶ 20.) From 2004 to 2012, MTS conspired to pay over $420 million in illegal bribes for the benefit of an Uzbek government official, Gulnara Karimova, so that it could operate in the Uzbek telecommunications market. (Id. at ¶ 2.) The company operated in Uzbekistan until 2012, when it refused to continue meeting Karimova's bribery demands. (Id. at ¶¶ 94-97.)
On March 18, 2014, Reuters reported that international scrutiny over the Uzbek telecommunications market was growing, and that the SEC was investigating two of MTS's rivals—VimpelCom and TeliaSonera—for misconduct. (Id. at ¶ 166.) The following year, itwas publicly reported that MTS, VimpelCom and TeliaSonera paid bribes to Uzbek officials to obtain business contracts. (Id. at ¶ 167.)
On June 29, 2015, the DOJ filed a complaint in the Southern District of New York against in rem accounts controlled by Karimova, seeking forfeiture of approximately $300 million in assets; the complaint detailed hundreds of millions of dollars in corrupt payments by MTS, and identified MTS as an "issuer" as defined by the Foreign Corrupt Practices Act ("FCPA"). (Id.; ECF No. 31-5.) On February 18, 2016, the DOJ filed another in rem complaint in the SDNY, this time identifying eight specific transactions between MTS and Karimova totaling over $380 million. (Id. at ¶ 168.) That same day, the DOJ disclosed that it had entered into a DPA with VimpelCom in which VimpelCom agreed to pay $795 million to resolve an investigation into illegal bribe payments in Uzbekistan. (Id. at ¶ 157.) TeliaSonera also entered into a DPA on September 21, 2017, and agreed to pay $965 million to resolve the investigation. (Id.)
MTS entered into a DPA with the DOJ on February 22, 2019, in which the company agreed to pay a penalty of $850 million to resolve charges of conspiracy to violate the anti-bribery and books and records provisions of the FCPA, and violating the internal controls provisions of the FCPA.6 (Id. at ¶¶ 5, 116.) MTS did not receive voluntary disclosure credit because it did not "voluntarily and timely self-disclose" the corrupt payments. (ECF No. 31-2 at ¶ 4.) The DOJ did not give MTS "additional credit for cooperation and remediation" because it "significantly delayed production of certain relevant materials, refused to support interviews with current employees during certain periods of the investigation, and did not appropriately remediate, including by failing to take adequate disciplinary measures with respect to executivesand other employees involved in the misconduct." (Id.) However, the DOJ deducted two points from MTS's culpability score because the company "ultimately provided" the DOJ with "all relevant information" as that term is defined in the U.S. Sentencing Guidelines. (Id.) The DPA also noted that MTS had inadequate anti-corruption controls during the period of misconduct, but had since enhanced its compliance program. (Id.)
On March 6, 2019, the SEC announced that MTS consented to an SEC order finding that it violated the anti-bribery, books and records and internal accounting control provisions of the Securities Exchange Act of 1934 and requiring it to pay a $100 million fine. The DOJ credited the $100 million SEC fine in the DPA. (ECF No. 31 at ¶ 129.)
MTS made various public disclosures during the Class Period related to the DOJ and SEC investigations.
On March 19, 2014, MTS disclosed that the DOJ was investigating it for conduct related to its operations in Uzbekistan. (Id. at ¶ 181.) On April 24, 2014, the company filed a Form 20-F with the SEC, which included the following statement:
[I]n March 2014, we received requests for the provision of information from the United States Securities and Exchange Commission and the United States Department of Justice related to an investigation of the Group's former subsidiary in Uzbekistan. . .. As the aforementioned US government investigations are at an early stage, we cannot predict the outcome of the investigations, including any fines or penalties that may be imposed, and such fines or penalties could be significant. Any investigation of any potential violations of the FCPA, the UK Bribery Act or other anti-corruption laws by US, UK or foreign authorities could have an adverse impact on our business, financial condition and results of operations.
(ECF No. 34-4 at 7.) MTS did not say anything at this point about whether it was cooperating with the investigation. MTS's Form 20-F, filed on April 21, 2015, included the same disclosures in the previous year's Form 20-F. (ECF No. 31 at ¶¶ 188-89.)
In its April 20, 2016 Form 20-F, MTS included additional detail about the investigations into its conduct in Uzbekistan and its cooperation with authorities. The filing stated in relevant part:
(Id. at ¶ 197.) The filing also included the disclosure in the 2014 and 2015 filings—that a bribery investigation had the potential to have an adverse impact on MTS's business. (ECF No. 34-6.) The company's April, 21, 2017 Form 20-F contained substantially the same language as the 2016 filing. (ECF No. 31 at ¶¶ 206-07.)
On April 27, 2018, MTS filed a Form 20-F providing its financial results for the fiscal year ending December 31, 2017. (Id. at ¶ 217.) This filing provided additional detail about the company's cooperation and stated in relevant part:
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