In an opinion today, Judge Oetken allowed portions of securities class action against the asset management firm Och-Ziff Capital Management to proceed past a motion to dismiss. Och-Ziff had said in a series of public filings: “We are not currently subject to any pending regulatory, administrative or arbitration proceedings that we expect to have a material impact on our results of operations or financial condition.” In an amended 10-K following a Wall Street Journal story, however, the company admitted that the DOJ and SEC had been investigating potential FCPA violations and that an “adverse outcome could have a material effect on our business, financial condition or results of operations.”
Judge Oetken concluded that these facts amounted to a “plausible” claim of securities fraud because the company chose to speak on the subject of government investigations, but did so in an incomplete and inaccurate manner:
Plaintiffs have plausibly alleged that Och-Ziff misled investors by suggesting that the company was not facing an investigation that could have a material impact on its business, when, in fact, it was facing such an investigation. In its early SEC filings, Och-Ziff presented its exposure to civil and criminal liability as routine and unlikely to affect the company’s financial condition. When it filed its restated 10-K, in contrast, Och-Ziff stated that “an adverse outcome [of the SEC-DOJ Investigation] could have a material effect on our business, financial condition or results of our operations.” . . . .
The Management Defendants argue that Och-Ziff’s restated 10-K exceeded its disclosure duties, and that all earlier filings complied with legal obligations. But the question here is not whether Och-Ziff had an independent duty to announce the SEC-DOJ Investigation; it is whether, in light of that Investigation, the statements Och-Ziff chose to make were materially misleading. Given Och-Ziff’s explicit acknowledgement that the Investigation “could have material effect” on its business, and the other facts alleged, Plaintiffs have plausibly pleaded that, in its earlier SEC filings, Och-Ziff opted to speak on the subject of investigations, but “did not speak in an accurate and complete manner.”