Recent years have seen a number of lawsuits in which corporations or their officers are sued for public statements about the strength of their compliance efforts prior to developments involving non-compliant behavior. Such efforts have met with mixed results, with the outcome often depending on the specificity of the representations that were made. Two recent cases illustrate this trend. In In re Plains All American Pipeline, L.P. Securities Litigation, No. H:15-02404 (S.D. Tex. Mar. 29, 2017), a putative class of investors sued an oil and gas pipeline company and various officers and directors in the wake of a significant oil spill emanating from a company pipeline off the coast of California. The complaint focused on a number of representations the company had made prior to the spill in securities filings and other public statements, including that the company’s “primary operational emphasis” was “pipeline integrity management,” that its pipelines were in “substantial compliance” with applicable regulations, that “safety is a core value,” and that the company “foster[s] a culture that emphasizes operational excellence, asset integrity, & safety.” The court found many of the statements to be “corporate cheerleading” that a reasonable investor would not rely on in making an investment decision. The court found other, more specific statements, like a statement that the company performs needed maintenance on all parts of its pipeline network, to be potentially actionable, but found that the plaintiffs had not adequately pled scienter on the part of the defendants. Accordingly, the court dismissed the complaint without prejudice.

In In re Braskem S.A. Securities Litigation, No. 15 Civ. 5132 (S.D.N.Y. Mar. 30, 2017), a putative class of investors sued a Brazilian petrochemical company, two former officers, and a former shareholder for damages allegedly suffered from the reduction in share price when media exposed a significant bribery scheme. The plaintiffs alleged that the company had bribed government officials in order to buy naphtha, a crucial raw material, at below-market prices. The complaint further alleged that prior to the exposure of the scheme, the company’s share price was artificially inflated as the result of public statements that created the false impression that the price the company paid for naphtha was based on market forces. The statements were made in press releases, SEC filings and other materials, and included such statements as that the company had a policy of transparency and good corporate governance; the company had ethical integrity permeating all systems of governance; the company adhered to regulatory and legal guidelines; and the price paid by the company for naphtha was based on a variety of factors including market prices, the exchange rate, and the composition of the naphtha. The court found that most of these statements were inactionable “puffery.” However, it found the statements regarding the price of naphtha to be actionable. The statements were not literally false, but the complaint alleged they were misleading because they failed to disclose that the favorable purchase price was secured substantially due to bribery of officials. Disclosure of the bribery scheme was necessary to make the incomplete statements non-misleading. Moreover, the complaint alleged facts supporting a strong inference that the individual defendants were directly involved in the bribery scheme and thus had actual knowledge that the pricing statements were false or misleading. Accordingly, the court granted the defendants’ motion to dismiss in part and denied it in part.