Shareholder Complaint in Plumbers & Steamfitters Local 773 Pension Fund v. Danske Bank A/S
In Plumbers & Steamfitters Local 773 Pension Fund v. Danske Bank A/S, No. 19-cv-235 (S.D.N.Y. Jan. 19, 2019), Plumbers & Steamfitters Local Pension Fund (“Plaintiffs”) filed a class action suit against Danske Bank A/S (“Defendant”). The complaint was filed on behalf of all purchasers of Defendant’s American Depositary Receipts (“ADRs”) between January 9, 2014 and October 23, 2018. Plaintiffs claimed Defendant engaged in a series of untrue and misleading statements in response to allegations of illicit banking activities stemming from Defendant’s Estonia branch during the class period, thereby violating Rule 10b-5 of the Securities Exchange Act of 1934 (“the Act”).
According to the complaint, Defendant engaged in a broad facilitation of money laundering through its Estonian bank branch during the class period. In 2013, a whistleblower notified Defendant that its Baltic branches were engaged in money laundering linked to Russian accounts. After the Denmark Financial Supervisory Authority conducted an investigative report into the purported money laundering in 2013, Defendant downplayed the significance of the findings in its annual reports for fiscal years 2013 through 2017. Defendant reported net profit increases attributed to “ongoing operational and strategic prowess,” with no mention of money laundering. Similarly, the reports claimed they had been prepared accurately and in accordance with International Reporting Standards.
On March 20, 2017, following news reports of illicit activity in the Estonian branch, Defendant issued a press release downplaying the significance of media rumors regarding its operations. Simultaneously, the Denmark Financial Supervisory Authority issued another report stating Defendant was “exposed to significantly higher compliance risks… [and had] serious weaknesses in the bank’s governance in a number of areas.” As the extent of Defendant’s involvement in the money laundering scheme became public, the price of its ADRs significantly declined.
Finally, on September 19, 2018, Defendant published findings from its internal investigations that revealed a number of deficiencies in its corporate governance, a lack of control over its Estonian branch, and a failure to recognize and identify suspicious activity. Ultimately, more than $230 billion of suspected laundered funds had flowed through Defendant’s Estonian branch.
An issuer violates SEC Rule 10b-5 when it (1) employs devices, schemes, and artifices to defraud, (2) makes untrue statements of material fact or omits to state material facts necessary in order to make its statements made, in light of the circumstances, not misleading, or (3) engages in acts, practices, and a course of business that operated as a fraud or deceit upon plaintiff and others similarly situated in connection with their purchases of an issuer’s stock.
In its complaint, Plaintiff alleged Defendant violated Rule 10b-5 of the 1934 Act because Defendant knew its annual reports and statements regarding money laundering in its Estonian branch were materially false and misleading, knew the statements would be issued to the investing public, and further knew or participated in the issuance of those statements. Plaintiff additionally alleged that these violations caused damage to the class because the ADRs’ price was artificially inflated due to Defendant’s misrepresentations.
The primary materials for this case may be found here.