On March 29, 2021, Judge Andrew L. Carter of the United States District Court for the Southern District of New York granted a motion to dismiss a putative securities class action against a Finnish telecommunications company (the “Company”) and its former CEO for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5.  In re Nokia Corp. Sec. Litig., No. 19-cv-3982 (S.D.N.Y. Mar. 29, 2021).  Plaintiff alleged the Company made false and misleading statements and omissions regarding (i) the success of its post-merger integration with another telecommunications company (the “Acquired Company”); and (ii) the Company's readiness to transition to 5G wireless cellular network technology (“5G”).  The Court dismissed the claims for failure to plead an actionable misstatement or omission.

In November 2016, the Company announced that it had completed the merger.  In February 2017, the Company announced completion of all post-merger integration projects “with the exception of a small handful of long-tail efforts.”  However, in March 2019, the Company announced compliance issues at the Acquired Company that could result in significant civil and criminal penalties.  In October 2019, the Company also disclosed that it had encountered a variety of difficulties transitioning to 5G, including uncertainty associated with the merger.  Against this backdrop, plaintiff alleged that the statements from March 2017 through early 2019 touting the Company's integration progress and 5G preparedness, such as “we are effectively moving beyond the integration effort,” “the heavy lifting is over,” and “we are in a very strong position for 5G,” were misleading because the Company did not disclose ongoing risks associated with the integration that also jeopardized the Company's 5G preparedness.

The Court rejected plaintiff's claim that the Company's statements regarding integration with the Acquired Company were false.  The Court explained that plaintiff did not identify any integration milestones that the Company falsely claimed to have achieved, and that the complaint's “vague references” to “significant problems” with integration were insufficient to plead an omission related to the Acquired Company's compliance issues.  The Court also held that the Company's repeated risk disclosures about the uncertainties of integration—including the risk that the Company may be subject to penalties for the Acquired Company's past compliance violations—further supported the conclusion that the Company did not mislead investors regarding the status of the integration.  The Court added that, even if plaintiff had alleged sufficient facts to show the statements were false, the statements “touting the progress of the integration” would nonetheless constitute non-actionable puffery.

Next, the Court rejected plaintiff's claim that the Company's statements regarding its readiness to transition to 5G were false because the Court could not “reasonably infer” that the Company's integration challenges were so significant that they rendered its statements about its 5G readiness false.  The Court emphasized that research analysts at the time attributed the Company's 5G transition difficulties to a “confluence of factors,” many of which were unrelated to integration with the Acquired Company.  The Court also noted that the Company publicly disclosed the difficulties it experienced in transitioning to 5G, including difficulties related to integration with the Acquired Company.  The Court added that, even if plaintiff had alleged sufficient facts to show the statements were false, the vast majority of them were forward-looking statements protected by the PSLRA's safe harbor.

Finally, the Court denied plaintiff's motion for leave to amend because doing so would be futile given the Company's “numerous and continuous disclosures” regarding post-merger integration and the 5G transition. 

Originally Published by Shearman & Sterling, April 2021

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