SQM Investors Defeat Motion to Dismiss
On March 28, 2017, the Honorable Edgardo Ramos of the United States District Court for the Southern District of New York issued an order denying in large part defendant’s motion to dismiss on grounds of forum non conveniens and failure to state a claim in Villella v. Chemical & Mining Co. of Chile Inc. (a/k/a Sociedad Química y Minera de Chile S.A.) (“SQM”). The court held that plaintiff adequately alleged that defendant made materially false and misleading statements in its SEC filings regarding its compliance with applicable law, effectiveness of internal controls, and financial reporting.
Based in Chile, SQM states it is the world’s largest producer and distributor of specialty fertilizers and industrial chemicals. The case charges SQM with violations of the Securities Exchange Act of 1934. Specifically, the case alleges that the company made materially false and misleading statements and failed to disclose that: (i) SQM, primarily through its CEO, made secret, illegal payments to electoral campaigns for Chilean politicians and political parties as far back as 2009; (ii) SQM filed millions of dollars’ worth of fictitious tax receipts with Chilean authorities in order to conceal such bribery payments; (iii) SQM misrepresented that it had adequate internal controls over financial reporting in place; and (iv) as a result of the foregoing, the company’s financial statements were materially false and misleading at all relevant times and not prepared in accordance with applicable accounting principles. It was further alleged that as a result of SQM’s bribery scheme and defendant’s false statements, the price of SQM American Depositary Shares (“ADSs”) was artificially inflated during the class period of June 30, 2010 to June 18, 2015, reaching a high of over $66.00 per ADS in July 2011.
In denying the motion to dismiss on grounds of forum non conveniens, the court rejected defendant’s assertions that the claims should be addressed in Chile and found instead that “some deference should be given to Plaintiff’s choice of forum” due to the fact that “the alleged misleading documents were filed with the SEC in the U.S. and relied upon by investors to purchase ADSs on the NYSE.” The court further held that “[h]ere, though Chile’s interest in this case is significant, the U.S. also has a strong interest in upholding its federal securities laws. Second, Defendant claims that the court will have to interpret a novel issue of Chilean law because a Chilean court has not determined whether Contesse’s actions constitute a criminal tax violation. However, Plaintiff alleges strictly federal securities violations – to which SQM has already admitted.”
In discussing the above-referenced alleged fraudulent statements, the court ruled that plaintiff’s allegations regarding the CEO’s authorization of SQM’s payment of false invoices to conceal SQM’s bribes to politicians were sufficient to plead scienter.
Villella v. Chemical & Mining Co. of Chile Inc., No. 1:15-cv-0210-ER, Opinion and Order (S.D.N.Y. Mar. 28, 2017).