The US District Court for the Western District of Texas dismissed a consolidated securities class action against our client PricewaterhouseCoopers (PwC) with prejudice. This suit stemmed from a 2006 SEC investigation into Dell accounting irregularities, escalating into a formal investigation a few months later, including one by Dell’s Audit Committee. As a result, Dell restated four years of its financial statements and numerous securities class action lawsuits were filed against Dell, its officers and directors, as well as PwC, Dell’s outside auditors during the entire period.
In dismissing plaintiffs’ claims against PwC, the court accepted all of the arguments Davis Polk lawyers put forth as to why the consolidated complaint was deficient as to PwC. The court held that neither the restatements, the allegations regarding various GAAS and GAAP errors, the claims about PwC ignoring red flags, the alleged independence violations, nor allegations regarding PwC’s pattern of misconduct, either individually or taken together, satisfied the standard for pleading scienter against an auditor. In addition, the court held that the complaint failed to plead loss causation as to PwC. Finally and importantly, the court accepted Davis Polk’s argument that the case should be dismissed with prejudice and that leave to amend should be denied because plaintiffs failed to identify what additional facts they would assert if given that opportunity.
The team who worked on the motion included partners Michael P. Carroll and Michael S. Flynn, counsel Gina Caruso and associates Russell Capone, Kathryn Carney Cole and Alex Reisen. Other members of the larger Dell-related team, associates Sheldon L. Pollock, Sheila Vera Barrett and Matteo J. Rosselli, also provided assistance. All Davis Polk team members are based in the New York office.