On November 10, 2020, Judge Kiyo Matsumoto of the United
States District Court for the Eastern District of New York granted
a motion to dismiss a putative securities class action asserting
violations of Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934 against a South African precious metals mining company
(the "Company") and its CEO and CFO. In re
Sibanye Gold Ltd. Sec. Litig., No. 18-CV-3721 (E.D.N.Y. Nov.
10, 2020). Plaintiffs alleged that the Company made false and
misleading statements and omissions about its mine safety program
and the reasons for miner fatalities. The Court dismissed
these claims for failure to allege plausible facts supporting
plaintiffs' conclusionary allegations.
The Company operates three groups of gold mines in South Africa. In 2016, the Company launched a mine safety program (the "Safety Program") to combat a sharp rise in fatalities at its mines. In 2017, fatalities decreased. However, in 2018, the Company experienced a resurgence in fatalities tied to alleged violations of the Company's safety protocols. In one incident, seven miners were killed after an earthquake resulted in the partial collapse of the Company's Driefontein mine. Plaintiffs alleged that the Company falsely attributed the decline in fatalities to the Safety Program—when, in reality, the drop was the result of "random chance," as evidenced by the spike in fatalities the following year. Plaintiffs also alleged that the Company failed to disclose that its productivity incentive compensation plan for mid- and junior-level managers, which encouraged them to ignore Company safety protocols, was the true cause of fatalities. Finally, plaintiffs alleged that the Company falsely asserted that the collapse of the Driefontein mine "could not have been prevented."
The Court rejected each of these claims for failure to satisfy the Private Securities Litigation Reform Act's ("PSLRA") particularity requirement. First, regarding plaintiffs' claims that the Company falsely attributed the decline in miner fatalities to the Safety Program, the Court found that plaintiffs failed to "provid[e] specific facts as to which, how and why statements about [the Safety Program] . . . were false or misleading."
Second, the Court noted that the disclosure of accurate historical data concerning the drop in fatalities in 2017 after the implementation of the Safety Program could not form the basis for a securities law violation. The Court rejected plaintiffs' argument that the Company's statements, while true, were still deceptive because the spate of subsequent safety incidents in 2018 made clear that the temporary reduction in fatalities was the result of "random chance," not the Safety Program. The Court emphasized that plaintiffs had offered no facts to support their allegations that the Company was aware that the drop in fatalities was due to "random chance" and nonetheless "hid the 'random chance' explanation from investors . . . in an effort to increase share price." The Court therefore concluded that the "most logical inference" was that the Safety Program had improved safety at the Company's mines.
Third, the Court addressed plaintiffs' claim that the Company concealed that the true cause of miner fatalities was the Company's incentive compensation plan for mid- and junior-level managers. Plaintiffs relied on a single newspaper article quoting an anonymous miner who indicated that the Company coerced its employees to work under dangerous conditions. The Court explained that this was insufficient because, although plaintiffs may rely on newspaper articles and confidential witnesses, here the newspaper's description of the source merely as a "miner" lacked the necessary particularity to indicate the reliability of the article's factual allegations.
Finally, the Court rejected plaintiffs' claim that the Company falsely stated that the fatalities from the collapse of the Driefontein mine could not have been prevented. In support of this claim, plaintiffs relied on a seismic reading chart, which they claimed showed that seismic activity at the mine hit a certain threshold requiring evacuation of all miners from the area before the earthquake hit. The Court, however, found that plaintiffs had mischaracterized this data, noting that the time stamp on the seismic reading chart showed that this threshold was met only after the earthquake occurred.
The Court concluded by analyzing whether plaintiffs had violated Rule 11. Although the Company had not argued that plaintiffs had violated Rule 11, the Court explained that the PSLRA requires the Court, at the end of a private securities action, to include in the record specific findings regarding compliance with Rule 11 and impose sanctions for any violation. The Court ultimately declined to impose any sanctions because it determined that plaintiffs' allegations, while conclusory and lacking factual support, were not frivolous.
The Company operates three groups of gold mines in South Africa. In 2016, the Company launched a mine safety program (the "Safety Program") to combat a sharp rise in fatalities at its mines. In 2017, fatalities decreased. However, in 2018, the Company experienced a resurgence in fatalities tied to alleged violations of the Company's safety protocols. In one incident, seven miners were killed after an earthquake resulted in the partial collapse of the Company's Driefontein mine. Plaintiffs alleged that the Company falsely attributed the decline in fatalities to the Safety Program—when, in reality, the drop was the result of "random chance," as evidenced by the spike in fatalities the following year. Plaintiffs also alleged that the Company failed to disclose that its productivity incentive compensation plan for mid- and junior-level managers, which encouraged them to ignore Company safety protocols, was the true cause of fatalities. Finally, plaintiffs alleged that the Company falsely asserted that the collapse of the Driefontein mine "could not have been prevented."
The Court rejected each of these claims for failure to satisfy the Private Securities Litigation Reform Act's ("PSLRA") particularity requirement. First, regarding plaintiffs' claims that the Company falsely attributed the decline in miner fatalities to the Safety Program, the Court found that plaintiffs failed to "provid[e] specific facts as to which, how and why statements about [the Safety Program] . . . were false or misleading."
Second, the Court noted that the disclosure of accurate historical data concerning the drop in fatalities in 2017 after the implementation of the Safety Program could not form the basis for a securities law violation. The Court rejected plaintiffs' argument that the Company's statements, while true, were still deceptive because the spate of subsequent safety incidents in 2018 made clear that the temporary reduction in fatalities was the result of "random chance," not the Safety Program. The Court emphasized that plaintiffs had offered no facts to support their allegations that the Company was aware that the drop in fatalities was due to "random chance" and nonetheless "hid the 'random chance' explanation from investors . . . in an effort to increase share price." The Court therefore concluded that the "most logical inference" was that the Safety Program had improved safety at the Company's mines.
Third, the Court addressed plaintiffs' claim that the Company concealed that the true cause of miner fatalities was the Company's incentive compensation plan for mid- and junior-level managers. Plaintiffs relied on a single newspaper article quoting an anonymous miner who indicated that the Company coerced its employees to work under dangerous conditions. The Court explained that this was insufficient because, although plaintiffs may rely on newspaper articles and confidential witnesses, here the newspaper's description of the source merely as a "miner" lacked the necessary particularity to indicate the reliability of the article's factual allegations.
Finally, the Court rejected plaintiffs' claim that the Company falsely stated that the fatalities from the collapse of the Driefontein mine could not have been prevented. In support of this claim, plaintiffs relied on a seismic reading chart, which they claimed showed that seismic activity at the mine hit a certain threshold requiring evacuation of all miners from the area before the earthquake hit. The Court, however, found that plaintiffs had mischaracterized this data, noting that the time stamp on the seismic reading chart showed that this threshold was met only after the earthquake occurred.
The Court concluded by analyzing whether plaintiffs had violated Rule 11. Although the Company had not argued that plaintiffs had violated Rule 11, the Court explained that the PSLRA requires the Court, at the end of a private securities action, to include in the record specific findings regarding compliance with Rule 11 and impose sanctions for any violation. The Court ultimately declined to impose any sanctions because it determined that plaintiffs' allegations, while conclusory and lacking factual support, were not frivolous.
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