Rauch v. Vale S.A. et al

AMENDED COMPLAINT against Murilo Ferreira, Luciano Siani Pires, Fabio Schvartsman, Vale S.A., Gerd Peter Poppinga, Luiz Eduardo Froes do Amaral Osorio, filed by The Colleges of Applied Arts and Technology Pension Plan.

Eastern District of New York, nyed-1:2019-cv-00526

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00 PageID #: 573 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF In Re VALE S.A. SECURITIES LITIGATION THE FEDERAL SECURITIES LAWS 19-cv-526-RJD-SJB JURY TRIAL DEMANDED 00 PageID #: 574 TABLE OF CONTENTS Page(s) I. PRELIMINARY STATEMENT ........................................................................................ 1 II. JURISDICTION AND VENUE ....................................................................................... 11 III. PARTIES .......................................................................................................................... 12 A. Plaintiff ............................................................................................................................ 12 B. Defendants....................................................................................................................... 12 IV. BACKGROUND FACTS ................................................................................................. 17 A. Dam 1 Background Information .................................................................................. 17 B. Brazilian Dam Regulation Requires Periodic Reviews and Reports Regarding Dam Stability ............................................................................................... 18 C. On November 5, 2015, a Dam in Mariana that was Co-Owned by Vale Collapsed ................................................................................................................ 20 D. Prior to the Start of the Class Period, Defendants Were Aware of Significant Stability Concerns with Dam 1 ................................................................ 21 E. Top Management—Including the Individual Defendants—Were Fully Informed of Significant Dam Risks ............................................................................. 22 F. By No Later than July 2016, Defendants Knew or Recklessly Disregarded by that Dam 1 Had a High Probability of Failure And Submitted a Stability Condition Statement for It Irrespective of that Fact ................................................................................................................................... 23 G. Defendants Knew or Recklessly Disregarded that Dam 1 Had a High Probability of Failure in 2017 and 2018 ..................................................................... 24 H. Defendants Systematically Acted to Obtain Stability Condition Statements for Dam 1 Even Though it Did Not Meet Vale's Stability Threshold ......................................................................................................................... 31 I. Defendants Failed to Address Additional Alarming Events that Suggested a High Risk of Dam 1 Liquefaction .......................................................... 34 J. Investigations by the Federal Police, Federal Prosecutor, and Minas Gerais State Prosecutor.................................................................................................. 38 K. Investigation by Brazilian Senate CPI ......................................................................... 39 i 00 PageID #: 575 L. Minas Gerais' House of Representatives' Investigation ("State CPI") .................. 41 M. Subsequent Company Disclosures ............................................................................... 43 V. DEFENDANTS PUBLICLY MISREPRESENTED AND CONCEALED MATERIAL FACTS THROUGHOUT THE CLASS PERIOD ...................................... 44 A. July 28, 2016 Conference Call with Analysts ............................................................ 44 B. October 27, 2016 Conference Call with Analysts ..................................................... 45 C. November 29, 2016 NYC Vale Day ............................................................................ 46 D. February 23, 2017 Form 6-K ........................................................................................ 47 E. 2016 Annual Report filed April 11, 2017 ................................................................... 49 F. 2016 Sustainability Report ............................................................................................ 54 G. May 16, 2017 Form 6-K ................................................................................................ 58 H. May 22, 2017 Statements Quoted in Época Negócios .............................................. 59 I. May 30, 2017 Form 6-K ................................................................................................ 60 J. December 6, 2017 NYC Vale Day .............................................................................. 61 K. December 8, 2017 London Vale Day .......................................................................... 63 L. February 27, 2018 Form 6-K ........................................................................................ 64 M. March 20, 2018 Form 6-K ............................................................................................ 66 N. April 10, 2018 Valor Econômico Article .................................................................... 68 O. 2017 Annual Report filed April 13, 2018 ................................................................... 69 P. 2017 Sustainability Report ............................................................................................ 75 Q. December 11, 2018 ESG Webinar ............................................................................... 79 R. January 28, 2019 Form 6-K .......................................................................................... 80 VI. ECONOMIC LOSS AND LOSS CAUSATION .............................................................. 81 VII. ADDITIONAL ALLEGATIONS OF THE INDIVIDUAL DEFENDANTS' SCIENTER ....................................................................................................................... 86 VIII. CLASS ACTION ALLEGATIONS ................................................................................. 88 ii 00 PageID #: 576 IX. PRESUMPTION OF RELIANCE .................................................................................... 89 X. NO SAFE HARBOR ........................................................................................................ 91 XI. CLAIMS FOR RELIEF .................................................................................................... 91 COUNT I: For Violation of Section 10(b) of the Exchange Act and Rule 10b- 5(b) Against All Defendants ......................................................................................... 91 COUNT II: For Violations of Section 10(b) of the Exchange Act and Rule 10b-5(a) & (c) Against All Defendants ....................................................................... 93 COUNT III: For Violation of Section 20(a) of the Exchange Act Against Individual Defendants.................................................................................................... 94 XII. PRAYER FOR RELIEF ................................................................................................... 95 XIII. JURY DEMAND .............................................................................................................. 95 iii 00 PageID #: 577 "The first and most important conclusion is that it was not an accident. . . . Vale management and the board knew the risks and decided to take them." - Final Report of the Brazilian Senate Parliamentary Commission of Inquiry 1. Colleges of Applied Arts and Technology Pension Plan ("Plaintiff" or "CAAT Pension Plan"), by and through its undersigned counsel, on behalf of itself and all others similarly situated, allege the following based upon the investigation by Plaintiff's counsel, except as to allegations specifically pertaining to Plaintiff, which are based on personal knowledge. The investigation by counsel included, among other things: (i) review and analysis of the public filings with the U.S. Securities and Exchange Commission ("SEC") by Vale S.A. ("Vale" or the "Company"); (ii) review and analysis of corporate press releases, disclosures and media reports issued and disseminated by Vale; (iii) review of other publicly available information concerning Vale, including transcripts of public investor presentations and conference calls; (iv) discussions with consultants; and (v) review and analysis of the trading data relating to the price and volume of Vale securities, including its American Depositary Shares ("ADSs") and certain notes. Plaintiff believes that substantial additional evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery. I. PRELIMINARY STATEMENT 2. This is a securities class action brought under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §§ 78j(b) and 78t(a); and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5 against Vale and certain of its most senior executives (the "Action"). The Action is brought on behalf of a class consisting of all persons who purchased on the New York Stock Exchange ("NYSE") or other U.S. exchanges or in a U.S. transaction between July 28, 2016 and February 6, 2019, inclusive (the "Class Period"), any of the following publicly- traded Vale securities: (1) Vale ADSs, (2) 5.875% Guaranteed Notes due 2021, (3) 4.375% 00 PageID #: 578 Guaranteed Notes due 2022, (4) 6.250% Guaranteed Notes due 2026, (5) 8.250% Guaranteed Notes due 2034, (6) 6.875% Guaranteed Notes due 2036, (7) 6.875% Guaranteed Notes due 2039, or (8) 5.625% Notes due 2042 (collectively referred to hereafter as "Vale Securities"). 3. This action arises from the devastating collapse on January 25, 2019 at 12:28 P.M. local time of Dam 1 of Vale's Córrego do Feijão iron ore mine near the town of Brumadinho in Minas Gerais, Brazil. 1 The torrent of mud unleashed by Dam 1 killed approximately 270 people (246 confirmed deaths and 24 people still missing), including employees and contractors of Vale, nearby townspeople, and tourists in the area. The Dam 1 failure also caused incalculable damage to the environment. Mining wastes destroyed hundreds of acres of forest and reached the Paraopeba River, whose watershed encompasses 48 municipalities, with a population of 1.3 million inhabitants. According to Brazil's SOS Atlantic Forest Foundation, river water samples taken one month after the tragedy revealed copper levels 600 times above the level permitted for human consumption, irrigation, fishing, and recreation. 4. Importantly, this was the second catastrophic dam collapse involving Vale in just over three years. The first was the November 5, 2015 collapse of a tailings dam for the Fundão mining complex in Mariana, Minas Gerais, Brazil, which was jointly owned by Vale and BHP Billiton Brasil Ltda. That dam failure resulted in 19 deaths and is considered one of the largest environmental disasters in Brazil's history. 5. In the wake of the 2015 Mariana dam collapse, there were changes in Brazil's national dam safety policy 2 and in Vale's organizational structure. The Company created a specific division to improve dam risk management, the Geotechnical Risk Management department, and 1 Dam 1 is also referred to in documents and testimony as "B1", a likely shortening of "barragem," which is Portuguese for "dam". 2 See Section IV.B., below. 2 00 PageID #: 579 periodically convened an Independent Panel of Experts for Safety and Risk Management of Geotechnical Structures ("PIESEM") to advise Vale on dam risks and safety management, which was attended by numerous Vale executives and employees. 3 The PIESEMs produced reports that were distributed to Vale management. 6. Because the Mariana dam that collapsed had been constructed in the "upstream" method—which is generally less stable than other methods of constructing tailing dams—Vale sought to downplay its exposure to the risks associated with upstream ta