In re Nokia Corp. Sec. Litig.

IN RE NOKIA CORPORATION SECURITIES LITIGATION

Master File No. 19-cv-3509

No. 19-cv-3982

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

FILED: March 31, 2021

March 29, 2021

OPINION & ORDER CLASS ACTION

ANDREW L. CARTER, JR., District Judge:

Lead Plaintiff Clyde W. Waite ("Mr. Waite" or "Plaintiff") brings this putative class action against Nokia Corporation ("Nokia" or the "Company") and Rajeev Suri, former CEO of Nokia (collectively, "Defendants"), alleging that Defendants committed securities fraud in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Securities and Exchange Commission ("SEC") Rule 10(b)-5.

Defendants moved to dismiss the complaint pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6) and the Private Securities Litigation Reform Act of 1995 (the "PSLRA"), 15 U.S.C. § 78u-4(b). For the reasons set forth below, Defendants' motion to dismiss is GRANTED.

BACKGROUND

I. Factual Background

The following facts are taken from the allegations contained in the Second Consolidated Amended Complaint ("SCAC"), ECF No. 47, which are presumed to be true for purposes of this motion to dismiss. The Court also considers facts drawn from news releases, financial reports, and transcripts of earnings calls which Plaintiff quotes from extensively in the SCAC and are thus incorporated into the Complaint by reference. See ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007).

A. The Parties

Defendant Nokia is a network and technology company incorporated in Finland with its principal executive offices in Espoo, Finland. SCAC ¶ 15.

Defendant Rajeev Suri, served as Nokia's President and Chief Executive Officer ("CEO") throughout the period of April 27, 2017 until October 23, 2019 (the alleged "Class Period"). Id. ¶¶ 1, 16.

Plaintiff Clyde W. Waite seeks to represent all purchasers of Nokia American Depository Shares ("ADSs")¹ during the Class Period, and who were damaged thereby. See id. ¶¶ 14, 144.

B. The Acquisition of Alcatel-Lucent

On April 15, 2015, Nokia announced plans to purchase Alcatel-Lucent ("Alcatel"). Id. ¶ 17. According to Nokia at the time, "the combined company will be in a position to accelerate development of future technologies including 5G." Press Release, Nokia, Nokia and Alcatel-Lucent to Combine to Create an Innovation Leader in Next Generation Technology and Services for an IP Connected World (Apr. 15, 2015). Indeed, Plaintiff alleges that the Nokia-Alcatel transaction was "intended to enable the Company to compete in 5G." SCAC ¶ 18.² While Nokia had been "historically focused on wireless service," 5G would require a "combination of wireless capabilities with physical networking capabilities and infrastructure that Nokia did not have." Id. ¶ 19. Alcatel had the capabilities and infrastructure that Nokia was lacking. Id. Thus, thisacquisition "gave the Company the combination of wireless and networking assets and expertise essential to compete in the race to 5G," id., making the "rapid integration of Alcatel [] the single most important operational priority carried out by the Company during (and in the lead-up to) the Class Period, id. ¶ 20.

According to Plaintiff, this acquisition raised "significant concerns" about the Company's ability to integrate Alcatel into Nokia's operations. Id. ¶ 21. These concerns were heightened due to the companies' past failures in "successfully and timely" integrating acquisitions and joint ventures. Id.³ However, Defendant Suri was "determined" to avoid these same problems. Id. ¶ 22. He "acknowledged these concerns directly" at Nokia's Annual General Meeting on May 5, 2015:

Those of you who have been following the transaction news have, I am sure, seen people raise concerns about execution risk. Given the issues associated with similar transactions in the past, that is a very fair concern. But, I do believe that this time can be different.

Id. The difference would largely be a result of Defendant Suri's management methodology known as the "Nokia Business System" ("NBS"). Id. ¶ 23. This system included "focused M&A and integration practices." Id. In line with NBS, on April 17, 2015 Nokia announced the creation of an Integration Steering Board that would "provide the structure, processes and working team needed to set up the required plans for the combined company." Id. ¶ 24. The head of the Integration Steering Board was to report directly to Defendant Suri. Id. An "Integration and Transformation Board" ("Integration Board"), an exclusive team dedicated to the Alcatelintegration and led by senior executives reporting directly to Defendant Suri, was also created. Id. ¶ 26.

Plaintiff alleges that Defendant Suri required the Integration Board to carry out the Alcatel integration in "an exceptionally rapid time-frame." Id. ¶ 27. The Company also established compensation incentives for Defendant Suri and members of Nokia's Group Leadership Team, which included the Company's most senior executives (including the CEO, Chief Financial Officer ("CFO"), Chief Operating Officer ("COO"), and Chief Legal Officer ("CLO"), among others). Id. ¶ 28. The compensation incentives were in the form of restricted stock units that were "tied specifically to the success of the Alcatel integration." Id. ¶ 29; see also id. ("tied expressly to targets related to the smooth and speedy integration of Alcatel"). Defendant Suri received 208,700 restricted shares, worth € 986,942 when granted, while the rest of the Group Leadership Team received a total of 1,015,100 restricted shares, valued at €4,800,408 when granted. Id. These shares were set to vest in three equal tranches on October 1st of 2017, 2018 and 2019. Id.

On January 14, 2016, Nokia announced that Nokia and Alcatel had begun operations as a single company. Id. ¶ 30. At the same time, Defendant Suri as well as other Nokia senior executives joined the Alcatel board of directors. Id. Nokia and Alcatel also adopted a Master Services Agreement and Framework Agreement (together, the "MSA") which "established Nokia's complete control over Alcatel, its operations, and, most importantly, its compliance processes." Id. ¶ 31. On November 2, 2016, Nokia announced that it had completed the Alcatel transaction. Id. ¶ 32. A couple of weeks later at its Capital Markets Day conference for investors and analysts, Defendant Suri explained the role that NBS had played in the integration and noted that he was "a permanent attendee" of the Integration Board sessions. Id. ¶¶ 33-34. At aconference call with securities analysts on February 2, 2017, Defendant Suri stated that they had "completed the integration projects related to Alcatel-Lucent with the exception of a small handful of long-tail efforts." Id. ¶ 35 (emphasis added).⁴

C. Defendants' Statements About the Alcatel Integration and 5G-Readiness During the Class Period

1. 2017

On the first day of the Class Period, April 27, 2017, the Company held their Q1 2017 earnings call wherein Defendant Suri stated that "Nokia's first quarter results showed . . . that we are effectively moving beyond the integration effort for 2016 to making 2017 a year of execution and performance." Id. ¶ 40 (emphasis added). Later on he stated that they were pleased with their performance in Q1 but that they were "not complacent" and knew they had "some challenges in select business groups." Id. Defendant Suri emphasized that they were "very focused on addressing those issues" and expressed that he was "confident that [they could] get those businesses back on track." Id. "With the integration of Alcatel-Lucent behind us, we are committed to building on that platform and to making 2017 a year of execution and performance." Id.

At the beginning of the call, Matt Shimao, Head of Investor Relations, stated that "[d]uring this call, we'll be making forward-looking statements regarding the future business and financial performance of Nokia. . . ." Saltzstein Decl. Ex. 7 at 4.⁵ He emphasized that:

These statements are predictions that involve risks and uncertainties. Actual results may therefore differ materially from the results we currently expect. . . We have identified such risks in more detail on Pages 67 through 85 of our 2016 Annual Report on Form 20-F, our interim report for Q1 2017 issued today as well as our other filings with the [SEC].

Id. The 2016 Annual Report on Form 20-F ("2016 20-F") listed several risk factors including:

We have identified material weaknesses in our internal control over financial reporting following the Acquisition of Alcatel Lucent which, if not remediated, could have a material adverse effect on us.

Our integration activities in connection with the Acquisition of Alcatel Lucent are ongoing. In connection with the preparation of our consolidated financial statements for the year ended December 31, 2016, our management identified two material weaknesses in the effectiveness of our internal control over financial reporting related to (1) the accounting for income taxes at a former Alcatel Lucent entity in the United States and (2) the accounting and control functions at a former Alcatel Lucent subsidiary in China.

As permitted by applicable regulations and accounting rules, Nokia's internal controls effectiveness assessment in 2016 did not include Alcatel Lucent's legacy operations. Our operating subsidiaries or our joint ventures' failure, or a failure to integrate the Alcatel Lucent legacy operations into our internal controls framework, could adversely affect the accuracy and timeliness of our financial reporting, which could result, for instance, in loss of confidence in us or in the accuracy and completeness of our financial reports, or otherwise in the imposition of fines or other regulatory measures, which could have a material adverse effect on us. Moreover, we may identify further control deficiencies that are material weaknesses in the future.

Ex. 1 at 76 (emphasis added). The 2016 20-F also disclosed historic...