backOn September 19, 2024, the U.S. District Court for the Southern District of New York dismissed a Section 10(b) securities fraud claim against PwC AG (“PwC Switzerland”) asserted by a shareholder of Credit Suisse following the investment bank’s 2023 collapse. In March 2023, in connection with the issuance of Credit Suisse’s year-end 2022 financial statements, the company revealed, for the first time, that it had a material weakness in its internal control over financial reporting for both the period ending December 2022 and for the previous year, ending December 2021. PwC had audited, and given an unqualified opinion on, Credit Suisse’s ICFR for 2021. In his putative class action complaint, the plaintiff alleged, based on the belated disclosure of the ICFR deficiency, that PwC’s 2021 audit opinion, as incorporated into Credit Suisse’s year-end and quarterly reports, was fraudulent. The plaintiff also alleged that the firm’s 2022 opinion was fraudulent because, even though it disclosed the ICFR deficiency, it falsely maintained that the firm’s audits had been conducted in accordance with PCAOB standards.
The court dismissed the claim against PwC Switzerland on the ground that the plaintiff failed to adequately allege scienter. The court first held that the complaint did not show that PwC Switzerland had “motive and opportunity to commit fraud,” rejecting the plaintiff’s argument that the firm’s retention by the company and expectation of audit fees could, alone, be sufficient to show such a motive. The court then held that the complaint failed otherwise to allege “conscious misbehavior” or “recklessness” on the part of the firm under the “demanding” standard courts apply in evaluating auditor scienter. The court found, among other things, that the plaintiff failed to allege specific facts sufficient to show that PwC Switzerland knew or should have known of the ICFR deficiency at the time of its opinion so as to show fraud as opposed to mere negligence. The court also granted in part and denied in part motions to dismiss by Credit Suisse and certain of its directors and officers also named as defendants in the action.
The case is Diabat v. Credit Suisse Group AG, No. 23-cv-5874 (S.D.N.Y. Sept. 19, 2024). Plaintiff is represented by Kahn Swick & Foti, LLC. PwC Switzerland is represented by WilmerHale. Credit Suisse and the individual defendants are represented by Cahill Gordon & Reindel LLP. The opinion is available here.