Craig Clough, 14 April 2021
A Texas federal judge explained Wednesday that McDermott International Inc. must face a securities fraud suit over its acquisition of Chicago Bridge & Iron Co., denying its motion to dismiss and finding that stockholders sufficiently pled that proxy statements from McDermott were made “with actual knowledge that they were misleading.”
U.S. District Judge George C. Hanks Jr. already denied McDermott’s motion to dismiss on March 31 in a one-page order, and issued his full opinion behind the order on Wednesday that said McDermott cannot escape the allegations it concealed material problems with the integration of CB&I’s business and the likelihood that its projects would incur higher-than-expected costs.
The judge rejected the argument that statements made by the defendants are protected under the Private Securities Litigation Reform Act’s safe harbor provisions because he found plaintiffs backed up their claims with internal McDermott and CB&I documents.
“Defendants did not disclose the existence of the estimates, which ultimately proved to be correct,” the judge said. “Defendants’ repeated assurances regarding the Focus Projects” — four of CB&I’s construction projects — “omitted material facts about the costs of the Focus Projects and those omissions are actionable.”
Two complaints consolidated in June 2019 are attempting to hold McDermott liable for investor losses realized in the wake of McDermott’s October 2018 announcement that it needed to revise the estimated value of projects acquired from CB&I months earlier by $744 million. The disclosure caused McDermott’s stock price to drop 40% from the day before and 60% from its merger-date price of $20.70 per share on May 10, 2018.