Nyed-2 - 2017-cv-01105-00051 - APELACIÓN NY 30.07.2018

Case 2:17-cv-01105-JMA-ARL Document 51 Filed 10/26/18 Page 1 of 31 PageID #: 1146
UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK
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In re: GRAÑA Y MONTERO S.A.A. :
SECURITIES LITIGATION : Case No.: 17-CV-1105 (JMA) (ARL)
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This Document Relates To: : ORAL ARGUMENT REQUESTED
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ALL ACTIONS. :
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MEMORANDUM OF LAW IN SUPPORT OF DEFENDANT : GRAÑA Y MONTERO
S.A.A.’S MOTION TO DISMISS THE CONSOLIDATED AMENDED CLASS ACTION:
COMPLAINT :
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TABLE OF CONTENTS
Page
PRELIMINARY STATEMENT .................................................................................................... 1
FACTUAL BACKGROUND AND ALLEGATIONS .................................................................. 4
I. Graña’s Projects with Odebrecht in Peru ................................................................ 4

II. Operation Car Wash And Odebrecht’s Bribery Scheme ........................................ 5
III. Graña’s Alleged Misstatements And Omissions .................................................... 7
LEGAL STANDARD ..................................................................................................................... 8
ARGUMENT .................................................................................................................................. 9
I. Plaintiffs Fail To Plead Any Material Misstatement Or Omission ......................... 9

A. There Is No General Duty To Disclose Uncharged, Unproven
Criminal Conduct ...................................................................................... 10
B. Plaintiffs Fail To Plead Any Falsity In Graña’s Financial

Statements ................................................................................................. 13
C. Statements About Corporate Governance And Ethics Are Puffery .......... 14
D. Many Of The Alleged Misstatements And Omissions Are

Forward-Looking Statements Protected By The PSLRA Safe
Harbor And Common Law “Bespeaks Caution” Doctrine ....................... 16
E. Graña’s Statements Regarding The Effectiveness Of Its Disclosure

Controls Are Not Actionable .................................................................... 18
II. Plaintiffs Fail To Plead A Strong Inference Of Scienter ...................................... 19

A. Plaintiffs Fail To Plead That Defendants Had Motive To Commit
Fraud ......................................................................................................... 20
B. Plaintiffs Fail To Plead Strong Circumstantial Evidence That

Defendants Acted With Conscious Misbehavior Or Recklessness ........... 20
III. Plaintiffs’ Section 10(b) Claim As It Relates To Internal Controls Must Be

Dismissed Because It Fails To Plead Loss Causation .......................................... 24
CONCLUSION ............................................................................................................................. 25
i
TABLE OF AUTHORITIES
Page(s)
Cases
Acito v. IMCERA Grp., Inc.,

47 F.3d 47 (2d Cir. 1995).................................................................................................. 20
Albert Fadem Tr. v. Citigroup, Inc.,

165 F. App’x 928 (2d Cir. 2006) ...................................................................................... 13
Altayyar v. Etsy, Inc.,

242 F. Supp. 3d 161 .......................................................................................................... 20
Amgen Inc. v. Conn. Ret. Plans & Tr. Funds,

568 U.S. 455 (2013) .......................................................................................................... 10
Anschutz Corp. v. Merrill & Co., Inc.,

690 F.3d 98 (2d Cir. 2012).................................................................................................. 9
Ashcroft v. Iqbal,
556 U.S. 662 (2009) ............................................................................................................ 8
ATSI Commc’ns, Inc. v. The Shaar Fund, Ltd.,

493 F.3d 87 (2d Cir. 2007) (citation omitted) ........................................................... 4, 9, 19
Ballan v. Wilfred Am. Educ. Corp.,

720 F. Supp. 241 (E.D.N.Y. 1989) ................................................................................... 14
Bd. of Trs. of City of Ft. Lauderdale Gen. Emps.’ Ret. Sys. v.

Mechel OAO,
811 F. Supp. 2d 853 (S.D.N.Y. 2011)............................................................................... 21
Bell Atl. Corp. v. Twombly,

550 U.S. 544 (2007) ............................................................................................................ 9
Caiafa v. Sea Containers Ltd.,

525 F. Supp. 2d 398 (S.D.N.Y. 2007)............................................................................... 22
City of Brockton Ret. Sys. v. Avon Prods., Inc.,

No. 11 Civ. 4665(PGG), 2014 WL 4832321 (S.D.N.Y.
Sept. 29, 2014) .................................................................................................................. 15
City of Pontiac Policemen’s & Firemen’s Ret. Sys. v. UBS AG,

752 F.3d 173 (2d Cir. 2014)........................................................................................ 10, 15
ii
Cortina v. Anavex Life Scis. Corp.,

15-CV-10162 (JMF), 2016 WL 7480415 (S.D.N.Y. Dec.
29, 2016) ........................................................................................................................... 10
Dura Pharms., Inc. v. Broudo,

544 U.S. 336 (2005) ................................................................................................ 9, 10, 24
ECA & Local 134 IBEW Joint Pension Tr. of Chi. v. JPMorgan
Chase Co.,
553 F.3d 187, 196 (2d Cir. 2009)............................................................................ 9, 15, 19
Emergent Capital Inv. Mgmt., LLC v. Stonepath Grp., Inc.,

343 F.3d 189 (2d Cir. 2003).............................................................................................. 25
Halperin v. eBanker USA.com, Inc.,

295 F.3d 352 (2d Cir. 2002)........................................................................................ 16, 17
In re Am. Int’l Grp., Inc. 2008 Sec. Litig.,

741 F. Supp. 2d 511 (S.D.N.Y. 2010)............................................................................... 21
In re Braskem S.A. Sec. Litig.,

246 F. Supp. 3d 731 (S.D.N.Y. 2017)............................................................. 11, 13, 15, 18
In re Citigroup, Inc. Sec. Litig.,

330 F. Supp. 2d 367 (S.D.N.Y. 2004), aff’d sub nom....................................................... 13
In re CRM Holdings, Ltd. Securities Litigation,

No. 10-cv-975 (RPP), 2012 WL 1646888 (S.D.N.Y. May
10, 2012) ........................................................................................................................... 22
In re Gentiva Sec. Litig.,

932 F. Supp. 2d 352 (E.D.N.Y. 2013) .............................................................................. 18
In re ITT Educ. Servs., Inc. Sec. & S’holder Deriv. Litig.,

859 F. Supp. 2d 572 (S.D.N.Y. 2012)............................................................................... 15
In re Keyspan Corp. Sec. Litig.,

383 F. Supp. 2d 358 (E.D.N.Y. 2003) .............................................................................. 17
In re Lions Gate Entm’t Corp. Sec. Litig.,

165 F. Supp. 3d 1 (S.D.N.Y. 2016) .................................................................................. 14
In re Marsh & Mclennan Cos., Inc. Sec Litig.,

501 F. Supp. 2d 452 (S.D.N.Y. 2006)................................................................... 10, 12, 21
In re Par Pharm., Inc. Sec. Litig.,

733 F. Supp. 668 (S.D.N.Y. 1990) ............................................................................. 12, 14
iii
In re PetroChina Co. Ltd. Sec. Litig.,

120 F. Supp. 3d 340 (S.D.N.Y. 2015)............................................................................... 18
In re Sanofi Sec. Litig.,

155 F. Supp. 3d 386 (S.D.N.Y. 2016)............................................................................... 13
In re Time Warner Inc. Sec. Litig.,

9 F.3d 259 (2d Cir. 1993).................................................................................................. 10
In re UBS AG Securities Litigation,

No. 07-cv-11225, 2012 WL 4471265 (S.D.N.Y. Sept. 28,
2012) ................................................................................................................................. 22
Kalnit v. Eichner,
264 F.3d 131 (2d Cir. 2001).............................................................................................. 20
Lentell v. Merrill Lynch & Co., Inc.,

396 F.3d 161 (2d Cir. 2005).............................................................................................. 24
Matrixx Initiatives, Inc. v. Siracusano,

563 U.S. 27 (2011) ............................................................................................................ 11
Menaldi v. Och-Ziff Capital Mgmt. Grp. LLC,

164 F. Supp. 3d 568 (S.D.N.Y. 2016)............................................................................... 11
N.J. Carpenters Health Fund v. Royal Bank of Scot. Grp.,

709 F.3d 109 (2d Cir. 2013).............................................................................................. 23
North Collier Fire Control & Rescue Firefighter Pension Plan v.

MDC Partners, Inc.,
No. 15 Civ. 6034 (RJS), 2016 WL 5794774 (S.D.N.Y.
2016) ................................................................................................................................. 22
Novak v. Kasaks,
216 F.3d 300 (2d Cir. 2000).............................................................................................. 20
Omnicare, Inc. v. Laborers Dist. Council Const. Indus. Pension

Fund,
135 S. Ct. 1318 (2015) ...................................................................................................... 16
Orlan v. Spongetech Delivery Sys., Inc.,

No. 10-CV-4093(DLI)(RML), 2017 WL 1131900
(E.D.N.Y. Mar. 24, 2017) ................................................................................................. 19
Panther Partners, Inc. v. Ikanos Commc’ns, Inc.,

538 F. Supp. 2d 662 (S.D.N.Y. 2008), aff’d, 347 F. App’x
617 (2d Cir. 2009) ............................................................................................................... 9
iv
Rombach v. Chang,
355 F.3d 164 (2d Cir. 2004).................................................................................. 10, 16, 17
Roth v. Jennings,
489 F.3d 499 (2d Cir. 2007)................................................................................................ 4
Rothman v. Gregor,
220 F.3d 81 (2d Cir. 2000)................................................................................................ 21
S. Cherry St., LLC v. Hennessee Grp. LLC,

573 F. 3d 98 (2d Cir. 2009)............................................................................................... 20
San Leandro Emergency Med. Grp. Profit Sharing Plan v. Philip

Morris Cos., Inc.,
75 F.3d 801 (2d Cir. 1996)................................................................................................ 17
Shields v. Citytrust Bancorp, Inc.,

25 F.3d 1124 (2d Cir. 1994).............................................................................................. 21
Slayton v. Am. Express Co.,

604 F.3d 758 (2d Cir. 2010).............................................................................................. 19
Stratte-McClure v. Morgan Stanley,

776 F.3d 94 (2d Cir. 2015)................................................................................................ 20
Tellabs, Inc. v. Makor Issues & Rights, Ltd.,

551 U.S. 308 (2007) .................................................................................................. 3, 9, 19
Statutes
15 U.S.C. § 78j(b) ("Section 10(b)") .................................................................................. 9, 10, 24
15 U.S.C. § 78u-4 ("PSLRA") .............................................................................. 2, 3, 9, 16, 19, 21
Fed. R. Civ. P. 12(b)(6)................................................................................................................... 8
Fed. R. Civ. P. 9(b) ..................................................................................................................... 2, 9
v
PRELIMINARY STATEMENT
In 2014, a Brazilian law enforcement investigation code-named Operation Car Wash
(Lava Jato) resulted in numerous convictions and express admissions by Odebrecht,1 a Brazilian
construction company, of paying hundreds of millions of dollars in bribes to government
officials around the world. Odebrecht is not a party to this case. Nor are any Odebrecht
executives, employees, or agents. This suit is against only defendant Graña y Montero S.A.A.
(“Graña”).2 Plaintiffs seek to capitalize on the Lava Jato investigation through speculative and
conclusory assertions that Graña knowingly participated in Odebrecht’s bribes. Plaintiffs’
allegations of securities fraud by Graña fail as a matter of law for several reasons.
No Material Misstatement or Omission: The Complaint fails to plead any actionable
misrepresentation by Graña. Substantively, Plaintiffs’ allegations are premised on the notion that
Graña knew about and should have disclosed bribery payments allegedly made by Odebrecht to
Peruvian government officials in connection with two projects: IIRSA South and the Lima
Metro. But, by Plaintiffs’ own contentions, Odebrecht paid these bribes over a decade ago, in
2005 and 2008, respectively. Compl. ¶¶ 81, 82. That was five to eight years before the Class
Period even began. Plaintiffs make no attempt to explain how bribes paid by Odebrecht over a
decade ago somehow render Graña’s statements during the Class Period (July 24, 2013 –
February 24, 2017) false or misleading in any way. Even assuming that Graña knew about
1
Unless otherwise defined, capitalized terms have the meaning ascribed to them in the
Consolidated Amended Class Action Complaint, Dkt. No. 22 (“Compl.”).
2
The Complaint also names four current or former Graña directors or officers (Mario
Alvarado Pflucker, Jose Alejandro Graña Miró Quesada, Hernando Alejandro Graña Acuna, and
Monica Maria Miloslavich Hart), but none of the Individual Defendants has been served by
Plaintiffs.
Odebrecht’s bribery payments (which it did not), the securities laws do not impose a general duty
to disclose wrongdoing, uncharged criminal conduct, or misconduct.
Plaintiffs make repeated conclusory assertions that Graña’s “net income was materially
misstated,” but never explain their allegations about how net income reported in any year during
the Class Period should have been higher or lower. The alleged bribes were paid in 2005 and
2008. Any failure to account for or expense those payments would have no impact on Graña’s
financial statements issued in and after 2013. In fact, Graña sold its entire interest in the IIRSA
projects to Odebrecht in 2011, two years before the Class Period began. Id. ¶¶ 46, 55. As for the
Lima Metro, Plaintiffs are unable to identify any specific instance where net income or any other
line item in Graña’s financial statements was misstated. Rather, they conclusorily assert that
some numbers in Graña’s financials were wrong without identifying or quantifying these
numbers, let alone how or why they were wrong. Such vague allegations fail under the Private
Securities Litigation Reform Act (“PSLRA”) and Rule 9(b).
Plaintiffs are also unable to plead any valid evidence in support of their allegations that
Graña was aware of bribery by Odebrecht. The Complaint revolves around since-revoked
resolutions issued by Judge Concepción of the Peruvian First Court of Preparatory Investigation.
Each and every one of Judge Concepción’s resolutions referenced in the Complaint was
overturned on appeal and vacated.3,4 Plaintiffs acknowledge only one of the reversals in their
Complaint, dismissing it as a supposed anomaly “based on a procedural finding.” Compl. ¶ 120
n.11. That is simply false. The reversals were substantive. The Peruvian First National
3
Ex. 7 (Res. No. 6, Peruvian First Nat’l Crim. Div. of App.); Ex. 9 (Res. No. 9, Peruvian First
Nat’l Crim. Div. of App.); Ex. 10 (Res. No. 11, Peruvian First Nat’l Crim. Div. of App.).
4
All citations to “Ex. __” refer to exhibits to the Declaration of Anar R. Patel, dated July 30,
2018.
2
Criminal Division of Appeals revoked the lower court resolution on the basis that, to be
criminally liable for the crime of collusion in bribery, a defendant must have known about the
bribe before the bribe was agreed to and/or paid, and there was insufficient evidence to make this
showing against the Graña executives. Ex. 9 ¶¶ 3.6.4–.5, 3.7.1, 3.7.4.1.6, 3.7.5. The appellate
court went so far as to characterize the lower court opinion as “incoherent”: “It is the opinion of
this Court, after an analysis of the court order whereby the individual precautionary measure was
issued, the reversal of which is requested, that unfortunately the reasoning of the judicial
operator of first instance is incoherent.” Id. at ¶ 3.3.2.5.
No Scienter: Plaintiffs fail to plead scienter, a key element of a Section 10(b) claim.
Plaintiffs base their scienter case on (a) resolutions by Judge Concepción and (b) statements
allegedly made by two former Odebrecht executives. As noted, the Judge Concepción
resolutions cited by Plaintiffs were all overturned. The statements of former Odebrecht
executives are doubly deficient to plead Graña’s knowledge of illegal conduct. The statements
are uncorroborated by underlying evidence and, as such, are insufficient to plead a strong
inference of scienter by Graña. Even if accepted as true, they do not plead collusion in bribery
under Peruvian law because neither Jorgé Barata nor Marcelo Odebrecht stated that anyone at
Graña knew about or was involved in the bribery payments before they were made by Odebrecht.
Indeed, it was this failure in a central element of the alleged crime that caused the appellate court
to revoke Judge Concepción’s resolutions.
The Supreme Court has held that, even at the pleading stage, the PSLRA requires a
district court to weigh competing inferences of fraud and non-fraud. See Tellabs, Inc. v. Makor
Issues & Rights, Ltd., 551 U.S. 308, 323–24 (2007). Here, the more compelling inference to
draw from the factual allegations is that Graña was not aware of the Odebrecht scheme. Graña
held only a minority interest in and had limited control over the projects at issue. Odebrecht, as
3
majority owner, managed and controlled the consortia. The most compelling—indeed, the only
compelling—inference here is that Odebrecht concealed its payments of bribes from Graña as it
did from the rest of the world. It would defy logic for a company paying hundreds of millions of
dollars in bribes to government officials in numerous countries to openly disclose that fact to its
minority partners around the globe and heighten the risk of unwanted detection.
FACTUAL BACKGROUND AND ALLEGATIONS5
Graña is an engineering and construction company in Peru. Compl. ¶¶ 1–2. Through its
various subsidiaries, Graña provides engineering, construction, and other services in Latin
America, and employs thousands of workers. Id. Graña’s stock is traded on the Lima Stock
Exchange and its ADSs have been traded on the NYSE since July 2013. Id. ¶ 2.
I. Graña’s Projects with Odebrecht in Peru
Since 2005, Graña has had minority interests in certain infrastructure projects in Peru:
(1) IIRSA North, (2) IIRSA South, (3) Lima Metro, (4) Chavimochic, and (5) the Southern Gas
Pipeline (“GSP”). Id. ¶¶ 40–73. Odebrecht always held majority ownership stakes and thus
controlled these projects. Id. ¶¶ 45, 54, 57, 63, 72. Graña had only a minority interest in each
project, ranging from 10–33%. Id. Graña’s projects with Odebrecht accounted for a small
portion—less than 5%—of Graña’s revenues. Ex. 4 at 102. The significant majority of Graña’s
revenues are from private contracts, not government contracts. Id.
5
The facts herein are drawn from documents cited or relied upon in the Complaint and the
Complaint’s own pleadings, which are accepted as true for purposes of this motion only. On a
motion to dismiss a securities fraud class action, a court may consider “statements or documents
incorporated into the complaint by reference, legally required public disclosure documents filed with
the SEC, and documents possessed by or known to the plaintiff and upon which it relied in bringing
the suit.” ATSI Commc’ns, Inc. v. The Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) (citation
omitted); see also Roth v. Jennings, 489 F.3d 499, 509 (2d Cir. 2007).
4
The Complaint alleges that Odebrecht paid and negotiated bribes with respect to only two
projects, IIRSA South and Lima Metro:
 IIRSA South: The IIRSA South consortium was formed in 2005 and was
awarded concessions for Sections 2 and 3 of IIRSA South in June 2005. Compl. ¶¶ 48–49.
Odebrecht owned 70% of the consortium; Graña owned 19%; and two other minority
shareholders collectively owned 11%. Id. ¶ 54. Graña had no decision-making authority. Id. ¶
51. Odebrecht’s 70% ownership stake empowered it unilaterally to make and implement day-to-
day decisions for the consortium. In 2011, Graña sold all of its interest in IIRSA South. Id. ¶ 55.
 Lima Metro: Consorcio Tren Electrico Lima (“CTE”) was formed in 2008
and was awarded the concession for construction of the Lima Metro Line 1 in 2009. Id. ¶¶ 56,
58. Odebrecht controlled CTE with its 67% interest; Graña owned 33% of the stock. Id. ¶ 57.
II. Operation Car Wash And Odebrecht’s Bribery Scheme
In 2014, Brazilian law enforcement authorities initiated an extensive bribery investigation
resulting in convictions of dozens of Odebrecht executives on corruption and other charges
relating to Odebrecht’s payment of hundreds of millions of dollars in bribes to government
officials around the world. Id. ¶¶ 74–75. In December 2016, Odebrecht entered a plea
agreement with the U.S. Department of Justice. Odebrecht pled guilty to conspiracy to violate
the Foreign Corrupt Practices Act and agreed to pay a combined criminal penalty of $3.5 billion.
Id. ¶ 75. With respect to Peru, Odebrecht admitted to paying $29 million in bribes to Peruvian
government officials. Id. ¶ 80. Specifically, Odebrecht admitted that (a) in 2005, it paid $20
million to an intermediary of then-President Toledo in connection with the award of the IIRSA
South concession in 2005; and (b) in 2008, it paid $9 million to the administration of then-
President García to win the Lima Metro concession awarded in 2009. Id. ¶¶ 81–82, 84.
5
Plaintiffs allege that Graña reimbursed Odebrecht for its proportional share of the bribe
payments by agreeing to receive profit distributions lower than Graña’s percentage ownership
interest. Id. ¶¶ 145–46, 153–54. Dividend distribution agreements for IIRSA South and Lima
Metro state that Odebrecht was entitled to higher distributions because it assumed “additional
risks” for the benefit of the consortium. Id. ¶¶ 148, 157. As Graña has previously explained, the
“concept of additional risks is something often used in the construction sector, in consortiums in
which many companies are involved, and refers to the different roles and responsibilities that the
companies assume.” Compl. Ex. 2 at 2. As stated in the dividend distribution agreements,
Graña understood that the differential dividend payments related to legitimate project costs and
risks incurred by Odebrecht that justified increased payment. Compl. ¶¶ 148, 157.
In February 2017, a news article reported that the former head of Odebrecht’s operations
in Peru, Jorgé Barata, told a Peruvian prosecutor that other companies in the IIRSA South project
were aware that Odebrecht had made payments and would be reimbursed. He did not, however,
identify Graña (or any other person or company) by name. Id. ¶¶ 107–08; Compl. Ex. 1.
On November 24, 2017, another news article reported that Odebrecht’s imprisoned
former president, Marcelo Odebrecht, had told Peruvian prosecutors that Graña was aware that
bribes had been paid in connection with the IIRSA South project. Compl. ¶ 115.
On December 4, 2017, Peruvian Judge Concepción granted Prosecutor Hamilton Castro’s
(the “Prosecutor”) request for preventative detention of Jose Graña, Hernando Graña, and
another former executive, Gonzalo Ferraro, in connection with the investigation. Id. ¶¶ 116–17.
The bribes at issue for IIRSA South occurred in 2005, well prior to the Class Period. Id. ¶ 81.
The Complaint highlights two February 23, 2018 rulings by Judge Concepción denying
motions to vacate the preventative detention decisions. Id. ¶¶ 119–20. However, both
6
resolutions were revoked in their entirety on appeal. Ex. 7; Ex. 9.6 In four separate appellate
decisions, each reversing rulings by Judge Concepción, the Peruvian First National Criminal
Court of Appeals held the Prosecutor’s alleged collusion scheme to be legally deficient. Exs. 7–
10. The Prosecutor relied on claims that Graña was at some later point informed that bribes had
been paid by Odebrecht, who would need to be reimbursed. The appellate court ruled that “after-
the-illegal-act” actions did not constitute collusion under Peruvian law and that, to establish
criminal collusion, the Prosecutor needed to show a defendant’s agreement to bribe payments
before such bribes were paid to governmental officials, which the Prosecutor failed to do.7
The Complaint also cites a February 28, 2018 resolution incorporating Graña and three
other companies in the IIRSA South criminal investigation. Compl. ¶ 125. That resolution too
has been revoked. On June 22, 2018, the First National Criminal Court of Appeals revoked the
February resolution on the basis that the Prosecutor had failed to present a formal accusation
stating a cognizable crime of collusion against Graña and the other companies. Ex. 10 ¶¶ 3.6–.7.
III. Graña’s Alleged Misstatements And Omissions
Plaintiffs allege the following purported misrepresentations by Graña:
6
The Complaint cites numerous passages from Judge Concepción’s resolution critical of the
criminal defendants’ submission of evidence to show that the differential distribution of dividends
was not related to bribery. However, the appellate court expressly and roundly rejected this
particular ruling, characterizing Judge Concepción’s ruling on this point as an “implausible
argument” given the absence of evidence to support it. Ex. 9 ¶ 3.5.9. The Peruvian First National
Criminal Court of Appeals held that the submission of evidence in support of their defense was not
grounds for a finding of obstruction, and that the lower court’s ruling on this point deprived the
defendants of the fundamental “right of defense” they were entitled to under Peru’s Magna Carta. Id.
7
Ex. 7 ¶ 4.12 (“[T]he aforementioned defendant has not been directly identified as having
been aware of the unlawful agreements that were reportedly executed by the character in question
with former President Alejandro Toledo Manrique, being this information of the utmost importance .
. . .”); Ex. 8 ¶ 3.2.11 (“Collusion is completed with the illegal agreement between the public official
and the stakeholder” and “[t]here is no room for considering a second after-the-illegal-act as part
thereof . . . .”); see also Ex. 9 ¶ 3.6.4.
7
1. Graña’s Financial Statements. Plaintiffs conclusorily allege that, as a result of
the purported bribery, Graña materially misstated its net income in its 2013 Prospectus and in
subsequent Form 20-F filings “based on Graña’s payment of its proportional share of bribery to
Odebrecht by means of differential dividend distribution.” Compl. ¶¶ 200, 249(a), 283(a),
316(a), 332(b). But Plaintiffs never explain how Graña’s net income was misstated. They do
not and cannot because Graña’s net income accurately reflected the dividends received.
The Complaint further alleges that Graña’s financials were materially false or misleading
because they did not include expenses for the alleged bribes when those payments were incurred.
Id. ¶¶ 337, 343–61. Plaintiffs make no effort to explain how or why bribes alleged by Plaintiffs
in 2005 and 2008 impacted the 2013 or subsequent financial statements.
Plaintiffs further allege that Graña’s financial statements failed to disclose contingencies
associated with the unlawful bribery scheme. Id. ¶¶ 362–67.
2. Puffery. Plaintiffs allege that statements that Graña abided by the “highest
corporate governance standards for listed companies in Peru,” id. ¶ 203, and believed that it was
“in compliance with all applicable concessions, other similar contracts, laws and regulations in
all material respects,” id. ¶ 216, failed to disclose Graña’s involvement in Odebrecht’s bribery.
3. Forward-Looking Statements. Plaintiffs allege that Graña lacked a reasonable
basis for statements about future financial prospects, including that Graña believed it was “well-
positioned to win contracts related to” concessions from the Peruvian government. Id. ¶ 218.
4. Effectiveness of Graña’s Disclosure Controls. Plaintiffs allege Graña failed to
report material weaknesses in internal controls over financial reporting. Id. ¶¶ 281, 312, 316(e).
LEGAL STANDARD
Rule 12(b)(6) requires dismissal of any complaint that fails to plead sufficient grounds
for relief. See Ashcroft v. Iqbal, 556 U.S. 662, 678–87 (2009). A complaint must contain
8
“allegations plausibly suggesting” an “entitle[ment] to relief.” Bell Atl. Corp. v. Twombly, 550
U.S. 544, 557 (2007) (internal quotation marks omitted). “[R]everse-engineered” allegations
“craftily drafted to imply that what only became clear due to subsequent events was somehow
known to [defendants] far earlier in time” do not satisfy this standard. Panther Partners, Inc. v.
Ikanos Commc’ns, Inc., 538 F. Supp. 2d 662, 669–70 (S.D.N.Y. 2008), aff’d, 347 F. App’x 617
(2d Cir. 2009) (internal quotation marks and citation omitted).
The PSLRA and Federal Rule of Civil Procedure Rule 9(b) impose a heightened pleading
standard on securities class action claims. See Tellabs, 551 U.S. at 314; ATSI, 493 F.3d at 99. A
complaint alleging securities fraud must meet the requirement of Rule 9(b) that a party “must
stat[e] with particularity the circumstances constituting fraud.” ECA & Local 134 IBEW Joint
Pension Tr. of Chi. v. JPMorgan Chase Co., 553 F.3d 187, 196 (2d Cir. 2009). “Allegations that
are conclusory or unsupported by factual assertions are insufficient.” ATSI, 493 F.3d at 99. In
addition, a complaint alleging securities fraud must comply with the pleading requirements of the
PSLRA. See 15 U.S.C. § 78u–4(b). The PSLRA requires that “securities fraud complaints
‘specify’ each misleading statement; that they set forth the facts ‘on which [a] belief’ that a
statement is misleading was ‘formed’; and that they ‘state with particularity facts giving rise to a
strong inference that the defendant acted with the required state of mind.’” Dura Pharms., Inc.
v. Broudo, 544 U.S. 336, 345 (2005) (quoting 15 U.S.C. § 78u–4(b)(1), (2)).
ARGUMENT
I. Plaintiffs Fail To Plead Any Material Misstatement Or Omission
A Section 10(b) complaint must, among other things, “specify each misleading
statement” and “set forth the facts on which [a] belief that a statement is misleading was
formed.” Anschutz Corp. v. Merrill & Co., Inc., 690 F.3d 98, 108 (2d Cir. 2012) (quoting Dura
9
Pharms., 544 U.S. at 345) (internal quotation marks omitted).8 To plead a claim of securities
fraud, plaintiffs “must do more than say that the statements . . . were false and misleading; they
must demonstrate with specificity why and how that is so.” Rombach v. Chang, 355 F.3d 164,
174 (2d Cir. 2004). Plaintiffs fail to do so here.
A. There Is No General Duty To Disclose Uncharged, Unproven Criminal

Conduct
Plaintiffs’ overarching contention is that Graña failed to disclose the existence of bribery.
Even assuming arguendo that Graña knew about Odebrecht’s bribery payments (which it did
not), the securities laws do not impose a general duty to disclose wrongdoing or unproven
criminal conduct. See City of Pontiac Policemen’s & Firemen’s Ret. Sys. v. UBS AG, 752 F.3d
173, 184 (2d Cir. 2014); In re Marsh & Mclennan Cos., Inc. Sec Litig., 501 F. Supp. 2d 452, 469
(S.D.N.Y. 2006) (“[T]he securities laws do not impose a general duty to disclose . . . uncharged
criminal conduct.”). It is well-settled that “an omission is actionable under the securities laws
only when the corporation is subject to a duty to disclose the omitted facts.” Cortina v. Anavex
Life Scis. Corp., 15-CV-10162 (JMF), 2016 WL 7480415, at *5 (S.D.N.Y. Dec. 29, 2016)
(internal quotation marks and citation omitted); see also In re Time Warner Inc. Sec. Litig., 9
F.3d 259, 267 (2d Cir. 1993) (“[A] corporation is not required to disclose a fact merely because a
reasonable investor would very much like to know that fact.”).
A duty to disclose uncharged criminal conduct arises only if there is a specific connection
between the illegal conduct and alleged misleading statements “beyond the simple fact that a
criminal conviction would have an adverse impact upon the corporation’s operations in general
8
To state a claim under Section 10(b), a plaintiff must allege facts sufficient to show “(1) a
material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the
misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the
misrepresentation or omission; (5) economic loss; and (6) loss causation.” Amgen Inc. v. Conn. Ret.
Plans & Tr. Funds, 568 U.S. 455, 460–61 (2013) (internal quotation marks and citation omitted).
10
or the bottom line.” Menaldi v. Och-Ziff Capital Mgmt. Grp. LLC, 164 F. Supp. 3d 568, 581
(S.D.N.Y. 2016) (internal quotation marks and citation omitted).
The recent Braskem case is instructive. Braskem is an Odebrecht affiliate that admitted
to engaging in widespread bribery. Many securities class actions were filed alleging that
Braskem’s “failure to disclose its long-running bribery scheme violated federal securities law.”
In re Braskem S.A. Sec. Litig., 246 F. Supp. 3d 731, 740 (S.D.N.Y. 2017). The Braskem
plaintiffs used the standard playbook and alleged many of the same claims as Plaintiffs in this
case—e.g., that Braskem’s failure to disclose its involvement in bribery rendered false and
misleading its financial statements, its annual Form 20-Fs, its code of conduct and ethics, and its
public statements about being a reputable company. The court rejected each of these types of
allegations. Citing a long line of Second Circuit law, the court explained that:
[A]s to whether defendants had a duty to disclose the naphtha bribery scheme,
for plaintiffs to state a § 10(b) claim, the [complaint] must adequately plead that
Braskem made a statement that—absent disclosure of the bribery scheme—was
“misleading as to a material fact.” That is because—as plaintiffs acknowledge—
Braskem did not have a freestanding legal duty to disclose the bribery scandal,
no matter how unseemly the scandal was and no matter how significant the
scandal would have been to the market. Federal securities law “do[es] not create
an affirmative duty to disclose any and all material information.”
Id. (quoting Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 38 (2011)) (internal citation
omitted). Braskem directly addressed each of the types of claims asserted by Plaintiffs in this
case. All of these general claims failed as a matter of law and were dismissed in Braskem. The
only category of claims that survived the motion to dismiss was a subset of statements,
specifically about Braskem’s naphtha pricing practices, which were adequately alleged to be
false in light of Braskem’s subsequent admissions about them. See id. at 758.
Plaintiffs’ attempt to argue that Odebrecht’s plea agreement somehow imposed some sort
of triggering effect on Graña to disclose alleged misconduct fails as a matter of law. “[T]here is
11
no requirement ‘to make disclosures predicting [impending] litigation,’ absent an allegation that
the litigation ‘was substantially certain to occur during the relevant period.’” In re Marsh &
Mclennan, 501 F. Supp. 2d at 471 (internal citation omitted); see also In re Par Pharm., Inc. Sec.
Litig., 733 F. Supp. 668, 675 (S.D.N.Y. 1990).
In Par, for example, the defendant company’s records were subpoenaed in connection
with a broader congressional investigation into allegations of bribery in the FDA’s generic drug
approval process. 733 F. Supp. at 673. Plaintiffs alleged that the company “misrepresented the
likelihood that the government would take action against” the company. The court rejected this,
holding that the “plaintiffs’ contention that the documents [defendant] disseminated to the public
. . . should have predicted the consequences of discovery of the bribery scheme . . . cannot be the
basis of Rule 10b-5 liability.” Id. at 678. Like the defendant company in Par, Graña had no
obligation to disclose any alleged misconduct merely because it was aware of a broader
government investigation into another Company’s wrongdoing involving projects in which
Graña participated.9
Plaintiffs also allege that Graña failed to disclose that its growth was driven by “bribery
of government leaders.” Compl. ¶¶ 249(h), 283(i), 316(i), 332(j). It was not. Even assuming it
was, there is no duty for a company to disclose that past revenue was derived from illegal or
9
Here, no charges were brought against Graña or any of its directors or officers during the
Class Period. Graña promptly disclosed conduct that was formally charged by Peruvian authorities
when that happened. It was not until well after the end of the Class Period that certain of the
Individual Defendants were placed in preventative detention, Compl. ¶ 117—a fact promptly
disclosed by Graña, id. ¶ 118—pursuant to decisions that were subsequently overturned on appeal.
Ex. 8; Ex. 10. Likewise, Graña promptly disclosed that it had been incorporated, through a since-
revoked resolution, in a criminal investigation by the Peruvian First National Investigation Court
concerning the IIRSA South project on February 28, 2018. Compl. ¶ 125; Ex. 11.
12
illegitimate sources. See In re Citigroup, Inc. Sec. Litig., 330 F. Supp. 2d 367, 377 (S.D.N.Y.
2004), aff’d sub nom. Albert Fadem Tr. v. Citigroup, Inc., 165 F. App’x 928 (2d Cir. 2006).10
B. Plaintiffs Fail To Plead Any Falsity In Graña’s Financial Statements
Plaintiffs’ allegations center on Graña’s financial statements, but the Complaint fails to
allege any way in which these statements were false or misleading. First, Plaintiffs allege that
Graña materially misstated net income figures “based on Graña’s payment of its proportional
share of bribery to Odebrecht by means of a differential dividend distribution.” Compl. ¶¶
249(a), 283(a), 316(a), 332(b). However, Plaintiffs do not and cannot plead that any of the net
income figures reported by Graña were wrong in any way. They do not, for example, allege that
Graña’s actual net income was other than as reported or how and why net income was
supposedly actually lower (or higher). As the Braskem court explained, “a corporation, by
reporting its income, does not take on a duty to disclose that some of that income may be due, in
part, to unlawful conduct.” 246 F. Supp. 3d at 753 (internal citation omitted). Accordingly, the
Braskem court rejected securities fraud claims alleging that the company needed to disclose that
its income was improperly obtained through bribes. Id. Similarly, in In re Sanofi Securities
Litigation, the court held that “the allegation that a corporation properly reported income that is
alleged to have been, in part, improperly obtained is insufficient to impose Section 10(b)
liability.” 155 F. Supp. 3d 386, 404 (S.D.N.Y. 2016) (internal quotation marks and citation
omitted).
10
In addition, the 2015 Form 20-F also alerted investors to the risks posed by Graña’s past
partnerships with Odebrecht, including the possibility of a government investigation into Graña’s
potential role: “[T]he Perúvian congress has initiated an investigation into the dealings of
Odebrecht’s affiliates in Perú. We cannot assure you that these investigations will not be broadened
to include other entities relating to Odebrecht’s consortia in the country, including, among others, our
subsidiary GyM . . . [N]ews reports indicate that the investigation includes the concessions for
Interoceanica Norte and Interoceanica Sur highways . . . .” Compl. ¶ 298; see also Ex. 3. at 30.
13
Second, Plaintiffs claim that IFRS accounting standards required the bribes to be
expensed when incurred. Compl. ¶¶ 349–60. Even if true, Plaintiffs might at best succeed in
alleging an issue with the financial statements of 2005 and 2008, respectively, when the IIRSA
South and Lima Metro bribes were allegedly incurred. Id. ¶¶ 81–82. Any alleged failure to
record expenses had no effect on the financial statements at issue after Graña sold its interest in
IIRSA South in 2011, id. ¶ 55, or during the Class Period beginning two years later in 2013.
Third, Plaintiffs allege that Graña failed to disclose contingent liabilities from the alleged
unlawful acts. Id. ¶¶ 362–67. As discussed above, however, the securities laws do not impose a
general duty to disclose uncharged criminal conduct or misconduct. For this reason, Graña
cannot be held liable for a failure to perfectly predict the future, including potential fines or
penalties associated with a possible government or regulatory investigation. See, e.g., In re
Lions Gate Entm’t Corp. Sec. Litig., 165 F. Supp. 3d 1, 12 (S.D.N.Y. 2016) (“[T]he securities
laws do not impose an obligation on a company to predict the outcome of investigations.”); In re
Par Pharm., 733 F. Supp. at 678 (holding that a company is “not obligated to speculate as to the
myriad of consequences, ranging from minor setbacks to complete ruin,” that might result from
the discovery of alleged unlawful conduct). Indeed, given that the “outcome of legal
proceedings is inevitably uncertain,” it was impossible for Graña to “disclose information of
which it had no knowledge or about which it could only speculate.” Ballan v. Wilfred Am. Educ.
Corp., 720 F. Supp. 241, 248 (E.D.N.Y. 1989) (internal citation omitted).
C. Statements About Corporate Governance And Ethics Are Puffery
Graña’s statements in its Prospectus and Form 20-Fs about a “strong corporate culture
based on principles of high-quality, professionalism, reliability, and efficiency,” and
commitment to “the highest corporate governance standards,” see, e.g., Compl. ¶¶ 204, 242, are
paradigmatic examples of inactionable puffery. These types of statements are “too general to
14
cause a reasonable investor to rely upon them” and are inactionable as a matter of law. City of
Pontiac, 752 F.3d at 183 (“[G]eneral statements about reputation, integrity, and compliance with
ethical norms are inactionable ‘puffery.’”); ECA, 553 F.3d at 205–06 (Statements about “standard-
setting reputation for integrity” are “precisely the type of ‘puffery’ that this and other circuits have
consistently held to be inactionable.”) (internal citations omitted); Braskem, 246 F. Supp. 3d at 755
(Statements of “‘trustworthy culture,’ . . . commitment to ‘integrity,’ . . . ‘compliance with the
laws,’” and “commitment to ‘transparency and good corporate practices’” are inactionable puffery).
Plaintiffs assert that the alleged bribery by Graña and the Director Defendants violated
Graña’s policies. This does not suffice to plead falsity. See, e.g., In re ITT Educ. Servs., Inc.
Sec. & S’holder Deriv. Litig., 859 F. Supp. 2d 572, 581 (S.D.N.Y. 2012) (“Plaintiff’s allegations
of specific instances of unethical or fraudulent practices do not render Defendants’ broad
statements regarding compliance misleading.”). Courts recognize that codes of conduct tend to
be “aspirational” and therefore “it simply cannot be that every time a violation of that code
occurs, a company is liable under federal law for having chosen to adopt the code at all.”
Braskem, 246 F. Supp. 3d at 755–56 (internal quotation marks and citation omitted).11 For this
reason, a code of conduct “is a particularly inapt candidate to serve as the basis for § 10(b)
liability.” Braskem, 246 F. Supp. 3d at 755 (citing City of Pontiac, 752 F.3d at 183).
Plaintiffs take issue with Graña’s statement that “we believe we are in compliance with
all applicable concessions, other similar contracts, laws and regulations in all material respects.”
E.g., Compl. ¶ 216. Plaintiffs allege this statement failed to disclose Graña’s alleged bribery.
11
Notably, Graña did not guarantee to investors that all of its employees were in compliance
with Graña’s policies. See City of Brockton Ret. Sys. v. Avon Prods., Inc., No. 11 Civ. 4665(PGG),
2014 WL 4832321, at *16 (S.D.N.Y. Sept. 29, 2014) (“[T]he Ethics Codes and the Corporate
Responsibility Reports offer no assurance that Avon’s compliance efforts will be successful . . . .
Such statements are not material.”).
15
This claim fails as a matter of law because Plaintiffs do not contend that Graña’s statement was
not an “opinion . . . honestly held.” Omnicare, Inc. v. Laborers Dist. Council Const. Indus.
Pension Fund, 135 S. Ct. 1318, 1327 (2015).12 In any event, the Prospectus and 2013 Form 20-F
did disclose the risk that Graña’s stated belief of legal compliance may be mistaken: “Although
we believe we are in compliance with all applicable . . . laws and regulations in all material
respects, we cannot assure you we have been or will be at all times in full compliance.” Compl.
¶¶ 216 (quoting Prospectus), 240 (quoting 2013 Form 20-F). Graña warned over and over:
“Failure by us or our clients to comply with . . . these laws or regulations could result in a range
of adverse consequences for our business, including subjecting us to significant fines, civil
liabilities and criminal sanctions.” Ex. 1 at 21; Ex. 2 at 22; Ex. 3 at 28; Ex. 4 at 25.
D. Many Of The Alleged Misstatements And Omissions Are Forward-Looking

Statements Protected By The PSLRA Safe Harbor And Common Law
“Bespeaks Caution” Doctrine
The PSLRA statutory safe harbor and common law “bespeaks caution” doctrine protect
Graña’s forward-looking statements about business prospects from allegations of falsity because
they were accompanied by meaningful cautionary language. See Rombach, 355 F.3d at 173; see
also Halperin v. eBanker USA.com, Inc., 295 F.3d 352, 357 (2d Cir. 2002). Here, comments
regarding Graña’s “robust backlog” cautioned that “backlog may not always be an accurate
indicator of future revenues,” and cited to its Risk Factor disclosures, reiterating: “Our backlog
and our ratio of historical backlog to revenues may not be reliable indicators of future revenues
or profit.” Ex. 5 at 6. Graña further warned that it “may not be able to continue to grow [its]
business at the same pace as recent years, or at all” and “[n]or can we assure you that as our
12
The Omnicare Court emphasized that alleging a misleading opinion as actionable under the
securities laws is “no small task for an investor,” who “must identify particular (and material) facts
going to the basis for the issuer’s opinion . . . whose omission makes the opinion statement at issue
misleading to a reasonable person.” Id. at 1332 (internal citation omitted).
16
company continues to grow we will be able to maintain our performance standards and corporate
values across our entire organization.” Id. at 17. While Graña expressed confidence that it could
win future public work contracts, the relevant risk factor disclosures cautioned that Graña “may
not be successful in obtaining new concessions” and that “governmental entities may terminate
prematurely concessions and similar contracts.” Id. at 9. Such cautionary language directly
addressing the risks cited in the Complaint renders these “alleged misrepresentations . . .
immaterial as a matter of law.” Rombach, 355 F.3d at 173; see also San Leandro Emergency
Med. Grp. Profit Sharing Plan v. Philip Morris Cos., Inc., 75 F.3d 801, 811 (2d Cir. 1996).
Plaintiffs also repeatedly allege that Graña’s unlawful practices subjected Graña to
undisclosed risks, “including monetary risk, reputation risk, risks associated with retention
and/or renewal of existing contracts . . . and the imposition of civil and/or criminal sanctions . . .
.” E.g., Compl. ¶ 249(d). However, the Complaint acknowledges that Graña made specific and
extensive disclosures in its SEC filings about the criminal convictions of Odebrecht executives at
the time the information came to light and stated that Graña’s reputation and investments could
be affected by these developments. E.g., id. ¶ 298. It is axiomatic that Graña cannot be held
liable for failing to disclose what was in fact disclosed. See Halperin, 295 F.3d at 359–60; see
also In re Keyspan Corp. Sec. Litig., 383 F. Supp. 2d 358, 377 (E.D.N.Y. 2003).13
13
In addition, Graña’s 2015 Form 20-F specifically warned investors that Graña’s “reputation
may be affected due to the recent criminal convictions by Brazilian courts of the ex-president and
other former executives of Odebrecht S.A. for charges of corruption, money laundering and criminal
organization.” Compl. ¶ 298. This Form 20-F advised investors that the Peruvian Congress had
reportedly “initiated an investigation into the dealings of Odebrecht’s affiliates in Perú,” and that
Graña could not “assure . . . that these investigations will not be broadened to include other entities
relating to Odebrecht’s consortia in the country, including, among others, [Graña’s] subsidiary
GyM.” Id.
17
E. Graña’s Statements Regarding The Effectiveness Of Its Disclosure Controls

Are Not Actionable
Plaintiffs allege that Graña’s statements that management had evaluated disclosure
controls and found them to be effective were materially false and misleading because they failed
to disclose that Graña was involved in Odebrecht’s bribery scheme. These allegations do not
form the basis of a securities claim because the Complaint fails to allege any particularized facts
suggesting that the actions and processes articulated in Graña’s public filings, including in the
Individual Defendants’ Sarbanes-Oxley (“SOX”) certifications, were not in fact undertaken. It is
not enough to conclusorily plead that Graña’s disclosure controls were either inadequately
designed or insufficient. See In re Gentiva Sec. Litig., 932 F. Supp. 2d 352, 370 (E.D.N.Y. 2013)
(dismissing plaintiffs’ claim because complaint failed to allege “any particularized facts which
would suggest that the actions articulated in the SOX Certifications were not undertaken” or
“any factual allegations concerning [the company’s] financial reporting processes”).
There are, for example, no factual allegations that dispute the statements in the Form 20-
F annual reports that Graña employees utilized specific criteria for effective internal controls and
received reports from its outside auditors certifying that its internal controls were effective. E.g.,
Ex. 2 at 187. As a result, even assuming Graña’s involvement in Odebrecht’s corruption, the
Complaint fails to allege any facts that would call into question Graña’s financial reporting
controls or otherwise give rise to SOX liability. See In re PetroChina Co. Ltd. Sec. Litig., 120 F.
Supp. 3d 340, 359–60 (S.D.N.Y. 2015). In PetroChina, for example, the court held that similar
SOX certifications did not give rise to securities liability because, “[e]ven if PetroChina officials
were engaging in bribery,” that did not mean, and the plaintiffs did not plead, “that the Company
had flawed internal controls over financial reporting.” Id. at 359–60; see also Braskem, 246 F.
Supp. 3d at 757–58.
18
II. Plaintiffs Fail To Plead A Strong Inference Of Scienter
Plaintiffs’ Section 10(b) claim must be dismissed for another reason—their failure to
plead a strong inference of scienter as required by the PSLRA. To survive a motion to dismiss
under the PSLRA, a complaint must “with respect to each act or omission alleged to violate [the
securities laws], state with particularity facts giving rise to a strong inference that the defendant
acted with the required state of mind.” 15 U.S.C. § 78u–4(b)(2)(A). The requisite “strong
inference” of scienter cannot be merely “reasonable or permissible.” Tellabs, 551 U.S. at 310
(internal quotation marks omitted). “A complaint will survive . . . only if a reasonable person
would deem the inference of scienter cogent and at least as compelling as any opposing inference
one could draw from the facts alleged.” Id. at 324; see also ECA, 553 F.3d at 196 (“[W]hile we
normally draw reasonable inferences in the non-movant’s favor on a motion to dismiss, the
PSLRA establishes a more stringent rule for inferences involving scienter . . . .”) (internal
quotation marks and citation omitted).
Thus, “to determine whether a complaint’s scienter allegations can survive threshold
inspection for sufficiency, a court governed by the PSLRA must engage in a comparative
evaluation; it must consider, not only inferences urged by the plaintiff, . . . but also competing
inferences rationally drawn from the facts alleged.” Orlan v. Spongetech Delivery Sys., Inc., No.
10-CV-4093(DLI)(RML), 2017 WL 1131900, at *6 (E.D.N.Y. Mar. 24, 2017) (internal
quotation marks and citations omitted). Fraudulent inferences must be rejected where they are
less compelling than the non-culpable explanation. This is so even if it is “a close case.” Slayton
v. Am. Express Co., 604 F.3d 758, 777 (2d Cir. 2010).
Scienter can be pled through either (a) motive and opportunity to perpetrate fraud or (b)
strong circumstantial evidence of conscious misbehavior. ATSI, 493 F.3d at 99. Here, Plaintiffs
fail on both counts.
19
A. Plaintiffs Fail To Plead That Defendants Had Motive To Commit Fraud
Plaintiffs offer no financial or other motive for Defendant Graña to have defrauded
Graña’s shareholders throughout the Class Period. The only potential “motive” that the
Complaint identifies is that “Graña concealed the illicit means of procuring numerous projects,
which generated millions of dollars in lucrative additional business . . . . ” Compl. ¶ 5. The case
law is clear that “[i]t is not enough . . . ‘to allege goals that are possessed by virtually all
corporate insiders, such as the desire to . . . sustain the appearance of corporate profitability or
the success of an investment . . . .’” Altayyar v. Etsy, Inc., 242 F. Supp. 3d 161, 183 (E.D.N.Y.
2017) (citing S. Cherry St., LLC v. Hennessee Grp. LLC, 573 F. 3d 98, 108 (2d Cir. 2009)). “If
this Court were to accept that a corporation’s general interest in profitability establishes motive
to lie, ‘virtually every company in the United States that experiences a downturn in stock price
could be forced to defend securities fraud actions.’” Id. (citing Acito v. IMCERA Grp., Inc., 47
F.3d 47, 54 (2d Cir. 1995). Tellingly, Plaintiffs do not allege any stock sales by any of the
Individual Defendants, which is the classic pleading of motive. See Novak v. Kasaks, 216 F.3d
300, 308 (2d Cir. 2000).
B. Plaintiffs Fail To Plead Strong Circumstantial Evidence That Defendants

Acted With Conscious Misbehavior Or Recklessness
Where, as here, Plaintiffs fail to plead motive, allegations of conscious misbehavior must
be “correspondingly greater.” Kalnit v. Eichner, 264 F.3d 131, 142 (2d Cir. 2001) (internal
citation omitted). At a minimum, conscious misbehavior requires “conscious recklessness—i.e.,
a state of mind approximating actual intent, and not merely a heightened form of negligence.”
Stratte-McClure v. Morgan Stanley, 776 F.3d 94, 105 (2d Cir. 2015) (internal quotation marks
and citation omitted). To plead recklessness, plaintiffs must plead not just negligence or even
gross negligence, but rather “an extreme departure from the standards of ordinary care . . . to the
20
extent that the danger was either known to the defendant or so obvious that the defendant must
have been aware of it.” Rothman v. Gregor, 220 F.3d 81, 90 (2d Cir. 2000) (internal quotation
marks and citation omitted).
The Complaint relies extensively on generic scienter arguments that do not satisfy the
PSLRA. Plaintiffs allege that, by virtue of being executive officers and “personnel at the highest
levels of the Company,” the Individual Defendants “should have been aware of key facts related
to the Company’s operations.” Compl. ¶¶ 369–71. However, courts routinely reject the
argument that individuals must have known that alleged misstatements were false because they
were high-level officers. See Bd. of Trs. of City of Ft. Lauderdale Gen. Emps.’ Ret. Sys. v.
Mechel OAO, 811 F. Supp. 2d 853, 873 (S.D.N.Y. 2011) (“[C]ourts in this District have long
held that accusations founded on nothing more than a defendant’s corporate position are entitled
to no weight.”) (internal quotation marks and citations omitted). Plaintiffs fail to plead any
“allegations of specific contemporaneous statements or conditions that demonstrate” scienter. In
re Am. Int’l Grp., Inc. 2008 Sec. Litig., 741 F. Supp. 2d 511, 532–33 (S.D.N.Y. 2010). Nor do
Plaintiffs plead any facts showing that Defendants ignored contradictory information at the time
the alleged misstatements were made. See Marsh & Mclennan, 501 F. Supp. 2d at 483–84
(“Second Circuit cases uniformly rely on allegations that specific contradictory information was
available to the defendants at the same time they made their misleading statements.”) (citing
Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1129 (2d Cir. 1994)).
Plaintiffs rely heavily on statements attributed to former Odebrecht executive Jorgé
Barata and former CEO Marcelo Odebrecht to establish that Defendants knew of the bribery
scheme. However, statements that are not sufficiently trustworthy cannot be used to plead an
inference of conscious misbehavior. In In re CRM Holdings, Ltd. Securities Litigation, for
example, the court held that allegations copied from unproven sources were not sufficiently well-
21
pleaded to survive a motion to dismiss. No. 10-cv-975 (RPP), 2012 WL 1646888, at *26
(S.D.N.Y. May 10, 2012). Similarly, in In re UBS AG Securities Litigation, the court explained
that it “need not consider . . . parroted allegations for which counsel has not conducted
independent investigation” or “allegations [] taken directly from uncorroborated allegations
embedded in a complaint in another action.” No. 07-cv-11225, 2012 WL 4471265, at *17 n.17
(S.D.N.Y. Sept. 28, 2012) (citing Caiafa v. Sea Containers Ltd., 525 F. Supp. 2d 398, 411
(S.D.N.Y. 2007)). Again, in North Collier Fire Control & Rescue Firefighter Pension Plan v.
MDC Partners, Inc., the court distinguished plaintiffs’ reliance on a confidential witness with
whom they personally communicated from a “lawyer’s cribbing ‘uncorroborated allegations’ that
he ma[de] no effort to verify.” No. 15 Civ. 6034 (RJS), 2016 WL 5794774, at *8 (S.D.N.Y.
2016) (internal quotation marks and citation omitted).
Here, neither Barata’s nor Marcelo Odebrecht’s alleged statements specifically identify
Graña or any individual at Graña as having prior knowledge of the alleged misconduct. The
Complaint itself alleges that all bribes at issue were paid by and negotiated exclusively by
Odebrecht. E.g., Compl. ¶¶ 6, 13, 108. In regard to Barata, the Peruvian First National Criminal
Court of Appeals noted that Barata’s statements were given pursuant to his status as a
collaborator, and that “in the absence of such corroboration” such a statement “lacks the capacity
to impair the presumption of innocence, and even less can it be used as a founded and serious
element of conviction supporting preventative detention.” Ex. 8 ¶ 2.2.2. The appellate court also
observed that Barata has not directly identified anyone at Graña as having prior knowledge of
any improper payments by Odebrecht. Ex. 9 ¶ 3.1.2; Ex. 7 at ¶ 4.12 (noting that Jose Graña “has
not been directly identified as having been aware of the unlawful agreements that were
reportedly executed by the character in question with former President Alejandro Toledo
Manrique”); Ex. 8 ¶ 3.2.12 (“[T]he circumstances in which [] Barata communicated to the parties
22
under investigation the talks he held with Toledo Manrique in order to be favored in the bidding
process were not outlined” by the Prosecutor.).
Plaintiffs have also not alleged any statements by current or former employees to
corroborate statements by Barata or Marcelo Odebrecht. Cf. N.J. Carpenters Health Fund v.
Royal Bank of Scot. Grp., 709 F.3d 109, 123–24 (2d Cir. 2013) (reasoning that a defendant’s
prior employees were likely to “possess the information alleged” because they “would have
participated in [the alleged conduct] during part or all of the relevant time period”) (internal
quotation marks and citation omitted).
Finally, Plaintiffs’ reliance on resolutions by Judge Concepción fails to plead scienter
because each and every resolution cited in the Complaint has been revoked and overturned on
appeal by the First National Criminal Court of Appeals. That appellate court specifically held
that there was no evidence or allegation of prior knowledge by anyone at Graña of bribery by
Odebrecht, a necessary element of a collusion crime under Peruvian law (the sole law applicable
at the times the bribes were allegedly paid by Odebrecht in 2005 and 2008). Ex. 9 ¶¶ 3.6.4–.5,
3.7.1, 3.7.4.1.6, 3.7.5.
In all events, the allegations in the Complaint point to a far likelier non-fraudulent
explanation—i.e., that Odebrecht concealed, and Graña was not aware of, its bribery scheme.
Odebrecht had a controlling stake in IIRSA South and Lima Metro.14 Odebrecht has admitted to
paying bribes to government officials around the world. The most plausible inference, and really
the only plausible inference, from these facts is that Odebrecht concealed its widespread bribery
14
Despite Plaintiffs’ claim that the IIRSA South consortium could take no “action without
Graña’s affirmative input and vote” following the 2016 increase in Graña’s shares, Compl. ¶ 373, the
plain language of the IIRSA South Shareholder Agreement makes clear that the consortium could
make day-to-day management decisions with only a 70% majority—which in fact meant that
Odebrecht could make such day-to-day decisions without the involvement of any minority
shareholder given its 70% stake in the concession consortium. Ex. 6.
23
from everyone, including Graña. For Odebrecht to have perpetrated a widespread and
longstanding bribery scheme for over a decade, it would have been self-defeating, or at least
counter-productive, for Odebrecht to disclose its scheme to and discuss it with its many minority
partners, including Graña. To the contrary, Odebrecht’s plea agreement details a carefully
orchestrated arrangement involving “the development and operation of this secret financial
structure” and establishment of the “Division of Structured Operations,” which “effectively
functioned as a bribe department within Odebrecht.” Ex. 12 at B-7; see also Ex. 12 at B-9-11.15
Notably, the plea agreement makes no mention of any knowledge or involvement in Odebrecht’s
bribery scheme by any minority partners in any of the numerous projects at issue.
III. Plaintiffs’ Section 10(b) Claim As It Relates To Internal Controls Must Be

Dismissed Because It Fails To Plead Loss Causation
Plaintiffs’ allegations regarding deficient internal controls must be dismissed for failure
to plead loss causation. To prevail on a Section 10(b) claim, the complaint must allege a “causal
connection” between the material misrepresentation and the alleged loss. Dura Pharms., 544
U.S. at 342. To adequately plead loss causation, a plaintiff must allege that (1) the loss was
foreseeable—i.e., the risk that caused the loss was within the zone of risk concealed by the
misrepresentations, and (2) the fraudulent statement was the cause of the actual loss suffered—
i.e., that the misstatement concealed something from the market that, when disclosed, negatively
affected the security’s value. Lentell v. Merrill Lynch & Co., Inc., 396 F.3d 161, 173 (2d Cir.
2005) (internal quotation marks and citations omitted).
15
Plaintiffs’ attempt to establish a strong inference of scienter based on the departure of three
Graña executives is unavailing. Plaintiffs claim that it “strains credulity to claim that these . . .
resignations were unrelated to the disclosure of their participation in the bribery.” Comp. ¶ 386. But
as Plaintiffs themselves point out, Graña contemporaneously disclosed that the resignations were in
part related to the false allegations made by Jorgé Barata, as well as to the financial difficulties
resulting from the termination of the GSP project and overall financial distress facing Graña at the
relevant time period. Id. ¶¶ 113, 385.
24
Plaintiffs attempt to plead loss causation through allegations that the market reacted
negatively to a “corrective disclosure” revealing the “truth” about a defendant’s prior statements.
Cf., e.g., Emergent Capital Inv. Mgmt., LLC v. Stonepath Grp., Inc., 343 F.3d 189, 197 (2d Cir.
2003). But Plaintiffs do not allege that Graña’s corrective disclosures about its internal controls
led to any appreciable stock price reaction. Graña disclosed material weaknesses in its internal
controls in its 2016 Form 20-F, which it filed after close of trading on May 15, 2018. Compl. ¶¶
191–94. Specifically, Graña disclosed that its management had “identified certain material
weaknesses” over the control environment, risk assessment, information and communication,
monitoring, and evidential matter. Ex. 4 at 177–81. Plaintiffs do not and cannot allege material
drops in Graña’s stock price in response to the aforementioned disclosures because the stock did
not materially drop after the disclosures were issued. Thus, they fail to plead loss causation.
CONCLUSION
This Court should dismiss the Complaint in its entirety and with prejudice as to Graña.
Dated: New York, NY

July 30, 2018
Respectfully submitted,
SIMPSON THACHER & BARTLETT LLP
By: /s/ George S. Wang

George S. Wang (gwang@stblaw.com)
Anar Rathod Patel (apatel@stblaw.com)
Caitlyn Chacon (caitlyn.chacon@stblaw.com)
425 Lexington Avenue
New York, New York 10017-3954
Telephone: (212) 455-2000
Facsimile: (212) 455-2502
Attorneys for Defendant Graña y Montero S.A.A.
25

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Case 2:17-cv-01105-JMA-ARL Document 51 Filed 10/26/18 Page 1 of 31 PageID #: 1146

UNITED STATES DISTRICT COURT

PRELIMINARY STATEMENT .................................................................................................... 1

FACTUAL BACKGROUND AND ALLEGATIONS .................................................................. 4

I. Graña’s Projects with Odebrecht in Peru ................................................................ 4

I. Plaintiffs Fail To Plead Any Material Misstatement Or Omission ......................... 9

B. Plaintiffs Fail To Plead Any Falsity In Graña’s Financial

C. Statements About Corporate Governance And Ethics Are Puffery .......... 14

D. Many Of The Alleged Misstatements And Omissions Are

E. Graña’s Statements Regarding The Effectiveness Of Its Disclosure

II. Plaintiffs Fail To Plead A Strong Inference Of Scienter ...................................... 19

B. Plaintiffs Fail To Plead Strong Circumstantial Evidence That

III. Plaintiffs’ Section 10(b) Claim As It Relates To Internal Controls Must Be

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