Roofers Local No. 149 Pension Fund v. Amgen Inc.

Background

Amgen used transfer pricing to allocate income to its Puerto Rico subsidiary. The Internal Revenue Service audited Amgen’s tax returns for 2010 through 2015 and proposed approximately $8.7 billion in additional taxes and about $2 billion in penalties, plus interest. The opinion states that the total potential liability was approximately $10.7 billion in back taxes and penalties, with interest on the taxes.

Amgen disclosed the IRS dispute in filings with the Securities and Exchange Commission. During much of the alleged class period, however, its filings described the proposed adjustments as “significant,” “substantial,” or potentially “material” without stating the full amounts. Amgen later disclosed that the IRS sought about $3.6 billion for tax years 2010 through 2012 and, in April 2022, disclosed that it sought about $5.1 billion in additional taxes and $2 billion in penalties for tax years 2013 through 2015. The opinion states that Amgen’s share price declined after those disclosures.

Claims and Motion

The operative amended complaint asserted two counts. Count One alleged that Amgen, Bradway, and Griffith violated Section 10(b) of the Securities Exchange Act and Securities and Exchange Commission Rule 10b-5 by making misleading statements and omissions about the IRS dispute. The main omission theory was that the defendants failed to disclose the magnitude of the potential liability. The Pension Fund also alleged that Amgen’s statements that opponents sought a “not-yet-quantified” amount of damages were affirmative misstatements.

Count Two alleged that Bradway and Griffith were control persons liable under Section 20(a) of the Exchange Act because of the alleged Section 10(b) and Rule 10b-5 violations. The defendants moved to dismiss both counts for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), arguing that the allegations did not establish actionable misstatements or omissions or the required mental state.

Court’s Analysis

The court held that the omission theory was adequately pleaded. Once Amgen chose to discuss the IRS dispute, it had to provide information necessary to make those disclosures clear and complete. The court concluded that describing a potential $10.7 billion liability only as “significant,” “substantial,” or potentially “material” could have left reasonable investors unable to assess the true financial risk. Amgen was not required to admit that the IRS’s position was correct, but it could not present an incomplete or unclear picture of the dispute’s potential financial consequences.

The court also held that the amended complaint adequately alleged scienter, meaning the required wrongful state of mind for a securities-fraud claim. It found a strong inference that the defendants acted at least recklessly because they allegedly knew the size of the proposed adjustments and the magnitude of the potential liability should have made the need for clearer disclosure obvious.

The court rejected the affirmative-misstatement theory based on Amgen’s “not-yet-quantified” language. Considering the filings as a whole, the court concluded that a reasonable investor would not have understood Amgen to be saying that the IRS had not sought a quantifiable amount. The court therefore found that the Pension Fund had not adequately pleaded falsity on that theory.

Because the court found that the Pension Fund adequately alleged an underlying Section 10(b) and Rule 10b-5 claim, it also denied dismissal of the Section 20(a) control-person claim against Bradway and Griffith. The defendants did not present separate developed arguments for dismissing that claim.

Disposition

The court denied Defendants’ motion to dismiss and ordered them to answer the amended complaint by October 21, 2024. The court denied the Pension Fund’s request for leave to amend again because the request did not explain how the identified defects in the affirmative-misstatement theory could be cured. The court also directed the Clerk to change the caption to “Jn re Amgen Inc. Securities Litigation” and close the motion at Docket Number 40.