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Ohio Firm Loses Petition to Have SEC Lawsuit Dismissed


. By Gordon Gibb

An Ohio-based chemicals and roofing company accused of gouging the federal government following an investigation resulted in an SEC whistleblower lawsuit that defendant RPM International attempted to have dismissed. On September 29, however a federal judge in Washington declined to dismiss, and the whistleblower lawsuit will move forward.

According to Law360 (10/02/17) the SEC lawsuit was founded upon a sealed whistleblower lawsuit filed in 2012 that accused RPM of gouging the government. The US Department of Justice, as is the case with a majority of whistleblower lawsuits alleging violations against the US government, reviewed the whistleblower lawsuit to determine the feasibility of becoming involved and either joining, or assuming the case.

US District Judge Amy Berman Jackson, of the US District Court for the District of Columbia, noted that RPM and the firm’s chief compliance officer “had knowledge of more than just the mere existence of an open investigation,” Judge Jackson wrote. “They knew that a federal civil complaint alleging violations of the False Claims Act was actually pending, and that [the US Department of Justice] (sic) was in the midst of determining whether it was going to intervene and take over the case,” the decision said.

Nonetheless, RPM and its CCO were accused of dragging their heels when it came to sharing details of the federal probe with investors. That delay resulted in a lawsuit against RPM by the US Securities and Exchange Commission (SEC).

When the original whistleblower lawsuit, brought under the False Claims Act (FCA), was shared with RPM in August 2012, it was understood that RPM would undertake to inform investors and the markets of the lawsuit and the open investigation by the Department of Justice. RPM, however was seen to have delayed disclosure of the matter until April of the following year, when the firm announced it would be setting aside $69 million to resolve the situation.

RPM had also claimed, in its attempt to have the SEC lawsuit dismissed, that its failure to fully disclose its potential liability to investors between August 2012 and April 2013 was protected opinion. As for any impact the lack of disclosure may have had on stock performance, the defendant argued that its stock price had been rising prior to August, 2012 and continued to rise after April, 2013 and thus any failure to disclose the federal probe to investors was immaterial.

Judge Jackson disagreed with that position, opining that stock price wasn’t the only thing that mattered, but whether the disclosure would have mattered to a reasonable investor.

RPM is reported to have ultimately paid $61 million to resolve the whistleblower lawsuit alleging FCA violations. The SEC lawsuit was filed last year, with RPM ultimately attempting to have the lawsuit transferred to Ohio. When that bid was rejected, RPM petitioned to have the SEC lawsuit dismissed. On September 29, Judge Jackson rejected their motion as well.

It is not known if RPM will attempt to appeal the ruling. The SEC lawsuit is Securities and Exchange Commission v. RPM International Inc. et al., Case No. 1:16-cv-01803, in US District Court for the District of Columbia.

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