Opinion ID: 1434342
Heading Depth: 1
Heading Rank: 4

Heading: The DOJ and SEC's Criminal and Civil Investigations

Text: The fourth additional fact relied on by the investors is the existence of investigations by the Department of Justice (DOJ) and the SEC into Diebold's operations. According to the investors, as a matter of common sense, the fact that two government agencies armed with access to the Company's internal accounting records have dedicated resources to investigating potential accounting fraud. . . suggests that more is amiss than technical accounting violations or management negligence. The existence of the DOJ investigation was first pled in the investors' proposed second amended complaint and is therefore not relevant to whether the investors' complaint of record gives rise to a strong inference of scienter. Although a government investigation is not altogether irrelevant to the scienter analysis, a decision by government agencies to investigate a company is not sufficient to meet the heightened Tellabs standard on its own, see In re Ceridian Corp., 542 F.3d at 248-49 (holding that an allegation of an ongoing SEC investigation [w]ithout more is not sufficient to establish scienter), or even in combination with the temporal-proximity factor discussed above. Government investigations can result from any number of causes, and the investors have not pointed to any facts suggesting that the SEC investigation was the result of knowing or reckless behavior by the Defendants. See NECA-IBEW Pension Fund v. Hutchinson Tech., Inc. (In re Hutchinson Tech., Inc. Secs. Litig.), 536 F.3d 952, 962 (8th Cir.2008) ([W]e consider the SEC's opening and closing an investigation irrelevant to the issue of [the plaintiff's] complaint sufficiency. The mere existence of an SEC investigation does not suggest that any of the allegedly false statements were actually false . . . [,] nor does it add an inference of scienter.). The investors' related argument is that the investigations should have served as red flags to notify the Defendants of the accounting fraud. See, e.g., In re Health Mgmt., Inc. Secs. Litig., 970 F.Supp. 192, 203 (E.D.N.Y.1997) (finding that the SEC's investigation into the company's accounts receivable served as a red flag that should have caused [the company] to investigate further). This argument is without merit, however, because neither government investigation was initiated until after the close of the Class Period in 2005, so the investigations could not have alerted the Defendants to the possible falsity of the statements during the Class Period.