Court Opinion

ID: 3206190
Source: CourtListenerOpinion
Date Created: 2016-05-24 16:00:57.29031+00
Date Added: 2024-06-11T14:28:45.281074
License: Public Domain

RECOMMENDED FOR FULL-TEXT PUBLICATION
                             Pursuant to Sixth Circuit I.O.P. 32.1(b)
                                    File Name: 16a0128p.06

                  UNITED STATES COURT OF APPEALS
                                FOR THE SIXTH CIRCUIT
                                  _________________

 SATISH DOSHI,                                          ┐
                                           Plaintiff,   │
                                                        │
                                                        │
 CITY OF LIVONIA EMPLOYEES’ RETIREMENT                  │
 SYSTEM, individually and on behalf of all others >            No. 15-5621
                                                   │
 similarly situated,
                                                   │
                              Plaintiff-Appellant, │
                                                   │
         v.                                        │
                                                   │
                                                   │
 GENERAL CABLE CORPORATION; GREGORY B. │
 KENNY; BRIAN J. ROBINSON,                         │
                            Defendants-Appellees. │
                                                   ┘
                         Appeal from the United States District Court
                      for the Eastern District of Kentucky at Covington.
                 No. 2:14-cv-00022—William O. Bertelsman, District Judge.

                                  Argued: March 16, 2016

                             Decided and Filed: May 24, 2016

                  Before: SILER, COOK, and DONALD, Circuit Judges.
                                 _________________

                                        COUNSEL

ARGUED: Joseph D. Daley, ROBBINS GELLER RUDMAN & DOWD, LLP, San Diego,
California, for Appellant. Marc J. Sonnenfeld, MORGAN, LEWIS & BOCKIUS, LLP,
Philadelphia, Pennsylvania, for Appellees. ON BRIEF: Joseph D. Daley, James A. Caputo,
Steven F. Hubachek, ROBBINS GELLER RUDMAN & DOWD, LLP, San Diego, California,
for Appellant. Marc J. Sonnenfeld, Karen Pieslak Pohlmann, MORGAN, LEWIS & BOCKIUS,
LLP, Philadelphia, Pennsylvania, David F. Fessler, FESSLER, SCHNEIDER & GRIMME, LLP,
Fort Thomas, Kentucky, for Appellees.

                                              1
No. 15-5621               Doshi, et al. v. General Cable Corp., et al.              Page 2

                                      _________________

                                           OPINION
                                      _________________

       COOK, Circuit Judge.       In October 2012, and again a year later, General Cable
Corporation announced that it would reissue several public financial statements because they
included material accounting errors. Soon after, City of Livonia Employees’ Retirement System
(“Livonia”) initiated this class-action suit against General Cable, its CEO Gregory Kenny, and its
CFO Brian Robinson (collectively Defendants) for violating §§ 10(b) and 20(a) of the
1934 Securities Exchange Act, 15 U.S.C. §§ 78j(b), 78t(a), and Securities and Exchange
Commission Rule 10b-5, 17 C.F.R. § 240.10b-5. Livonia asserts that each defendant acted at
least recklessly in issuing or approving General Cable’s materially false public financial
statements.   The Defendants counter that General Cable’s misstatements resulted from
accounting errors and a theft scheme in its Brazilian operations of which the Defendants were
unaware and that they promptly sought to remediate upon discovering them. Agreeing with the
Defendants, the district court dismissed Livonia’s complaint with prejudice because it failed to
plead scienter adequately. The district court then denied Livonia’s Rule 59(e) motion to amend
the judgment, which included a request to file an amended complaint. Livonia appeals both
decisions. We AFFIRM.

                                                I.

       General Cable manufactures and sells industrial cable and wire for use worldwide.
During the class period, Kenny served as General Cable’s CEO, and Robinson as CFO. As such,
Kenny and Robinson both had access to General Cable’s confidential financial information, and
signed its SEC filings and Sarbanes-Oxley (SOX) certifications.

       In 2007, General Cable acquired Phelps Dodge International Corporation as a privately
held subsidiary. Phelps Dodge had operations in Brazil. Following the acquisition, General
Cable realigned its management and financial reporting structure into three regions, including
Rest of World (ROW), where General Cable placed Phelps Dodge.              General Cable chose
Mathias Sandoval, Phelps Dodge’s CEO, to head ROW.
No. 15-5621                  Doshi, et al. v. General Cable Corp., et al.                    Page 3

        In October 2012, General Cable announced that its previous 22 public financial
statements (Forms 10-Q and 10-K) included material accounting errors and that investors should
no longer rely on them. These errors required General Cable to restate its 2009 through 2011
Forms 10-Q and 10-K, as well as its first two 2012 Form 10-Qs. General Cable cited as the
primary reasons for the restatement “a complex theft scheme in Brazil and, to a somewhat lesser
extent, accounting errors, primarily in Brazil.”

        While preparing its first restatement, General Cable discovered additional problems
requiring a second restatement, which it announced in October 2013. The second restatement
covered the same financial documents as the first, plus General Cable’s 2008 Forms 10-Q and
10-K, its third-quarter 2012 Form 10-Q, its 2012 Form 10-K, and its first-quarter 2013 Form 10-
Q. This time, however, General Cable pointed to improperly recognized bill-and-hold sales1 and
unrecoverable value-added-tax assets associated with the goods stolen in Brazil as prompting the
restatement.

        Following the restatements, Livonia sued on behalf of purchasers of General Cable
securities from November 3, 2010, to October 14, 2013. Livonia asserts that the restatements
demonstrate that General Cable’s original public financial statements were materially false in
violation of the securities laws.       Specifically, Livonia claims that the Defendants publicly
misstated General Cable’s financial data and erroneously certified both the data’s accuracy and
the effectiveness of General Cable’s internal controls. Livonia alleges these misstatements
occurred in business news publications, on calls with investors, and in public financial filings
and SOX certifications.        These misstatements artificially inflated prices for General Cable
securities causing Livonia’s investments to lose value.

        As for scienter, Livonia’s complaint identifies facts in seven categories that it argues
support inferring that each defendant acted at least recklessly in making or authorizing the
materially false statements.

        1
          Bill-and-hold sales allow a seller to recognize revenue before delivering goods when the sales meet
specified criteria.
No. 15-5621                     Doshi, et al. v. General Cable Corp., et al.                          Page 4

         First, Livonia claims that the Defendants failed to integrate Phelps Dodge and ROW into
General Cable’s internal control structure and shielded ROW from meaningful financial review.
Relying largely on confidential witnesses,2 Livonia alleges that these actions led General Cable’s
corporate controller to struggle to get acceptable financial information from ROW, especially
“details.” Kenny justified this lack of integration by asserting that ROW “[is] a successful
organization.” He also directed the General Cable finance department to back off when ROW
management resisted attempts by General Cable employees to obtain “information concerning
the new ROW operations.” And ROW’s CEO went “ballistic” when “anyone attempted to
interact with any of the units in [the ROW CEO’s] group.” Kenny and Robinson also knew that
General Cable had previously experienced material weaknesses in its financial controls.

         Second, Livonia alleges that General Cable recognized revenue from bill-and-hold sales
in Brazil that failed to meet four of the SEC’s criteria.                    Despite these failures, Robinson
personally approved each bill-and-hold sale in Brazil via email.

         Third, Livonia asserts that Kenny and Robinson recklessly reviewed, evaluated, and
certified the effectiveness of General Cable’s internal controls. This is so, says Livonia, because
despite Kenny and Robinson using the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) framework in their original review of General Cable’s internal controls,
they failed to discover weaknesses in those controls until applying the COSO framework a
second time while preparing the first restatement. Livonia thus claims that Kenny and Robinson
acted at least recklessly in not discovering the internal control weaknesses during their original
COSO review. Moreover, Kenny and Robinson violated the COSO’s mandate that information
flow freely throughout an organization by allowing ROW’s CEO to withhold information from
corporate compliance officers.

         2
            While courts often discount information provided by anonymous sources, see Higginbotham v. Baxter
Int’l Inc., 495 F.3d 753, 756–57 (7th Cir. 2007), plaintiffs may rely on confidential witnesses if they plead facts with
sufficient particularity to support the probability that a person in the confidential witness’s position would possess
the information alleged. Emps. Ret. Sys. of Gov’t of the V.I. v. Blanford, 794 F.3d 297, 305 (2d Cir. 2015); see also
Ricker v. Zoo Entm’t, Inc., 534 F. App’x 495, 496 n.2 (6th Cir. 2013). We assume without deciding that these
allegations satisfy that standard.
No. 15-5621                Doshi, et al. v. General Cable Corp., et al.            Page 5

       Fourth, Kenny and Robinson recklessly made SOX certifications because General
Cable’s internal controls failed to prevent the accounting errors that necessitated the
restatements.

       Fifth, Livonia posits that the size and duration of the accounting errors support an
inference of recklessness. For fiscal years 2009 to 2012, General Cable cumulatively overstated
net income to common shareholders by $60.5 million. Similarly, for fiscal years 2009 to 2011,
General Cable overstated net income attributable to common shareholders, earnings per share,
and operating income by as much as 53.76%, 53.92%, and 15.6%, respectively. The accounting
errors covered slightly more than six years, and required two restatements and 449 days to fix.
All the errors artificially inflated General Cable’s reported financials.

       Sixth, Livonia claims that General Cable’s incentive compensation plans tied bonuses to
earnings per share and stock price thereby motivating Kenny and Robinson to overlook errors.
Both received millions in incentive compensation from 2007 to 2013.

       Seventh, Livonia highlights that ROW executive management—i.e., Sandoval—
“overrode controls” leading to delays in reporting inventory accounting issues and allegations of
theft to General Cable’s executive management. As General Cable admitted:

       ROW executive management did not report the inventory accounting issues to
       [General Cable’s] executive management until late September 2012, even though
       ROW executive management was aware of the issues no later than January 2012.
       In this regard, ROW executive management did not investigate the matter
       promptly, did not report findings in its belated inquiry on a timely basis, [and]
       discouraged Brazilian personnel from disclosing the matters . . . .

(R. 97-2, General Cable 2012 Form 10-K/A.) ROW executive management overemphasized the
meeting of business plan goals at the expense of proper financial reporting.

       The Defendants moved to dismiss the complaint, contesting only the adequacy of
Livonia’s scienter allegations. The district court granted the motion and dismissed the complaint
with prejudice, determining that Livonia’s complaint failed to create a strong inference that any
defendant acted with scienter.
No. 15-5621                 Doshi, et al. v. General Cable Corp., et al.              Page 6

          Livonia then moved under Federal Rule of Civil Procedure 59(e) to alter or amend the
judgment and “to permit the filing of [an] . . . Amended Complaint,” which it attached to its
motion. In it, Livonia added allegations to further support inferring scienter. First, in 2014,
General Cable disclosed potential Foreign Corrupt Practices Act (FCPA) liability resulting from
improper payments to officials in government-owned utilities in Portugal, Thailand, Angola, and
India.    Second, in its public financial documents, General Cable failed to disclose that it
recognized revenue from bill-and-hold sales despite SEC guidelines requiring disclosure. Third,
the fear of losing incentive compensation under General Cable’s and SOX’s clawback policies
motivated Kenny, Robinson, and Sandoval to conceal misconduct, and Sandoval lost a 2011
bonus under General Cable’s clawback policy because of his conduct related to “certain
accounting matters in Brazil.” Finally, on a January 2012 conference call, Sandoval discussed
“that millions of dollars of inventory were missing and believed stolen.”

          The district court denied the motion, determining that “the proposed amended complaint
would be futile.” Livonia appeals both the dismissal of its complaint and denial of its Rule 59(e)
motion.

                                                 II.

A. Livonia’s Section 10(b) and Rule 10b-5 Claims

          We review a complaint’s dismissal under Rule 12(b)(6) de novo, Ashland, Inc. v.
Oppenheimer & Co., Inc., 648 F.3d 461, 467 (6th Cir. 2011), “‘constru[ing] the complaint in the
light most favorable to the plaintiff’ and ‘accept[ing] all well-pleaded factual allegations as
true,’” id. (quoting La. Sch. Emps. Ret. Sys. v. Ernst & Young, LLP, 622 F.3d 471, 477 (6th Cir.
2010)).

          The Private Securities Litigation Reform Act of 1995, (PSLRA) Pub. L. No. 104–67, 109
Stat. 737, requires that a plaintiff “shall, with respect to each act or omission alleged . . . state
with particularity facts giving rise to a strong inference that the defendant acted with the required
state of mind” in violating the securities laws. 15 U.S.C. § 78u-4(b)(2)(A) (emphasis added); see
also Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 313 (2007). A strong inference
of scienter “must be more than merely plausible or reasonable—it must be cogent and at least as
No. 15-5621               Doshi, et al. v. General Cable Corp., et al.             Page 7

compelling as any opposing inference of nonfraudulent intent.” Tellabs, 551 U.S. at 314. This
standard requires courts to consider “plausible opposing inferences.” Id. at 323. Pleadings that
fail to meet this standard “shall” be dismissed. 15 U.S.C. § 78u-4(b)(3)(A).

       In the securities-fraud context, scienter includes a “knowing and deliberate intent to
manipulate, deceive, or defraud, and recklessness.” Ley v. Visteon Corp., 543 F.3d 801, 809 (6th
Cir. 2008), abrogated on other grounds by Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27,
48–50 (2011). “Recklessness is . . . highly unreasonable conduct which is an extreme departure
from the standards of ordinary care.” Frank v. Dana Corp., 646 F.3d 954, 959 (6th Cir. 2011)
(quoting PR Diamonds, Inc. v. Chandler, 364 F.3d 671, 681 (6th Cir. 2004), abrogated on other
grounds by Matrixx, 563 U.S. at 48–50) (internal quotation marks omitted). Recklessness
requires more than negligence and is “akin to conscious disregard.” Id. (quoting PR Diamonds,
364 F.3d at 681).     Before drawing an inference of recklessness, courts typically require
“multiple, obvious red flags,” PR Diamonds, Inc., 364 F.3d at 686–87, demonstrating an
“egregious refusal to see the obvious, or to investigate the doubtful,” id. at 695 (quoting Novak
v. Kasaks, 216 F.3d 300, 308 (2d Cir. 2000)).

       In determining whether a plaintiff adequately pleaded scienter, we review “all the
allegations holistically,” Tellabs, 551 U.S. at 326, considering a non-exhaustive list of nine
factors:

       (1) insider trading at a suspicious time or in an unusual amount; (2) divergence
       between internal reports and external statements on the same subject;
       (3) closeness in time of an allegedly fraudulent statement or omission and the
       later disclosure of inconsistent information; (4) evidence of bribery by a top
       company official; (5) existence of an ancillary lawsuit charging fraud by a
       company and the company’s quick settlement of that suit; (6) disregard of the
       most current factual information before making statements; (7) disclosure of
       accounting information in such a way that its negative implications could only be
       understood by someone with a high degree of sophistication; (8) the personal
       interest of certain directors in not informing disinterested directors of an
       impending sale of stock; and (9) the self-interested motivation of defendants in
       the form of saving their salaries or jobs.

Helwig v. Vencor, Inc., 251 F.3d 540, 552 (6th Cir. 2001) (en banc) (citing Greebel v. FTP
Software, Inc., 194 F.3d 185, 196 (1st Cir. 1999), abrogated on other grounds by Tellabs,
No. 15-5621               Doshi, et al. v. General Cable Corp., et al.             Page 8
551 U.S. at 314; see also In re Omnicare, Inc. Sec. Litig, 769 F.3d 455, 473, 484 (6th Cir. 2014)
(applying the Helwig factors).

       Livonia contends that (1) General Cable acted at least recklessly in issuing its public
financial statements, and (2) Kenny and Robinson acted at least recklessly in issuing or
authorizing General Cable’s public financial statements. We consider each contention in turn.

       1. General Cable’s Scienter

       Livonia’s argument that it successfully pleaded that General Cable acted with scienter
proceeds in three parts. First, Livonia relies on all seven categories of factual allegations
identified above to establish scienter, but emphasizes ROW executive management’s knowledge
of and failure to report theft and inventory accounting errors. Second, Livonia says that ROW
executive management’s—specifically Sandoval’s—knowledge imputes to General Cable
because Sandoval furnished information used in General Cable’s false public financial
statements. See Omnicare, 769 F.3d at 476, 483. Third, Livonia asserts that Sandoval acted at
least recklessly in providing ROW’s financial data to General Cable, and because his knowledge
imputes to General Cable, Sandoval’s recklessness imputes as well.

       General Cable counters with two arguments: Livonia’s allegations regarding Sandoval’s
“knowledge” fail to meet the PSLRA’s particularity requirements, and even if Sandoval’s
knowledge imputes to General Cable, Omnicare requires this court to analyze Livonia’s
allegations “collectively” using the Helwig factors, 251 F.3d at 552, to determine General
Cable’s scienter, which yields no such inference.

               a. Livonia Pleaded Sandoval’s Knowledge Sufficiently

       General Cable asserts that the allegations regarding Sandoval’s knowledge lack the
requisite particularity because they target ROW executive management generally; lack a time
component; and fail to explain adequately what Sandoval knew. But Livonia sufficiently alleges
that Sandoval knew of theft and inventory accounting errors in Brazil by January 2012 but failed
to report those problems to General Cable until September 2012.
No. 15-5621                   Doshi, et al. v. General Cable Corp., et al.                      Page 9

        First, Livonia’s allegations pertain to Sandoval. While General Cable’s 2012 Form 10-
K/A identifies ROW executive management generally, both General Cable and Livonia
submitted the same document to the district court confirming that Sandoval served as ROW’s
CEO. Additionally, Livonia and General Cable briefed these allegations as relating to Sandoval.
Finally, in its amended complaint Livonia names Sandoval as a participant in a conference call
discussing the theft and missing inventory in Brazil.3

        Second, Livonia sufficiently alleges that Sandoval knew of the theft and accounting
errors in Brazil by January 2012 but failed to disclose them until September 2012.

        Third, a fair reading of General Cable’s 2012 Form 10-K/A shows that the theft and
inventory accounting issues that Sandoval failed to report were those identified in the
immediately preceding section of the 2012 Form 10-K/A labeled: “Inventory Control
Deficiencies in Brazil.”         Moreover, the conference-call participants, including Sandoval,
discussed theft and missing inventory in Brazil.

                 b. Sandoval’s Knowledge of Theft and Accounting Errors—Not His State of
                 Mind in Transmitting ROW’s Financial Data—Imputes to General Cable

        Neither party disputes that any properly pleaded knowledge attributable to Sandoval
imputes to General Cable. See Omnicare, 769 F.3d at 476. They disagree, however, about the
implications of imputing that knowledge. Livonia argues that Sandoval acted at least recklessly
in withholding his knowledge from General Cable and that state of mind—recklessness—
imputes to General Cable, thereby establishing scienter. General Cable contends that this court
imputes only Sandoval’s knowledge of the theft and inventory accounting errors to General
Cable and then applies the Helwig factors to determine scienter.

        Even assuming that Sandoval acted recklessly in transmitting ROW’s financial data to
General Cable, only his knowledge of theft and accounting errors—not his state of mind—
imputes to General Cable. Omnicare supports imputing a corporate executive’s or employee’s
state of mind to a corporate defendant when such person makes a public misstatement.

        3
          Because “ROW executive management” sufficiently targets Sandoval, and we review both the district
court’s denial of Livonia’s Rule 59(e) motion to amend and the complaint’s dismissal de novo, see infra II.C, we
consider allegations regarding Sandoval from the original and proposed amended complaint together.
No. 15-5621                Doshi, et al. v. General Cable Corp., et al.             Page 10

See 769 F.3d at 476, 481. But Livonia identifies no public misstatement by Sandoval from
which to impute his recklessness directly to General Cable. Instead, Livonia alleges that
Sandoval submitted ROW’s financial data to General Cable, not that he drafted, reviewed, or
approved General Cable’s erroneous public financial statements.

       In these circumstances, our precedents teach that Sandoval’s knowledge of theft and
accounting errors in Brazil imputes to General Cable, and that we then apply the Helwig factors
to analyze whether all the facts alleged give rise to a strong inference that General Cable acted
with the necessary scienter. See, e.g., Omnicare, 769 F.3d at 478, 483–84 (imputing a vice
president’s knowledge—no allegations suggested the vice president acted with scienter in
issuing, reviewing, or approving a public misstatement—to the company, then applying the
Helwig factors to determine the company’s scienter); City of Monroe Emps. Ret. Sys. v.
Bridgestone Corp., 399 F.3d 651, 686–90 (6th Cir. 2005) (applying the Helwig factors to
determine the company’s scienter in issuing public misstatements after imputing the knowledge
of an executive vice president—who had not personally drafted, reviewed, or approved the
public misstatements—to the company).

               c. Livonia Failed to Plead Adequately that General Cable Acted Recklessly

       Considering all well-pleaded allegations holistically, Tellabs, 551 U.S. at 326, and
applying the Helwig factors, Livonia’s complaint fails to produce a strong inference that General
Cable acted recklessly by issuing its public financial statements.

       Two Helwig factors support inferring scienter: (1) divergence between internal reports
and external statements on financial data; (2) disregard for the most current factual information
before making public financial statements. See Helwig, 251 F.3d at 552. First, from January
2012 to September 2012, by virtue of Sandoval’s knowledge, General Cable issued public
financial statements that failed to include any warnings or disclaimers about theft or inventory
accounting issues in Brazil. Second, in issuing those statements General Cable disregarded
Sandoval’s knowledge and the attendant risk that the issues in ROW rendered General Cable’s
statements false. And General Cable’s public financial statements in fact significantly overstated
its financial performance. These factors can be particularly important in labeling a corporate
No. 15-5621               Doshi, et al. v. General Cable Corp., et al.              Page 11

defendant as reckless. See Bridgestone, 399 F.3d at 688–89 (calling a divergence between
internal reports and external statements the “key factor” in deeming a corporate defendant
reckless).

       The disparity between Sandoval’s knowledge and what General Cable publicly misstated,
however, reduces the force behind these factors. Sandoval knew about theft and inventory
accounting errors in ROW’s Brazilian operations when he reported ROW’s financial data to
General Cable. But General Cable misstated its firm-wide financial data of which ROW’s data
composed only a part. This disparity diminishes the impact of these factors on the scienter
analysis. See Omnicare, 769 F.3d at 484 (determining that the “disparity between the levels of
generality at which the internal reports and external statements” were framed lessened the import
of the divergence factor and citing Bridgestone, 399 F.3d at 684, as a case where such a disparity
“did not exist”).

       Seven factors favor rejecting a scienter inference. Livonia pleads no facts with sufficient
particularity implicating suspicious insider trading or failure to disclose impending stock sales.
See Helwig, 251 F.3d at 552.       And while Livonia maintains that incentive compensation
motivated the misstatements, it fails to allege that the financial misstatements actually increased
incentive compensation. Nor does Livonia allege evidence of bribery by a top official or quickly
settled ancillary lawsuits. See id. Livonia alleges accounting errors, but its complaint lacks
allegations that only someone with a high level of sophistication could have understood negative
implications from General Cable’s accounting disclosures. See id. The closeness-in-time factor
also lends negligible support to inferring scienter. See id. Between January 2012 and October
29, 2012, (the date General Cable announced its first restatement), General Cable filed public
financial disclosures on February 23, 2012; May 4, 2012; and August 3, 2012. Neither the
approximately nine-month gap from the February misstatement nor the 86-day gap from the
August misstatement to General Cable’s restatement announcement allows an adverse scienter
inference. See Bridgestone, 399 F.3d at 684, 687–88 (determining that a week-long gap—but
not a four-month gap—supported inferring scienter).

       Based on Sandoval’s knowledge and the magnitude of the financial misstatements, one
could infer that General Cable acted recklessly by issuing its public financial statements from
No. 15-5621                Doshi, et al. v. General Cable Corp., et al.               Page 12

January 2012 to September 2012. But a countervailing inference remains stronger: a theft
scheme racked General Cable’s operations in Brazil where local managers overrode accounting
procedures, which, when coupled with the legitimate freedom afforded ROW to report its
financial data, led General Cable to issue materially false public financial statements. Livonia’s
allegations therefore fail to create a strong inference that General Cable acted with scienter.

       2. Kenny’s and Robinson’s Scienter

       Livonia relies on the same factual allegations (but not ROW executive management’s
actions) to support inferring Kenny and Robinson acted with scienter. As with General Cable,
those allegations fail to produce a strong inference that Kenny or Robinson acted with scienter in
issuing or approving General Cable’s public financial statements.

       The Helwig factors lend even less support to inferring scienter from the allegations
pertaining to Kenny and Robinson than those relating to General Cable. Indeed, the allegations
regarding Kenny and Robinson implicate one Helwig factor: disregarding the most current
factual information before making public financial statements. See Helwig, 251 F.3d at 552.
The lax oversight that Kenny and Robinson directed General Cable controllers to perform over
ROW’s financial reporting admits of inferring that they disregarded the risk that ROW reported
inaccurate information. But the analysis of the other eight Helwig factors does not lead us to
infer scienter. For the reasons already articulated, the seven factors that provided no support for
inferring scienter against General Cable buttress the same conclusion regarding Kenny and
Robinson. And absent Sandoval’s knowledge of inventory theft and accounting errors in Brazil,
which Livonia did not connect to Kenny or Robinson, the facts alleged fail to show that Kenny
or Robinson recognized or recklessly disregarded a divergence between internal reports and
external statements on financial data.

       The allegations holistically, see Tellabs, 551 U.S. at 326, lend some support to an
inference that Kenny and Robinson consciously disregarded the obvious risks that each issued or
authorized false public financial statements. But again, these allegations produce a stronger
countervailing inference: that a theft scheme in Brazil aided by local managers overriding
financial controls, combined with ROW’s legitimate freedom to submit financial data to General
No. 15-5621                      Doshi, et al. v. General Cable Corp., et al.              Page 13

Cable, resulted in Kenny and Robinson at most negligently issuing or authorizing false public
financial statements.

B. Livonia’s Motion to Amend Judgment

        We review the denial of Livonia’s Rule 59(e) motion to amend de novo because the
district court rejected the proposed amended pleading as futile.                Inge v. Rock Fin. Corp.,
281 F.3d 613, 625 (6th Cir. 2002) (citing Parry v. Mohawk Motors of Mich., Inc., 236 F.3d 299,
306 (6th Cir. 2000)); see also Babcock v. Michigan, 812 F.3d 531, 541 (6th Cir. 2016). Livonia
argues that the district court erred in making that determination.

        Livonia relies on four new or supplemented categories of allegations in arguing its
amended complaint pleads scienter: (1) possible FCPA violations disclosed in General Cable’s
August 2014 Form 10-Q; (2) General Cable’s failure to disclose to investors that it recognized
revenue from bill-and-hold sales; (3) incentive compensation and General Cable’s clawback
policy, which motivated Kenny, Robinson, and Sandoval to conceal the Brazilian accounting
problems; and (4) a January 2012 conference call in which Sandoval discussed inventory issues
and theft in Brazil.4

        1. FCPA Violations

        In August 2014, General Cable disclosed potential FCPA violations: improper payments
to officials in government-owned utilities in Portugal, Thailand, Angola, and India. Livonia
argues that these possible violations occurred for more than ten years and evidence lax oversight
and review of financial controls. But Livonia fails to connect these allegations to the unreported
theft and inventory accounting problems in Brazil. Livonia also makes no allegation that Kenny,
Robinson, Sandoval, or any other specific General Cable employee knew of the improper
payments. Finally, these allegations amount to impermissible fraud by hindsight: “Had the
defendants properly used the COSO framework as they claimed, they would have known about
the accounting errors alleged herein on a timely basis.” Such allegations cannot give rise to a
strong inference of scienter. See Konkol v. Diebold, Inc., 590 F.3d 390, 402–03 (6th Cir. 2009),
abrogated on other grounds by Matrixx, 563 U.S. at 48–50.
        4
            We previously considered that conference call.
No. 15-5621               Doshi, et al. v. General Cable Corp., et al.                Page 14

       2. Nondisclosure of the Bill-and-Hold-Sale Revenue-Recognition Policy

       A SEC accounting bulletin alerts companies to disclose their revenue-recognition policy,
including if “a company has different policies for different types of revenue transactions.” SEC
Staff Accounting Bulletin No. 104, 68 Fed. Reg. 74,436-01, 74,447 (Dec. 23, 2003) (to be
codified at 17 C.F.R. pt. 211, subpt. B). Livonia thus claims that the Defendants acted recklessly
by not including the bill-and-hold-sale revenue-recognition policy in General Cable’s public
financial statements. This bulletin, however, imposed no legal duty for the Defendants to report
that policy. See Ganino v. Citizens Utils. Co., 228 F.3d 154, 163 (2d Cir. 2000) (noting that SEC
accounting bulletins lack the force of law). And Livonia fails to allege that either Kenny or
Robinson knew about this bulletin and disobeyed it. Furthermore, nondisclosure of bill-and-
hold-sale revenue recognition allows no inference that any defendant acted with conscious
disregard with respect to General Cable issuing false financial statements.

       3. Incentive Compensation and Clawback Policies

       The proposed amended complaint bolsters its original allegations regarding incentive
compensation by adding Sandoval to the mix and including assertions that Kenny, Robinson, and
Sandoval stood to lose previously issued incentive compensation under General Cable’s and
SOX’s clawback policies. But “the amended complaint still lacks facts showing that the inflated
stock price actually affected [Kenny’s or Robinson’s] incentive compensation.”             General
allegations such as these could pin an improper motive on any executive receiving incentive
compensation. In any event, the allegations suggest that when Kenny and Robinson became
aware of the theft and inventory accounting errors, they disclosed them and worked to fix them.

       The amended complaint similarly fails to allege that the theft and inventory accounting
errors that Sandoval failed to report resulted in his receiving higher incentive pay. And while
Sandoval may have feared losing his incentive compensation, Livonia does not allege that
Sandoval made any of the false public statements upon which Livonia relies. Moreover, after
conducting an internal investigation of “certain accounting matters,” General Cable disciplined
Sandoval by clawing back his 2011 Annual Incentive bonus and forcing him to resign. These
remedial measures counsel against inferring that General Cable acted with scienter.
No. 15-5621                Doshi, et al. v. General Cable Corp., et al.             Page 15

         Adding the amended complaint’s allegations to our holistic review therefore leads to the
same conclusion: no defendant acted recklessly in issuing or authorizing General Cable’s false
public financial statements. We therefore affirm the district court’s denial of Livonia’s motion to
amend.

C. Livonia’s Section 20(a) Claims

         Section 20(a) of the Securities Exchange Act provides that “[e]very person who . . .
controls any person liable under any provision of this chapter or of any rule or regulation
thereunder shall also be liable jointly and severally with and to the same extent as such
controlled person.”    15 U.S.C. § 78t(a).     Because Livonia’s complaint alleges no primary
violation of the securities laws, its § 20(a) control-person claims were properly dismissed. See
Ind. State Dist. Council of Laborers & Hod Carriers Pension & Welfare Fund v. Omnicare, Inc.,
583 F.3d 935, 947 (6th Cir. 2009).

                                                III.

         For the foregoing reasons, we AFFIRM the district court’s dismissal of Livonia’s
complaint with prejudice and its denial of Livonia’s Rule 59(e) motion to amend.