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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

IN RE COBALT INTERNATIONAL ENERGY, INC. SECURITIES LITIGATION

LEAD CASE NO. 4:14-cv-03428

THE COBALT DEFENDANTS’ REPLY IN SUPPORT

OF THEIR MOTION TO DISMISS

Case 4:14-cv-03428 Document 98 Filed in TXSD on 09/29/15 of 81

TABLE OF CONTENTS

Table of Authorities ............................................................................................................ iv

Introduction ......................................................................................................................... 1

Response to Plaintiffs’ Summary of the Allegations .......................................................... 2

I. Cobalt obtained its interests in the three Angolan blocks in 2007, long before Sonangol selected Nazaki and Alper as members of the contractor group for Blocks 9 and 21. .................................................................................................. 3

II. Allegations emerged in 2010 about Nazaki’s ownership, and the SEC and DOJ investigations followed. .............................................................................. 4

Argument and Authorities ................................................................................................... 6

I. The foundational infirmities of the CAC are fatal to Plaintiffs’ claims. ............ 6

A. The Opposition does not rehabilitate the CWs. .......................................... 8

B. The Opposition completely looks past the unreliability of the CAC’s other source material. ............................................................................... 12

C. Plaintiffs’ allegations are not well-pleaded to the extent they contradict the articles on which they are based. ........................................................ 13

D. Plaintiffs try to divert the Court’s attention from their own misrepresentations by mischaracterizing the Motion. .............................. 14

Securities Act Claims ........................................................................................................ 16

I. The Opposition does not show that the challenged statements in the Offering Materials were materially false or misleading when made. ............................. 16

A. The Opposition does not rehabilitate the CAC’s defective attacks on Cobalt’s opinion that its Angolan activities complied with the FCPA. ... 17

B. The Opposition does not salvage the other FCPA-related statements. .... 21

C. Cobalt did not misstate when Alper transferred its interests. ................... 38

D. Cobalt accurately described its payments to Sonangol for the Sonangol Research & Technology Center (“SRTC”). ............................................. 39

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E. The Opposition does not salvage the CAC’s attacks on Cobalt’s statements about its Lontra and Loengo wells. ........................................ 39

Exchange Act Claims ........................................................................................................ 41

I. The Exchange Act claims must be dismissed for failure to give rise to a strong inference of scienter. .............................................................................. 41

A. Plaintiffs’ continued inability to articulate a motive on behalf of the Executive Defendants weighs heavily against a strong inference of scienter. ..................................................................................................... 42

B. Plaintiffs’ remaining allegations fall well short of establishing a strong inference of scienter. ................................................................................ 44

II. The Opposition does not show that any of the challenged statements were materially false or misleading when made. ...................................................... 54

A. The additional attacks on Cobalt’s opinion that its Angolan activities complied with the FCPA do not make the opinion false or misleading. .. 54

B. The Opposition does not salvage the other FCPA-related statements in the Offering Materials. ......................................................................... 57

C. The Opposition does not establish that any of the other FCPA-related statements were materially false or misleading. ....................................... 58

D. The Opposition does not show that any well-related statement was false or rendered misleading by the omission of material facts. ....................... 59

III. The Opposition does not save Plaintiffs’ failure to plead loss causation. ........ 65

IV. The Opposition does not cure the CAC’s failure to plead reliance. ................. 69

Conclusion ......................................................................................................................... 70

20934048 iii


TABLE OF AUTHORITIES

Page(s) CASES

Abrams v. Baker Hughes Inc., 292 F.3d 424 (5th Cir. 2002) ..........................................................................................43, 46

Alaska Elec. Pension Fund v. Flowserve Corp., 572 F.3d 221 (5th Cir. 2009) ..........................................................................................65, 66

Archdiocese of Milwaukee Supporting Fund, Inc. v. Halliburton Co., 597 F.3d 330 (5th Cir. 2010). ..............................................................................................67

Argent Classic Convertible Arbitrage Fund L.P. v. Rite Aid Corp., 315 F. Supp. 2d 666 (E.D. Pa. 2004) .......................................................................................69

Ashcroft v. Iqbal, 556 U.S. 662 (2009) ...............................................................................................19, 26, 38, 59

Asher v. Baxter Int’l Inc., 377 F.3d 727 (7th Cir. 2004) ...................................................................................................63

Cal. Pub. Emps.’ Ret. Sys. v. Chubb Corp., 394 F.3d 126 (3d Cir. 2004) .................................................................................................49

Campton v. Ignite Rest. Grp., Inc., No. CIV. A. 4:12-2196, 2014 WL 61199 (S.D. Tex. Jan. 7, 2014) ....................61, 62, 63

Chill v. Gen. Elect. Co., 101 F.3d 263 (2d Cir. 1996).....................................................................................................43

City of Brockton Ret. Sys. v. Avon Prods., Inc., No. 11-civ-4665 PGG, 2014 WL 4832321 (S.D.N.Y. Sept. 29, 2014) ..........................12

City of Pontiac General Employees’ Retirement System v. Lockheed Martin Corp., 875 F. Supp. 2d 359 (S.D.N.Y. 2012).................................................................................36

City of Pontiac General Employees’ Retirement System v. Wal-Mart Stores, Inc., No. 12-CV-5162, 2014 WL 4823876 (W.D. Ark. Sept. 26, 2014) ...........................36, 37

Coates v. Heartland Wireless Commc’ns, Inc., 100 F. Supp. 2d 417 (N.D. Tex. 2000) ....................................................................................43

Dawes v. Imperial Sugar Co., 975 F. Supp. 2d 666 (S.D. Tex. 2013) ....................................................................47, 65, 69

20934048 iv


Emps.’ Ret. Sys. of Gov’t of the Virgin Islands v. Blanford, 794 F.3d 297, 301–02 (2d Cir. 2015).........................................................................................9

Fin. Acquisition Partners LP v. Blackwell, 440 F.3d 278 (5th Cir. 2006) .....................................................................................................5

Finkel v. Docutel/Olivetti Corp., 817 F.2d 356 (5th Cir. 1987) ...................................................................................................70

Firefighters Pension & Relief Fund v. Bulmahn, No. 13-3935, 2015 WL 4879217 (E.D. La. Aug. 14, 2015) ....................................................64

Fitzpatrick v. Uni-Pixel, Inc., 35 F. Supp. 3d 813 (S.D. Tex. 2014) .......................................................................................47

Greenberg v. Boettcher & Co., 755 F. Supp. 776 (N.D. Ill. 1991) ............................................................................................70

Griffin v. GK Intelligent Sys., Inc., 196 F.R.D. 298 (S.D. Tex. 2000) ........................................................................................70

Halford v. AtriCure, Inc., No. 1:08-CV-867, 2010 WL 8973625 (S.D. Ohio Mar. 29, 2010) .................................33

Harris v. Ivax Corp., 182 F.3d 799 (11th Cir. 1999) .................................................................................................63

Hopson v. MetroPCS Communications, Inc., No. 3:09-CV-2392-G, 2011 WL 1119727 (N.D. Tex. Mar. 25, 2011) ........................60, 62, 64

Hutchison v. CBRE Realty Fin., Inc., 638 F. Supp. 2d 265 (D. Conn. 2009) ...........................................................................23, 38

In re Alamosa Holdings, Inc., 382 F. Supp. 2d 832 (N.D. Tex. 2005) .................................................................................8

In re Anadarko Petrol. Corp. Class Action Litig., 957 F. Supp. 2d 806 (S.D. Tex. 2013) .................................................................................41

In re ArthroCare Corporation Securities Litigation 726 F. Supp. 2d 696 (W.D. Tex. 2010) ....................................................................9, 50, 51

In re Azurix Corp. Sec. Litig., 198 F. Supp. 2d 862 (S.D. Tex. 2002) ................................................................................46

In re BP p.l.c. Sec. Litig., 843 F. Supp. 2d 712 (S.D. Tex. 2012) ...............................................................................52, 60

20934048 v


In re BP p.l.c. Sec. Litig., 922 F. Supp. 2d 600 (S.D. Tex. 2013) ..................................................................................7

In re China Valves Tech. Sec. Litig., No. 11 Civ. 0796(LAK), 2012 WL 4039852 (S.D.N.Y. Sept. 12, 2012) ................................37

In re Constellation Energy Grp., Inc. Sec. Litig., 738 F. Supp. 2d 614 (D. Md. 2010) .........................................................................................36

In re Cutera Sec. Litig., 610 F.3d 1103 (9th Cir. 2010) .................................................................................................63

In re Dell Inc., Sec. Litig., 591 F. Supp. 2d 877 (W.D. Tex. 2008) ..............................................................................65

In re Enron Corp. Sec., 529 F. Supp. 2d 644 (S.D. Tex. 2006) ................................................................................70

In re Enron Corp. Sec., Deriv. & “ERISA” Litig., 463 F. Supp. 2d 628 (S.D. Tex. 2006) .....................................................................................41

In re Facebook, Inc. IPO Securities and Derivative Litigation, 986 F. Supp. 2d 487 (S.D.N.Y. 2013).................................................................................37

In re Fleming Cos. Inc. Sec. & Deriv. Litig., No. CIVA503MD1530TJW, 2004 WL 5278716 (E.D. Tex. June 16, 2004) ..........................66

In re Franklin Bank Corp. Sec. Litig., 782 F. Supp. 2d 364 (S.D. Tex. 2011) ................................................................................11

In re Gentiva Securities Litigation, 932 F. Supp. 2d 352 (E.D.N.Y. 2013) ..........................................................................33, 34

In re Hardinge, Inc. Sec. Litig., 696 F. Supp. 2d 309 (W.D.N.Y. 2010) ....................................................................................22

In re Harman Int’l Indus., Inc. Sec. Litig., 791 F.3d 90 (D.C. Cir. 2015) ...................................................................................................63

In re Immucor Inc. Securities Litigation No. 1:05-CV-2276-WSD, 2006 WL 3000133 (N.D. Ga. Oct. 4, 2006) ..................................27

In re Interbank Funding Corp. Sec. Litig., 629 F.3d 213 (D.C. Cir. 2010) .................................................................................................70

In re Livent, Inc. Noteholders Sec. Litig., 151 F. Supp. 2d 371 (S.D.N.Y. 2001).......................................................................7, 13, 19

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In re Metawave Commc’ns Corp. Sec. Litig., 298 F. Supp. 2d 1056 (W.D. Wash. 2003) .........................................................................10, 48

In re Number Nine Visual Tech. Corp. Sec. Litig., 51 F. Supp. 2d 1 (D. Mass. 1999) ............................................................................................22

In re Omnicom Grp., Inc. Sec. Litig., 597 F.3d 501 (2d Cir. 2010) .................................................................................................65

In re Sunbeam Securities Litigation, 89 F. Supp. 2d 1326 (S.D. Fla. 1999) .................................................................................51

In re Superior Offshore Int’l, Inc. Sec. Litig., No. CIV A H-08-0687, 2009 WL 82064 (S.D. Tex. Jan. 12, 2009) ...............................11

In re Syncor Intern. Corp. Sec. Litig., 239 F. App’x 318 (9th Cir. 2007) ............................................................................................33

In re Syncor International Corp. Securities Litigation, 327 F. Supp. 2d 1149 (C.D. Cal. 2004) ..............................................................................33

In re Turbodyne Techs., Inc. Sec. Litig., No. CV9900697, 2000 WL 33961193 (C.D. Cal. Mar. 15, 2000) ..........................................70

In re Wet Seal, Inc. Sec. Litig., 518 F. Supp. 2d 1148 (C.D. Cal. 2007) ..............................................................................12

Ind. Elec. Workers’ Pension Trust Fund IBEW v. Shaw Grp., Inc., 537 F.3d 527 (5th Cir. 2008) ................................................................................8, 45, 46, 70

Ind. State Dist. Council of Laborers &HOD Carriers Pension & Welfare Fund v. Omnicare, Inc., 583 F.3d 935 (6th Cir. 2009) ...................................................................................................37

Kaltman v. Key Energy Services, Inc. 447 F. Supp. 2d 648 (W.D. Tex. 2006) ..............................................................................40

Kapps v. Torch Offshore, Inc., 379 F.3d 207 (5th Cir. 2004) ................................................................................................37

Kas v. Valley Nat’l Corp., No. CIV 93-0740 PHX RCB, 1993 WL 616687 (D. Ariz. Dec. 10, 1993) .............................22

Kurtzman v. Compaq Computer Corp., No. CIV.A.H-99-1011, 2000 WL 34292632 (S.D. Tex. Dec. 12, 2000) .................61, 63

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Lee v. Active Power, Inc., 29 F. Supp. 3d 876 (W.D. Tex. 2014)...............................................................30, 31, 32, 35

Loos v. Immersion Corp., 762 F.3d 880 (9th Cir. 2014) ...................................................................................................36

Lormand v. US Unwired, Inc., 565 F.3d 228 (5th Cir. 2009) ..................................................................28, 31, 32, 60, 62, 65

Ludlow v. BP, P.L.C., No. 14-20420, 2015 WL 5235010 (5th Cir. Sept. 8, 2015) .....................................................65

Material Yard Workers Local 1175 Benefit Funds v. Men’s Wearhouse, Inc., No. H:09-3265, 2011 WL 3059229 (S.D. Tex. July 22, 2011) ...............................................10

Meyer v. Greene, 710 F.3d 1189 (11th Cir. 2013) ...............................................................................................36

Miller v. Champion Enters., Inc., 346 F.3d 660 (6th Cir. 2003) ...................................................................................................63

Miyahira v. Vitacost.com, Inc., 715 F.3d 1257 (11th Cir. 2013) ...............................................................................................37

Nathenson v. Zonagen Inc., 267 F.3d 400 (5th Cir. 2001) .......................................................................................43, 47, 70

New Orleans Emps.’ Ret. Sys. v. Celestia, Inc., 455 F. App’x 10, 13 (2d Cir. 2011) ...........................................................................................9

Oceanic Expl. Co. v. Phillips Petrol. Co. ZOC, 352 F. App’x 945 (5th Cir. 2009) ........................................................................................11

Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 135 S. Ct. 1318 (2015) ..................................................................................17, 18, 54, 55, 56

Oppenheim Pramerica Asset Mgmt. S.A.R.L. v. Encysive Pharm. Inc., No. Civ. A. H.-06-3022, 2007 WL 2720074 (S.D. Tex. Sept. 18, 2007) .......................43

Owens v. Jastrow, 789 F.3d 529 (5th Cir. 2015) ............................................................................................7, 45

Parker v. Hyperdynamics Corp., No. 4:12-cv-999, 2015 WL 5024027 (S.D. Tex. Aug. 25, 2015)..............................20, 34

Plotkin v. IPaxess, Inc., 407 F.3d 690 (5th Cir. 2005) ........................................................................29, 30, 32, 35, 46

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Public Employees’ Retirement System of Mississippi, Puerto Rico Teachers’ Retirement System v. Amedisys, Inc., 769 F.3d 313 (5th Cir. 2014) ..........................................................................................67, 68

R2 Invs. LDC v. Phillips, 401 F.3d 638 (5th Cir. 2005) ............................................................................................7, 44

Raab v. Gen. Physics Corp., 4 F.3d 286 (4th Cir. 1993) .......................................................................................................37

Robertson v. Strassner, 32 F. Supp. 2d 443 (S.D. Tex. 1998) .......................................................................................61

Rosenzweig v. Azurix Corp., 332 F.3d 854 (5th Cir. 2003) ...................................................................................................37

Rubinstein v. Collins, 20 F.3d 160 (5th Cir. 1994) .....................................................................................................61

Sapssov v. Health Mgmt. Assocs., Inc., 22 F. Supp. 3d 1210 (M.D. Fla. 2014) ................................................................................56

SEC v. Wyly, 788 F. Supp. 2d 92 (S.D.N.Y. 2011) ...................................................................................35

Slayton v. Am. Exp. Co., 604 F.3d 758 (2d Cir. 2010).....................................................................................................63

Smith v. Ayres, 845 F.2d 1360 (5th Cir. 1988) .............................................................................................70

Southland Sec. Corp. v. INSpire Ins. Solutions, Inc., 365 F.3d 353 (5th Cir. 2006) ..............................................................................42, 49, 59, 63

Spitzberg v. Houston Am. Energy Corp., 758 F.3d 676 (5th Cir. 2014) ....................................................................................44, 45, 60

Stockman v. Flotek Industries, Inc., No. CIV. A. H-09-2526, 2010 WL 3785586 (S.D. Tex. Sept. 29, 2010).................44, 45

United States v. Esquenazi, 752 F.3d 912 (11th Cir. 2014) .................................................................................................20

United States v. Kozeny, 493 F. Supp. 2d 693 (S.D.N.Y. 2007)......................................................................................20

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Wieland v. Stone Energy Corp., No. CIV.A. 05-2088, 2007 WL 2903178 (W.D. La. Aug. 17, 2007) ......................................66

Zelman v. JDS Uniphase Corp., 376 F. Supp. 2d 956 (N.D. Cal. 2005) .....................................................................................69

STATUTES

15 U.S.C. § 78dd-1(a) ..............................................................................................................13, 19

15 U.S.C. § 78u-4(b)(1) (2012) .....................................................................................................14

15 U.S.C. § 78u-5(c)(1) (2012) ...........................................................................................59, 61

OTHER AUTHORITIES

Cherie O. Taylor, The Foreign Corrupt Practices Act: A Primer, 17-WTR Currents: Int’l Trade L.J. 3, 4 (Winter 2008) ..................................................................................................20

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INTRODUCTION

Plaintiffs’ Opposition (“Opposition”) to the Cobalt Defendants’ Motion to Dismiss

(“Motion”) fails to cure any of the fatal deficiencies in the Consolidated Amended Class

Action Complaint (“CAC”). Lacking any particularized allegations of falsity or scienter,

the CAC relies largely on allegations attributed to confidential witnesses (“CWs”). But

the Opposition understandably makes almost zero effort to defend those allegations, and

the Fifth Circuit recognizes that such unreliable CW accounts cannot be credited. The

Opposition similarly abandons any effort to defend the other main source of the CAC’s

allegations, bloggers and other supposed “journalists.” And now that the SEC has

terminated its FCPA investigation without recommending any action—an inconvenient

fact acknowledged by Plaintiffs only on page 70—the Opposition struggles hopelessly to

articulate a theory of securities fraud liability based on FCPA-related statements when no

FCPA violation has even been pleaded or charged, much less established.

The Opposition attempts to establish falsity, both for Section 11 and Section 10b-

5, by exaggerating the CAC’s actual allegations, contradicting the documents it cites, and

flyspecking statements without regard to when or in what context they were made. That

tactic fails to make anything the Cobalt Defendants said false when stated.

The Opposition similarly fails to show how the CAC establishes a strong inference

of scienter. It draws a blank in trying to explain how the Cobalt Defendants had any

motive to commit securities fraud, and it bases its assertions of conscious misbehavior

solely on CW allegations that add nothing to scienter. Plaintiffs’ proposed scienter

inference—that the Cobalt Defendants concealed knowledge of the beneficial owners of

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Angolan companies that were later awarded non-operating interests in two blocks by the

Angolan government after Cobalt obtained its interests in those blocks, so that Cobalt,

after drilling three successful wells in Angola, could spend tens of millions of dollars

deliberately drilling one dry hole and another well with more gas and less oil than

projected—is far less cogent and compelling than the competing inference—that the

Cobalt Defendants believed their statements about FCPA compliance and believed what

they said about the Lontra and Loengo wells. As such, this case, like so many other Fifth

Circuit cases, see Mot. 57 n.106, must be dismissed on scienter grounds.

Finally, the 10b-5 claims must also be dismissed for failure to plead loss causation

to the Fifth Circuit’s standard, as none of Plaintiffs’ alleged disclosures is actually

corrective of any prior fraudulent statement, and they are not sufficiently connected to

constitute a series of partial disclosures revealing of some greater fraud. Nor have

Plaintiffs adequately pleaded reliance with respect to their bond offerings.

RESPONSE TO PLAINTIFFS’ SUMMARY OF THE ALLEGATIONS1

Like the CAC, the Opposition blurs the critically important chronology by mixing

and matching events and statements regardless of how far apart in time they occurred.

When placed in the proper timeline, the salient factual allegations convey a reality much

different than the one proposed by Plaintiffs. This is particularly true with respect to

Plaintiffs’ FCPA-related allegations, which are briefly summarized in context, below.2

1 Because the Motion sets out in full the operative background facts, this reply does not offer a line-by-line rebuttal to the “Summary of the Allegations” but instead identifies the factual mischaracterizations relevant to the Motion. 2 A summary of the well-related facts—stripped of the conjecture-disguised-as-facts in the CAC—can be found in the Motion. See Mot. 11–15.

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I. Cobalt obtained its interests in three Angolan blocks in 2007, long before Sonangol selected Nazaki and Alper as members of the contractor group for Blocks 9 and 21.

As the Motion explains, Cobalt obtained its Angolan interests not through

corruption, but by being a “first mover” in Angola’s emerging Kwanza Basin. Based on

geological ties to offshore Brazil, Cobalt identified offshore Angola as an area of interest

as early as 2006 and believed its geological understanding could lead to unprecedented

exploration success in the pre-salt Kwanza Basin. Ex. 3, 10/30/09 S-1/A, 6, 63–65.

In September 2007, through negotiations with Sonangol, Cobalt obtained

40% interests in Blocks 9, 20, and 21 and memorialized these rights in a Participation

Agreement (“PA”). Id. at 42–43. Shortly thereafter, in consideration for these interests,

Cobalt paid $24 million to Sonangol. Id. at 42. Although this fact is ignored by

Plaintiffs, who make only a passing reference to the PA in a footnote in their 75-page

Opposition, the Angolan government named Nazaki and Alper to the contractor group

long after Cobalt acquired its “rights to Angolan oil.” Opp. 9.3

To be sure, Cobalt and its founders were aware of the many challenges, including

corruption risks, associated with operating in Angola. As the Motion explains, Cobalt

took steps to mitigate those risks at the outset, including retaining Vinson & Elkins LLP

(“V&E”) and O’Melveny & Myers LLP (“O’Melveny”) “to represent Cobalt with respect

to the FCPA in connection with Cobalt establishing its contractual arrangements in

Angola.” Ex. 9, 3/11/11 8-K. The firms consulted regularly with Cobalt on FCPA issues

3 Only one of Plaintiffs’ CWs, Cobalt’s former CFO from 2006 to 2008, worked at Cobalt during this period. Notably absent from his statements, CAC ¶¶ 57–58, is any mention of an FCPA violation or similar allegation supporting Plaintiffs’ claim that “Cobalt obtained rights to Angolan oil through corrupt dealings with Angolan officials.” Opp. 9.

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and led the due diligence efforts during Cobalt’s Angolan transactions and thereafter.

Almost a year after Cobalt and Sonangol signed the PA, the Angolan government

identified the additional members of the contractor group for Blocks 9 and 21—Nazaki,

Alper, and Sonangol Pesquisa e Producao (“Sonangol P&P”).4 Id.; see also Mot. 6–7.

Nazaki was named as a full-paying member of the contractor group, while Alper was

named as the “carried” partner.5 Ex. 9, 3/11/11 8-K. Subsequently, V&E and

O’Melveny conducted extensive due diligence with respect to both Nazaki and Alper. Id.

In advance of its IPO in December 2009, Cobalt made abundantly clear to

investors the general FCPA risks associated with operating in Angola and other

developing countries. Ex. 4, 11/27/09 S-1/A, 30. With regard to Blocks 9 and 21, Cobalt

also disclosed in the same section of the registration statement related to FCPA risks that

(i) it was required to partner with two Angolan-based E&P companies (Nazaki and

Alper); and (ii) its familiarity with Nazaki and Alper was limited since it previously had

not worked with either company. Id.

II. Allegations emerged in 2010 about Nazaki’s ownership, and the SEC and DOJ investigations followed.

In February 2010, Cobalt and the other members of the contractor group for

Blocks 9 and 21 signed Risk Services Agreements (“RSAs”), which defined the

economic framework and operating agreements with Sonangol. Ex. 13, 2/21/12 10-K,

21; Ex. 9, 3/11/11 8-K. Later in 2010, rumors about potential Angolan government

4 With respect to Block 20, Cobalt, along with Sonangol P&P, BP, and China Sonangol, later entered into a Production Sharing Contract with Sonangol, which formed the basis for the parties’ “exploration, development and production operations on Block 20.” Ex. 13, 2/21/12 10-K, 21. 5 The Motion explains the nature of a “carried” interest. See Mot. 6 & n.10.

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ownership of Nazaki emerged. While the Opposition conflates the timing, the Motion

and exhibits make clear that those allegations evolved over the next several years:

• In late July 2010, an Angolan blogger, Rafael Marques de Morais, published an article on his blog alleging that three purported “top” Angolan officials—Vicente, Kopelipa, and Dino—were the owners of Nazaki. Cobalt disclosed this allegation in its next annual filing. Ex. 8, 3/1/11 10-K, 47–48. Shortly thereafter, the SEC requested information regarding the allegations, and Cobalt voluntarily contacted the DOJ. Ex. 9, 3/11/11 8-K.

• In its 2011 Form 10-K, Cobalt disclosed that the SEC had issued a formal order of investigation. Ex. 13, 2/21/12 10-K, 50. Cobalt continued to cooperate with the SEC and DOJ, and explained that it could not “provide any assurance regarding the duration, scope, developments in, results of or consequences of” the investigations. Id. at 51.

• On April 15, 2012, the Financial Times (“FT”) published two articles claiming to have received letters from Vicente and Kopelipa stating that they held an indirect interest in Nazaki through an investment company, Aquattro. Ex. 16, FT Article 1; Ex. 17, FT Article 2. The FT refused to provide Cobalt with any documentation for its claims. Ex. 18, 4/16/12 Press Release. Cobalt responded the next day denying allegations of wrongdoing and stating it “stood behind its principles of full compliance with all laws in all jurisdictions in which it operates.” Id.

• In June 2012, Vicente confirmed in an interview with the FT that he had held a stake in Nazaki through Aquattro. Ex. 72, 6/14/12 FT Article.6 Vicente explained that Aquattro pulled out of Nazaki once he became aware of the investment. Id.

Vicente’s interview with the FT generated a significant amount of follow-on

discussion in the media and elsewhere. In the years after the FT reports, other

publications and blogs released myriad articles discussing Vicente’s disclosure of a prior

ownership interest in Nazaki through Aquattro. See, e.g., CAC ¶ 66 nn.11–12. Plaintiffs

6 Although included in the Original Complaint, Plaintiffs strategically chose to drop this article from the CAC. The Court may nevertheless consider it in analyzing the Motion, as Plaintiffs knew about it and relied on it in bringing suit. Fin. Acquisition Partners LP v. Blackwell, 440 F.3d 278, 286 (5th Cir. 2006) (“[I]n securities actions, the court may . . . rely on . . . documents that the plaintiffs either possessed or knew about and upon which they relied in bringing the suit, without, pursuant to Rule 12(b), converting the motion into one for summary judgment.”).

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rely on many of these articles to support their allegations in the CAC.7

Over the next several years, Cobalt continued to disclose that the SEC and DOJ

investigations were ongoing and that it could not provide any assurances regarding their

scope, results, or consequences. Ex. 29, 2/26/13 10-K, 57. On August 4, 2014, Cobalt

received a Wells Notice stating that the SEC Staff had made a preliminary determination

to recommend that the SEC pursue an enforcement action against the Company. Ex. 57,

8/5/14 8-K. However, in January 2015, Cobalt disclosed that it had received notification

that the SEC’s investigation had concluded, and the Staff did not intend to recommend

any enforcement action. Ex. 67, 2/23/15 10-K, 57. Cobalt also explained that it

continues to cooperate with the DOJ. Id.

ARGUMENT AND AUTHORITIES

I. The foundational infirmities of the CAC are fatal to Plaintiffs’ claims.

The vast majority of the CAC’s claims are supported by information derived from

two places: (i) CWs, most of whom were not positioned within Cobalt to possess the

information alleged; or (ii) stories published by an Angolan blogger and others.

Combining this questionable source material with selectively edited documents, Plaintiffs

weave a fantastical tale of company-wide deceit and conspiracy, culminating in a plot to

conceal Angolan government official ownership of two companies while simultaneously

drilling at enormous expense wells that were known to be underperforming. But as the

7 In the same fashion, many of Plaintiffs’ CWs regurgitate information that was squarely in the public domain after Vicente’s FT interview. For instance, the same month as the interview, Cobalt’s former CIO joined Cobalt—and now opines on the widespread knowledge of Nazaki’s ownership. See CAC ¶¶ 72, 86. Eight months later, the shorebase foreman joined Cobalt—and now proclaims that “[Nazaki’s ownership] was ‘common knowledge’ and ‘we all knew that. My second or third day there, I learned this.’” CAC ¶ 71 & n.20.

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Motion notes, Fifth Circuit case law makes clear that allegations with suspect origins

must be discounted severely if not completely. Mot. 20–21. This foundational infirmity

infects the entire CAC and must be considered at the outset, not buried in two footnotes

in a 75-page Opposition. See Opp. 58 n.30; 63 n.33.

Rather than address the motion’s specific criticisms, Plaintiffs fall back on

generalities to support their house of cards. For instance, Plaintiffs urge that the “Court

must accept all factual allegations in the Complaint as true” and “draw all reasonable

inferences in the plaintiff’s favor.” Opp. 8. But the law does not require the Court to

accept every factual allegation as true—it need only accept well-pleaded factual

allegations as true. Owens v. Jastrow, 789 F.3d 529, 535 (5th Cir. 2015). Nor should a

court “strain to find inferences favorable to the plaintiffs.” R2 Invs. LDC v. Phillips, 401

F.3d 638, 642 (5th Cir. 2005). The “court need not feel constrained to accept as truth

conflicting pleadings that make no sense, or that would render a claim incoherent, or that

are contradicted either by statements in the complaint itself or by documents upon which

its pleading rely, or by facts of which the court may take judicial notice.” In re Livent,

Inc. Noteholders Sec. Litig., 151 F. Supp. 2d 371, 405–06 (S.D.N.Y. 2001); see also In re

BP p.l.c. Sec. Litig., 922 F. Supp. 2d 600, 622 (S.D. Tex. 2013) (recognizing courts can

consider documents referenced in a complaint and that “[w]here one of these documents

contradicts an allegation in the complaint, the document and not the allegation controls”).

The Opposition’s effort to bury the CAC’s fatal pleading deficiencies under an avalanche

of obfuscation and supposition must fail.

20934048 7


A. The Opposition does not rehabilitate the CWs.

As the Motion explains, courts must, at minimum, discount statements attributable

to CWs. See, e.g., Ind. Elec. Workers’ Pension Trust Fund IBEW v. Shaw Grp., Inc., 537

F.3d 527, 535 (5th Cir. 2008) (“That these allegations derive from confidential sources

further detracts from their weight in the scienter analysis. Following Tellabs, courts must

discount allegations from confidential sources.”). And before a court will even give

discounted weight to CWs, the plaintiff must show that the CW is reliable. Id.

The Opposition makes virtually no effort to defend the reliability of the CWs who

are so integral to the CAC’s claims. In fact, Plaintiffs relegate their engagement on this

topic to a mere footnote, asserting they have pleaded with “particularity that these former

employees possessed the information pleaded” because the CAC “identifies former

employees by job title, responsibilities, and work history.” Opp. 58 n.30. But that is not

enough; the information must “support the probability that a person in the position

occupied by the source . . . would possess the information” ascribed to him. Shaw, 537

F.3d at 535, 539; In re Alamosa Holdings, Inc., 382 F. Supp. 2d 832, 851–52 (N.D. Tex.

2005) (holding that plaintiffs failed to adequately allege CWs’ knowledge of purported

wrongful acts because complaint merely set forth the CWs’ job titles).

As the Motion makes clear, the positions and work histories of the CWs—with the

exception of the CFOs—do not demonstrate that any of the individual CWs would have

personal knowledge of the information pleaded. See Mot. 22–23. Plaintiffs’ argument

that CWs “need not be a member of senior management to know about a company’s

major problem” fails to address the deficiency. In each of the cases cited by Plaintiffs,

20934048 8


Opp. 58 n.30, the CWs’ positions within the company demonstrated their knowledge of

the specific issue alleged. See Emps.’ Ret. Sys. of Gov’t of the Virgin Islands v. Blanford,

794 F.3d 297, 301–02 (2d Cir. 2015) (crediting testimony from machine operators and a

maintenance technician about inventory piling up in the warehouse; from a production

and maintenance manager about shipping product to outside vendors; and from a

distribution resource manager about overproduction of the product and inventory

counting method); New Orleans Emps.’ Ret. Sys. v. Celestia, Inc., 455 F. App’x 10, 13

(2d Cir. 2011) (crediting testimony from CWs whose positions “afforded them direct

knowledge of Celestia’s inventory buildup during the class period”).

The only CWs here who even conceivably might be in a position to know about

anything at all indicative of the alleged securities fraud are the former CFOs. Yet, neither

CFO claims that Cobalt violated the FCPA, agreed to take Nazaki as a partner in

exchange for its rights to Blocks 9 and 21, or was aware of Angolan government official

ownership of Nazaki. Their utter silence on those topics is revealing. And neither CFO

was employed by Cobalt during the drilling of Lontra or Loengo.

Tellingly, in discussing the CWs, Plaintiffs make no mention of In re ArthroCare

Corporation Securities Litigation, a case they otherwise cite for their scienter allegations.

There, the court rejected any inference of scienter from the CW allegations, holding that

they contained “far too little detail, and far too many conclusory, unsupported assertions

about what the individual defendants knew.” 726 F. Supp. 2d 696, 720 (W.D. Tex. 2010)

(noting “hardly a single instance where a CW alleges that they had a conversation with a

defendant” and that many CWs “state their own conclusions about what occurred,

20934048 9


without giving any meaningful details to support those conclusions”).

Plaintiffs’ CW allegations suffer from all the same infirmities. For example:

• The former CIO charged with managing Cobalt’s IT systems is credited with providing information on everything from internal investigations to seismic surveys to well results, but the CAC does not explain how or why he would have personal knowledge of any of these topics. See, e.g., CAC ¶¶ 72 & n.21, 84–85.

• The CAC credits an administrative assistant in Cobalt’s HR department with knowledge of a supposed internal investigation unrelated to the individuals to whom she reported, but fails to explain why her administrative position would afford her personal knowledge about internal investigations. CAC ¶ 88.

• The CAC credits the CIO with knowledge of events that occurred two years before he joined Cobalt, but fails to explain how he has personal knowledge of those events. Compare CAC ¶ 85 (“Cobalt’s former CIO explained how Smith began staying in Angola for longer stretches from 2009 . . . .”), with CAC ¶ 72 n.21 (stating Cobalt employed CIO from June 2012 to April 2014).

• The driver coordinator is credited with providing information about meetings that occurred in 2010, but, by his own account, he did not start driving Cobalt executives to any meetings until 2011. CAC ¶ 73.

• Not until almost a year after Vicente sat for an interview with the FT and confirmed that he had held a concealed interest in Nazaki did the shorebase foreman begin working at Cobalt, at which point, he alleges, it was “common knowledge” that Nazaki was owned by senior government officials. CAC ¶ 71 & n.20 (stating Cobalt employed shorebase foreman from February 2013 to June 2014); id. ¶¶ 95, 100.

Even worse, the CAC affirmatively recognizes that often the CWs do not have

personal knowledge of the information pleaded and, instead, are impermissibly

regurgitating gossip and innuendo:8

• The HR assistant “understood” it was discovered that a Cobalt employee bribed an Angolan official because she allegedly “heard” from two other assistants

8 See In re Metawave Commc’ns Corp. Sec. Litig., 298 F. Supp. 2d 1056, 1068 (W.D. Wash. 2003) (“The Court must be able to tell whether a [CW] is speaking from personal knowledge, or merely regurgitating gossip and innuendo.”); see also Material Yard Workers Local 1175 Benefit Funds v. Men’s Wearhouse, Inc., No. H:09-3265, 2011 WL 3059229, at *5−6 (S.D. Tex. July 22, 2011) (discounting CW allegations characterized as “office gossip”).

20934048 10


“information” about an internal investigation. CAC ¶¶ 88–89 & n.24.

• The driver coordinator “understood” that (i) Vicente, Kopelipa, and Dino owned Nazaki and that the meetings he drove Cobalt executives to were between Cobalt and Nazaki; and (ii) that the meetings with Kopelipa started in 2010. CAC ¶ 73.

• The CIO learned from “Gordy” that Gordy’s driver took Smith to meet with the “Nazaki guy” who was believed to be Kopelipa. CAC ¶ 86.

The CW allegations clearly fall short of the PSLRA’s requirement that Plaintiffs plead

with particularity facts supporting a probability that a CW would have the information

attributed to her. The CAC’s myriad unwarranted inferences based on hearsay from the

CWs are equally insufficient under Rule 8. See Oceanic Expl. Co. v. Phillips Petrol. Co.

ZOC, 352 F. App’x 945, 950 (5th Cir. 2009) (“We accept well-pleaded facts as true . . . ,

but we do not accept as true ‘conclusory allegations, unwarranted factual inferences, or

legal conclusions.’” (quoting Ferrer v. Chevron Corp., 484 F.3d 776, 780 (5th Cir.

2007)); see also In re Superior Offshore Int’l, Inc. Sec. Litig., No. CIV A H-08-0687,

2009 WL 82064, at *4 (S.D. Tex. Jan. 12, 2009) (crediting allegations from CWs who

were “well-placed in positions within” the company).9

Although the CAC relies heavily on allegations from CWs, they are not reliable—

a point the Opposition makes almost no effort to refute. As courts within the Fifth

Circuit recognize, such CW allegations must be disregarded entirely. See, e.g., In re

Franklin Bank Corp. Sec. Litig., 782 F. Supp. 2d 364, 389 (S.D. Tex. 2011), aff’d, 464 F.

App’x 334 (5th Cir. 2012) (declining to credit any of the five CWs in the scienter

analysis).

9 Plaintiffs note that the Court ultimately denied the motion to dismiss based in part on CW accounts in Superior Offshore, Opp. 36–37, but, unlike here, see Mot. 75 n.142, the CWs in that case were well placed in the company to possess the knowledge alleged.

20934048 11


B. The Opposition completely looks past the unreliability of the CAC’s other source material.

As set forth in the Motion, Plaintiffs compound the problems inherent in the CAC

by relying heavily on various articles and blog posts that, under a modicum of scrutiny,

fall victim to the same deficiencies as the CWs. Again, the Opposition’s approach to this

pleading failure is silence. With rare exception, the 75-page Opposition ignores the issue

and treats any source—whether a blog on the internet or a complaint filed in Angola—as

the pinnacle of truth without any further discussion.

While Plaintiffs’ refusal to engage is consistent with how they address their other

pleading deficiencies, the case law demands more. News articles and journals must meet

the same standards that apply to all allegations under the PSLRA—the allegations in the

articles can be credited only to the extent “they are sufficiently particular and detailed to

indicate their reliability.” In re Wet Seal, Inc. Sec. Litig., 518 F. Supp. 2d 1148, 1172

(C.D. Cal. 2007). Absent this corroborating detail, such material cannot be credited by

the Court. See, e.g., City of Brockton Ret. Sys. v. Avon Prods., Inc., No. 11-civ-4665

PGG, 2014 WL 4832321, at *23 (S.D.N.Y. Sept. 29, 2014) (“[T]he news articles cited

still must indicate particularized facts about a defendant’s conduct in order to support the

claims.”). The allegations in Plaintiffs’ articles simply are not sufficiently particularized

to meet the PSLRA’s high standard.10

10 For example, Plaintiffs cite an August 2014 Global Witness article, which relies on “well-placed industry insiders,” Ex. 56, but the article does not show it is probable the source would have the information attributed to her.

20934048 12


C. Plaintiffs’ allegations are not well-pleaded to the extent they contradict the articles on which they are based.

Despite relying heavily on articles for their allegations, the CAC shamelessly

departs from those same articles when they discredit its manufactured narrative. But

where allegations in a complaint directly contradict documents upon which the complaint

relies, a court is under no obligation to accept those allegations as true. See, e.g., Livent,

151 F. Supp. 2d at 405 (recognizing that courts need not accept allegations that are

directly contradicted by statements in the complaint itself or by documents upon which

its allegations rely).

For example, the Opposition relies heavily on the allegation that Nazaki’s

registration documents “showed that Nazaki was owned by Angolan officials.” Opp. 34,

54, 55–56. But the documents on which the CAC relies directly contradict that

allegation, recognizing instead that Vicente, Kopelipa, and Dino “held concealed

interests” in Nazaki, and that “the three men’s names do not appear among the five

shareholders in Nazaki listed in two company registration documents obtained by the FT,

dating from 2007 and 2010,” or in Aquattro’s registration documents. Ex. 16, 4/15/12 FT

Article 1 (emphasis added); Ex. 17, 4/15/12 FT Article 2 (emphasis added). When

stripped of such contradictions, Plaintiffs’ allegations offer nothing more than that

Nazaki’s registration documents show that its shareholders were four individuals and

Aquattro, a holding company with a 99.96% interest. See CAC ¶¶ 64, 65.11

11 With respect to Alper’s registration documents, the CAC contains no well-pleaded allegations that Alper’s owners were government officials during the time in question. See Mot. 30 n.40. Plaintiffs’ only rejoinder is to declare that fact irrelevant. Because the FCPA does not prohibit entering into a lawful business transaction with a former government official, see 15 U.S.C. § 78dd-1(a) (making it unlawful to give something of value to a foreign official

20934048 13


More broadly, the articles also contradict Plaintiffs’ allegation that the beneficial

owners of Nazaki were readily apparent to anyone who cared to look.12 For example, the

CAC pleads that de Morais’s July 2010 article only “suggested the true owners may be

Vicente, Kopelipa, and Dino.” CAC ¶ 77. Other than the allegations in de Morais’s

article and Maka Angola blog—allegations Cobalt disclosed in its public filings—

Plaintiffs fail to point to articles from 2010 or 2011 that suggested Nazaki had ties to

Angolan government officials. Instead, they rely almost exclusively on articles published

in 2012 or later—more than three years after Nazaki was named to the contractor group

and on the heels of the FT’s series of articles. In other words, the articles Plaintiffs cite

are consistent with the idea that knowledge about Nazaki’s owners evolved over time.13

D. Plaintiffs try to divert the Court’s attention from their own misrepresentations by mischaracterizing the Motion.

As the Motion explains, the CAC repeatedly takes statements out of context, alters

quotes, and creatively arranges comments to change their meaning. See Mot. 20–26 &

Mot. App’x 1. Rather than offer a response, the Opposition tries desperately to divert the

Court’s attention by pointing the finger at Cobalt.

to influence an act or decision of that foreign official in his official capacity) (emphases added), the assertion that when a company’s owners were government officials does not matter, Opp. 29 n.11, is, at best, ill-informed. 12 To the extent it was even available at all, the information that Plaintiffs claim was apparent from the registration documents—i.e., that the same registered address was used for other companies held by Vicente, Kopelipa, and Dino, and that Aquattro held interests in other companies—would only be apparent when compared with the registration documents of other companies completely unrelated to Cobalt’s partner. Opp. 9; CAC ¶¶ 6, 63. 13 Plaintiffs also baldly assert that the four individuals listed as shareholders were government officials, CAC ¶¶ 64–65, but as with their deficient allegations about Alper’s owners, Plaintiffs never plead when these individuals were purportedly government officials. See supra 13 n.11. This glaring omission renders Plaintiffs’ claim deficient under Rule 8(a). And, because Plaintiffs point to an uncorroborated article from 2013 and fail to provide any support at all for the rest of their assertions, the allegation of government official ownership itself fails to meet the exacting standards of the PSLRA. See 15 U.S.C. § 78u-4(b)(1) (2012) (“[I)f an allegation regarding the statement or omission is made on information and belief, . . . state with particularity all facts on which that belief is formed.”).

20934048 14


For example, pointing to the May 2010 Global Witness article, Plaintiffs argue

that the Motion mischaracterized and “ignor[ed] the [CAC’s] allegations.” Opp. 62. In

fact, Plaintiffs are the ones who refuse to quote the Global Witness article without first

replacing its actual content with brackets containing Plaintiffs’ preferred language.

• “In May 2010, journalists at Global Witness, citing interview with members of the oil industry, reported that ‘many observers believe that [Nazaki and Alper] are used as fronts by top Angolan officials to enrich themselves privately.’” Opp. 10–11 (emphasis added).

• “In response to a Global Witness report in May 2010 stating that ‘many observers believe that [Nazaki and Alper] are used as fronts by top Angolan officials to enrich themselves privately . . . .’” Id. at 53 (emphasis added).

• “But, in reality, the Global Witness article stated far more, including that ‘observers believe that [these] small and little-known companies are used as fronts by top Angolan officials to enrich themselves privately.’” Id. at 62 (emphasis in original).

By contrast, the Motion supplies the full paragraph—without Plaintiffs’ alterations—in

Motion Appendix 1, and it makes clear that the article never called Nazaki and Alper

“fronts by top Angolan officials,” as Plaintiffs’ selective editing suggests.14

In another instance, Plaintiffs allege that the Motion misrepresents Ana Silva’s

June 1, 2012 article and accuse the Cobalt Defendants of attaching the wrong article.

Opp. 63 n.33. What Plaintiffs never tell the Court is that the substance of the two articles

is identical—Plaintiffs merely found another version that omits the misspellings in the

version Cobalt attached. Compare Dkt. 90-14, Entwistle Decl., Ex. 9, with Mot. Ex. 70.

The Motion never misrepresents the article’s contents, nor does it point to a misspelling

in a translation as evidence that the article was not credible. See Mot. 62.

14 Appendix 1 to the Motion also details many other instances of the CAC’s mischaracterizations.

20934048 15


Plaintiffs also freely mischaracterize the articles they cite. For example, they say a

JP Morgan report notes “it was ‘curious’ that it took years for Cobalt to admit that Nazaki

did not have the ‘competence of financial capacity to be a genuine partner’ with Cobalt,”

Opp. 56 (emphasis added), but the report actually says, “It is curious that it took this long

for the Ministry to figure out that Nazaki did not have the competence or financial

capacity to be a genuine partner.” Ex. 73, 8/28/14 JP Morgan Report (emphasis added).15

In sum, far from serving Plaintiffs’ apparent goal of deflecting attention from their

prior mischaracterizations, their continued efforts to mischaracterize the underlying

documents serve only to cast even further doubt on their claims.

SECURITIES ACT CLAIMS16

I. The Opposition does not show that the challenged statements in the Offering Materials were materially false or misleading when made.

The Opposition mounts no serious challenge to the literal truth of the challenged

statements in Cobalt’s offering materials. Instead, Plaintiffs focus their efforts on

characterizing the statements as misleading and omitting material facts. As the Motion

explains, however, the challenged FCPA-related statements cannot be misleading absent

an undisclosed FCPA violation. Faced with the fact that no FCPA violation has even

been charged, much less adjudicated or admitted, Plaintiffs insist that they do not need

one because Cobalt made independently misleading statements about Nazaki and Alper.

But even if that argument made any sense—and it plainly does not—it rests entirely on

15 Although Plaintiffs offer scant details about the JP Morgan report cited in the CAC, see CAC ¶ 123 (no date of publication), the Cobalt Defendants attach the JP Morgan report upon which the CAC appears to rely. See Ex. 73. 16 The Cobalt Defendants hereby incorporate by reference and join in the Underwriter Defendants’ reply in support of their motion to dismiss. See Mot. 71 & n.129 (incorporating by reference and joining in the Underwriter Defendants’ motion to dismiss.

20934048 16


cases that bear no resemblance whatsoever to the facts pleaded here. Plaintiffs’ attempt

to fit a square peg into a round hole not only fails on the merits; it also reveals Plaintiffs’

own lack of faith in their FCPA-related allegations. The same is true of Plaintiffs’ well-

related allegations, which the Opposition does nothing to salvage.

A. The Opposition does not rehabilitate the CAC’s defective attacks on Cobalt’s opinion that its Angolan activities complied with the FCPA.

The Opposition’s arguments about Cobalt’s statement that it believes its activities

complied with the FCPA,17 Opp. 31–34, run afoul of various issues identified in the

Motion. As a threshold matter, Plaintiffs’ claims that Cobalt’s stated belief was untrue,

id. at 31–33, and that Cobalt omitted that an internal investigation purportedly had

“uncover[ed] bribery,” id. at 33,18 are precisely the arguments that Plaintiffs disclaimed

in the CAC to avoid having to plead their Section 11 claims with particularity. See Mot.

71–72 (explaining that fraud disclaimer precludes Plaintiffs from contesting that Cobalt’s

opinion was honestly held or claiming Cobalt failed to disclose a known violation);

compare Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 135 S.

Ct. 1318, 1327 (2015) (“[T]he Funds do not contest that Omnicare’s opinion was

honestly held. Recall that their complaint explicitly ‘exclude[s] and disclaim[s]’ any

allegation sounding in fraud or deception.”), with CAC ¶ 217 (“Plaintiffs expressly

disavow and disclaim any allegations of fraud, scheme or intentional conduct as part of

17 The Opposition selectively edits one Cobalt statement to charge it with misrepresenting that it was in “compliance with the FCPA.” See Opp. 26. What Cobalt actually said is: “Cobalt takes compliance with the FCPA and other laws very seriously and has devoted considerable resources towards such compliance.” Ex. 9, 3/11/11 8-K. 18 The Opposition offers no details about the purported “internal investigation uncovering bribery” that Cobalt allegedly omitted. See Opp. 33. To the extent the Opposition is referring to the CAC’s fantastical bribes-disguised-as-rent allegations, they do not withstand scrutiny under Rule 8(a) because, as the Motion explains, they rest on unreliable sources and are facially implausible. See Mot. 30–32; see also infra 48.

20934048 17


their claims under the Securities Act.”). The Opposition offers no response whatsoever

to the Motion’s argument that the disclaimer precludes Plaintiffs from basing their

Section 11 claims on allegations that Cobalt lied about its FCPA compliance or hid an

FCPA violation.19

Even if Plaintiffs could somehow escape their disclaimer, the fundamental

problem identified in the Motion remains—they have not pleaded that Cobalt’s belief it

complied with the FCPA was wrong, nor could they, given that there has been no finding,

adjudication, or even charge that Cobalt violated the FCPA. See Mot. 28–29, 32–33, 71–

72. As a matter of law, a belief of legal compliance cannot violate either Omnicare’s

misstatement provision or its omissions provision unless the belief was incorrect.

Omnicare, 135 S. Ct. at 1326 n.2. Put differently, it cannot be false or misleading for a

company to state it believes it complied with the law if, in fact, it has complied with the

law. Thus, a plaintiff must, at a minimum, plead that a violation of law occurred.20

Lacking an established FCPA violation, Plaintiffs make a halfhearted21 attempt to

invent one. They claim that by signing the RSAs alongside Nazaki and Alper and

participating in the contractor group formed by the Angolan government, Cobalt

somehow “offered and gave ‘something of value’ to Nazaki and Alper, in order to obtain

and retain Cobalt’s business in Angola” and, more specifically, “in order to influence

Vicente’s decision to award the Blocks to Cobalt.” Opp. 34. In addition to being

19 Were Plaintiffs to abandon the disclaimer, their failure to plead a viable Section 11 claim would be even starker, given their failure to plead with particularity any FCPA violation. See infra 55–56. 20 The cases on which Plaintiffs rely for the proposition that a violation is unnecessary, see Opp. 24–25, are not to the contrary. See infra 50–51. 21 Plaintiffs devote merely 1 page of their 75-page brief to arguing that they pleaded an FCPA violation. Opp. 34.

20934048 18


impermissibly conclusory,22 this assertion contradicts the very facts pleaded in the

CAC—namely, that Cobalt secured and paid for its licenses for Blocks 9 and 21 in 2007,

before the Angolan government named Nazaki or Alper to the contractor group for those

Blocks and before Cobalt signed the RSAs with the Angolan government. See CAC ¶ 58

(acknowledging that Cobalt acquired its interests in 2007); CAC ¶ 60 (alleging that

Cobalt learned of Nazaki and Alper in 2008); CAC ¶ 59 (incorporating RSAs by

reference); Ex. 9, 3/11/11 8-K. 1–2 (establishing February 2010 signing of RSAs).23 As

such, it is not a well-pleaded assertion and cannot be accepted as true. See, e.g., Livent,

151 F. Supp. 2d at 405–406.

More fundamentally, the assertion—even if credited in full—fails to allege an

FCPA violation. The FCPA prohibits corrupt payments to government officials, made or

authorized by Cobalt or a third party on Cobalt’s behalf and with Cobalt’s knowledge,

and requires proof of (1) a corrupt act attributable to Cobalt (i.e., corruptly offering,

promising, or giving something of value), and (2) that the identified thing of value was

given for an improper purpose under the FCPA (i.e., to induce the recipient to misuse his

or her official position). See 15 U.S.C. § 78dd-1(a) (2012). In other words, there must be

22 Because Plaintiffs offer no facts in support of the bald assertion that Cobalt “offered and gave ‘something of value’ to Nazaki and Alper, in order to obtain and retain Cobalt’s business in Angola” and “influence Vicente’s decision to award the Blocks to Cobalt, or otherwise secure an improper advantage in order to obtain or retain business in Angola,” Opp. 34, the allegations add nothing to the analysis. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (“[T]he tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.”). 23 Contrary to Plaintiffs’ assertions, see Opp. 9–10 n.4, Cobalt never claimed that the RSAs were not important, or that they were not a necessary step to drilling operations proceeding on the Blocks. But the critical point that Plaintiffs deliberately overlook is that Cobalt acquired its contractual rights to the Blocks in 2007—well before the Angolan government added Nazaki to the contractor group.

20934048 19


a bribe.24 But Plaintiffs never plead one. They never identify any corrupt act attributable

to Cobalt or any thing of value given for any improper purpose. Instead, their only well-

pleaded allegations are that Cobalt acquired its interests in Blocks 9 and 21 in 2007,

learned of Nazaki and Alper when those companies were later appointed to the contractor

group, and subsequently signed operational agreements with the Angolan government

related to those Blocks, Opp. 3425—allegations that in no way amount to a bribe.26

Left with mere “speculations of uncharged, unadjudicated FCPA violations,”

which are not sufficient, Parker v. Hyperdynamics Corp., No. 4:12-cv-999, 2015 WL

5024027, at *12 (S.D. Tex. Aug. 25, 2015), Plaintiffs attempt to transform Cobalt’s

statement that it believed its activities complied with the FCPA into a “represent[ation]

that Nazaki and Alper were not owned by Angolan government officials.” Opp. 33.

Cobalt’s statement contained no such implicit representation. The FCPA prohibits

bribes; it does not preclude a company from working on a project—for wholly legitimate

reasons—in which foreign government officials are later given a stake by the sovereign

(even putting aside whether the ownership was concealed from the company). Thus, the

correctness of Cobalt’s belief that it complied with the FCPA does not turn on who

24 United States v. Esquenazi, 752 F.3d 912, 920 (11th Cir. 2014) (“The FCPA prohibits ‘any domestic concern’ from ‘mak[ing] use of the mails or any means ... of interstate commerce corruptly in furtherance of’ a bribe to ‘any foreign official’ . . . .”); United States v. Kozeny, 493 F. Supp. 2d 693, 703 (S.D.N.Y. 2007) (“The FCPA makes it illegal to bribe foreign government officials to obtain or retain business, or to direct business to another person.”); Cherie O. Taylor, The Foreign Corrupt Practices Act: A Primer, 17-WTR Currents: Int’l Trade L.J. 3, 4 (Winter 2008 (“The anti-bribery provisions of the FCPA criminalize the bribery of a foreign official aimed at influencing any official act . . . .). 25 The allegation that “Nazaki’s and Alper’s registration statements showed the companies’ ownership by Angolan government officials,” Opp. 34, is not well pleaded. See supra 13. Even if it were, it would make no difference—no conclusion that Cobalt paid a bribe follows from Angolan government official ownership of Nazaki or Alper. 26 Manuel Vicente’s alleged opinion that “Cobalt had violated U.S. anti-corruption laws,” Opp. 34, is of no moment, because it does not change the fact Plaintiffs fail to allege facts sufficient to plead a violation.

20934048 20


owned Nazaki or Alper, and Cobalt cannot be deemed to have said anything about

Nazaki’s or Alper’s owners merely by virtue of having expressed its belief that its

activities complied with the FCPA. See Mot. 33–34, 72–73.

B. The Opposition does not salvage the other FCPA-related statements.

Recognizing its attacks on Cobalt’s FCPA compliance opinion cannot succeed, the

Opposition focuses heavily on Cobalt’s statements about Nazaki and Alper. Yet the

Opposition still fails to show those statements were false or misleading when made.

1. Cobalt’s description of Nazaki as “full paying” conveyed nothing other than that Nazaki had a non-carried interest in the Blocks.

The Opposition insists that Cobalt’s description of Nazaki as a “full paying

member” of the contractor group for Blocks 9 and 21, e.g., Ex. 8, 3/1/11 10-K, 47–48,

was false, misleading, and omitted material facts because Nazaki (1) purportedly failed to

fulfill its financial commitments and (2) was owned by Angolan government officials.

Opp. 22, 25–26, 28–29. But Plaintiffs’ assertion that “full paying” has only one “plain

meaning”—that Nazaki had fulfilled its Block 9 and 21 economic obligations, see Opp.

29 & n.10—improperly strips away the context in which the term appears. It also

completely undermines Plaintiffs’ claim that “full paying” also means something else—

that Nazaki was not owned by Angolan government officials. See Opp. 28.

First, as the Motion explains, the context in which Cobalt used “full paying”

makes clear that it used the term only to describe the non-carried nature of Nazaki’s

interests in the Blocks, not to comment on Nazaki’s payment history. See Mot. 39–40.

20934048 21


That is true of all seven instances Plaintiffs challenge.27 See Opp. 28 & n.9. In fact, as

the Motion shows, see Mot. 39–40, when Cobalt wanted to say something about Nazaki’s

payment history, it did so directly, not obliquely via a term like “full paying.” E.g.,

Ex. 9, 3/11/11 8-K (noting that “[t]o date, Nazaki has made all payments required of it

under the [RSAs]”—a statement the CAC does challenge). Given the context in which

Cobalt used the term—including the fact that each challenged use appears in a discussion

of FCPA risks, see, e.g., Ex. 29, 2/26/13 10-K, 57, as opposed to in a discussion of

Cobalt’s financial risk factors, id. at 45–46 (referencing Nazaki’s contractual obligations

under the RSAs), or material contracts, id. at 26—no reasonable shareholder could have

interpreted “full paying member of the contractor group” as a representation that Nazaki

was current on its bills. Dismissal is appropriate on this basis alone.28

But even if “full paying” could be interpreted as implying Nazaki had paid all of

its bills, Plaintiffs’ assertion to the contrary is not well pleaded. Their argument rests

entirely on the August 2014 Angolan government’s decrees authorizing the transfer of

Nazaki’s interests in Blocks 9 and 21. Opp. 19. But the decrees provide no basis for

alleging Nazaki was delinquent on its financial commitments at any time when Cobalt

27 The Opposition criticizes the Motion for quoting only one of the challenged uses, Opp. 28 n.9, but the others do not convey anything about whether Nazaki was up to date on its bills. E.g., Ex. 29, 2/26/13 10-K, 57 (“In the fall of 2010, we were made aware of allegations of a connection between senior Angolan government officials and one of these companies, Nazaki Oil and Gaz, S. A. (‘Nazaki’), which is a full paying member of the contractor group.”). 28 See, e.g., In re Hardinge, Inc. Sec. Litig., 696 F. Supp. 2d 309, 321–22 (W.D.N.Y. 2010) (deeming statement in press release addressing markets for a company’s products not misleading as a matter of law because “no reasonable investor would have interpreted” the statement as plaintiffs contended); In re Number Nine Visual Tech. Corp. Sec. Litig., 51 F. Supp. 2d 1, 18–21, 31 (D. Mass. 1999) (rejecting argument that the phrase “broad product line” contained “implicit representations” that were “false and misleading” and dismissing Section 11 claims accordingly); Kas v. Valley Nat’l Corp., No. CIV 93-0740 PHX RCB, 1993 WL 616687, at *3–5 (D. Ariz. Dec. 10, 1993) (dismissing 10b-5 claim, concluding that statement was not misleading as a matter of law because it was not susceptible to interpretation advocated by plaintiffs).

20934048 22


referred to Nazaki as full paying.29 Moreover, the CAC alleges no other facts from which

to infer when the failures occurred or the nature of the failures. The CAC’s reliance on

the decrees alone is insufficient to demonstrate that, on the dates when Cobalt described

Nazaki as a full paying member, Nazaki was not actually up to date on its bills.

Even looking past these deficiencies, Plaintiffs still have not adequately pleaded

materiality. See Mot. 40, 73–74. Because the CAC contains no allegations that the status

of Nazaki’s amounts payable vis-à-vis Sonangol had some further effect on Cobalt’s

financial status, the allegation that Nazaki was not up to date on its bills is immaterial as a

matter of law. Hutchison v. CBRE Realty Fin., Inc., 638 F. Supp. 2d 265 (D. Conn.

2009), is instructive on this point. There, a stockholder asserted Section 11 claims

against CBRE for failing to disclose that one of its outstanding debtors, Triton, was

“experiencing ‘severe financial distress’ in connection with two real estate development

projects to which CBRE had provided financing.” Id. at 266–67. In analyzing CBRE’s

immateriality argument, the court determined that because the omitted information

related to Triton, not CBRE, plaintiffs had to establish a connection between Triton’s

ability to repay its debts to CBRE and CBRE’s financial health. Id. at 275 (“[I]f when

CBRE’s registration statement and prospectus issued, any Triton default would have

made no difference with regard to the merits of investing in CBRE, the risk of that

potential default could not have been material.”). Because the complaint lacked such

facts, the court deemed the alleged omissions immaterial. Id. at 276. Plaintiffs have

29 Compare Opp. 22 (pointing to decrees’ statements that Nazaki “repeatedly failed to comply with its economic and financial commitments related to the costs incurred by the Partnership.”), with CAC ¶ 183 (alleging that Cobalt last used the term “full paying” in May 2014, three months before the decrees were published).

20934048 23


likewise failed to plead the requisite connection between Nazaki’s alleged failure to

comply with its financial obligations and Cobalt’s financial health.

Second, Cobalt’s description of Nazaki as a full paying member of the contractor

group also was not a comment on who owned Nazaki, let alone an assurance that its

owners were not Angolan government officials. By stating that Nazaki was a full paying

member, Cobalt told investors that Nazaki had a paying interest, not a carried interest, in

Blocks 9 and 21. Thus, at best, Cobalt conveyed that it was not paying Nazaki’s way in

the venture—appropriate context when considering FCPA risks. Viewed in context, as it

must be, Cobalt’s use of full paying simply is not susceptible to any other interpretation.

2. Plaintiffs’ attack on Cobalt’s “limited” familiarity statements rests on an outright mischaracterization.

The claim that Cobalt falsely described its familiarity with Nazaki and Alper as

“limited,” Opp. 22, rests on a mischaracterization. In the same paragraph where

Plaintiffs (falsely) accuse the Cobalt Defendants of “attempt[ing] to rewrite their prior

statements,” id. at 27, Plaintiffs flagrantly rewrite Cobalt’s statements. Id. at 27–28.

Cobalt did not “repeat[] in each annual Form 10-K . . . that the Company still as of the

date of the documents filed with the SEC in 2011, 2012, 2013, and 2014 had ‘limited’

familiarity” with Nazaki and Alper, as the Opposition claims. Id. at 28 (emphasis in

original). The express language of the 10-Ks reveals Plaintiffs’ sleight-of-hand:

• 2010 10-K: “In connection with entering into our [RSAs] for Blocks 9 and 21 offshore Angola, two Angolan-based E&P companies were assigned as part of the contractor group by the Angolan government. We had not worked with either of these companies in the past, and, therefore, our familiarity with these companies is limited.” Ex. 8, 3/1/11 10-K, 47 (emphasis added).

20934048 24


• 2011, 2012, and 2013 10-Ks: “In connection with entering into our RSAs for Blocks 9 and 21 offshore Angola, two Angolan-based E&P companies were assigned as part of the contractor group by the Angolan government. We had not worked with either of these companies in the past, and, therefore, our familiarity with these companies was limited.” Ex. 13, 2/21/12 10-K, 50 (emphasis added); accord Ex. 29, 2/26/13 10-K, 57; Ex. 47, 2/27/14 10-K, 55.

Cobalt’s use of the past tense in the subsequent 10-Ks dispels Plaintiffs’ claim that Cobalt

said it still had limited familiarity with Nazaki and Alper at the time of those filings.

Plaintiffs also fail to adequately plead that Cobalt’s use of the present tense in the

2010 10-K was false or misleading. The 2010 10-K accurately described the state of

Cobalt’s familiarity with Nazaki and Alper as of March 1, 2011—it was limited because

Cobalt had not worked with those companies before. Ex. 8, 3/1/11 10-K, 47. Plaintiffs

assert that “Cobalt was deeply familiar with the true facts about Nazaki and Alper’s

Angolan owners,” Opp. 22, but that allegation does not render Cobalt’s statement false or

misleading for two reasons.

First, as the complete statement shows, Cobalt was describing its lack of

familiarity with Nazaki and Alper based on its lack of a track record working with those

companies, not commenting on who owned them. It would be one thing if Cobalt had

said it believed, based on its familiarity with Nazaki and Alper, that they were not owned

by Angolan officials, but that is not what Cobalt conveyed when it said it had limited

familiarity with those companies.

Second, none of the four bases cited for Plaintiffs’ allegation, see Opp. 22, shows

that Cobalt’s familiarity with Nazaki and Alper was anything other than limited as of

March 1, 2011:

20934048 25


• the allegations that Nazaki’s and Alper’s so-called registration documents revealed government official ownership are not well pleaded, see supra 13;

• the purported “basic due diligence” cited in the Opposition refers to a paragraph in the CAC that says nothing about Cobalt’s familiarity with Nazaki, instead pointing to allegations of findings from a “due diligence investigator” and “U.S. lawyer,” both of whom are unidentified. In any event, the source containing these allegations was not published until earlier this year, see CAC ¶ 70 (citing Ex. 74, Tom Burgis Book, 16–17 (2015));

• the claim that “the RSAs themselves” evidence government official ownership stems from an allegation that Nazaki’s signatory, Zandre Campos, was affiliated with Kopelipa, Dino, and Vicente, but that allegation was not published until 2013—almost two years after the 10-K, see CAC ¶ 66 (citing Ex. 26, 1/5/13 Maka Angola Article); and

• in addition to not being well-pleaded, see supra 10–11, the baseless and uncorroborated allegation that Cobalt employees met with Kopelipa, Dino, and Vicente at Nazaki’s offices is attributable only to a CW who claims to have driven Cobalt employees beginning on some unspecified date in 2011, not necessarily before March 1, 2011, see CAC ¶ 73.30

Plaintiffs simply have not pleaded that Cobalt’s “limited” familiarity statements were

false or misleading.

3. Cobalt accurately disclosed that “allegations” of a connection between Angolan government officials and Nazaki had emerged.

The claim that Cobalt’s disclosure of allegations of a connection between senior

Angolan government officials and Nazaki was misleading,31 see Opp. 23, rests on a

similar mischaracterization. Plaintiffs accuse Cobalt of having “stated repeatedly that

there were merely ‘allegations of a connection between senior Angolan officials and . . .

Nazaki’” and “portray[] the true facts as mere ‘allegations.’” Id. (emphases added). But

30 At best, these allegations plead only a possible misstatement, which is insufficient. See Iqbal, 556 U.S. at 678. 31 The Opposition no longer contends that Cobalt’s disclosure of allegations of a connection between senior Angolan government officials and Nazaki was false. See Opp. 22 (listing allegedly false statements).

20934048 26


Cobalt never used the word “mere” or “merely” in describing the allegations:

• 2010 10-K: “[L]ast year we were made aware of allegations, that we are continuing to look into, of a connection between senior Angolan government officials and Nazaki (a full paying member of the contractor group for Blocks 9 and 21).” Ex. 8, 3/1/11 10-K, 47–48.

• March 2011 8-K: “In the Annual Report, Cobalt noted that last year it had become aware of allegations of a connection between senior Angolan government officials and [Nazaki] and that Cobalt was continuing to look into the allegations.” Ex. 9, 3/11/11 8-K.

• 2011, 2012, and 2013 10-Ks: “In the fall of 2010, we were made aware of allegations of a connection between senior Angolan government officials and one of these companies, [Nazaki], which is a full paying member of the contractor group for [Blocks 9 and 21].” Ex. 13, 2/21/12 10-K, 50; Ex. 29, 2/26/13 10-K, 57; Ex. 47, 2/27/14 10-K, 55.

No reasonable investor would take these statements as providing anything more than

background on when the allegations emerged. See Mot. 38.

The claim that Cobalt omitted “critical facts” when it “repeatedly addressed” the

allegations, Opp. 26, suffers from the same defect that plagues the CAC—it makes no

effort to explain how the omitted “facts” render what Cobalt actually said misleading.

See Mot. 26–27.32 Regardless, (1) the omitted “facts” about Nazaki’s owners do not

render misleading Cobalt’s historical description of when the allegations emerged; (2) the

32 Plaintiffs’ reliance on In re Immucor Inc. Securities Litigation, see Opp. 27, does not help their cause. Immucor’s President and CEO “was personally involved with a series of bribes, contract manipulations and other improper business practices” in Immucor’s Italian subsidiary. No. 1:05-CV-2276-WSD, 2006 WL 3000133, at *2 (N.D. Ga. Oct. 4, 2006). Immucor later disclosed that the President/CEO and Italian subsidiary were under criminal investigation in Italy, that Immucor had launched an internal investigation, that it had found one incident involving a small payment to a doctor hired as a convention sponsor, that the payment was an FCPA bookkeeping violation, and that Immucor had self-reported to the SEC. Id. at *13, 15. The court held that the disclosures misleadingly omitted that “numerous legally questionable payments” had been made—a fact that “would have established that additional violations (and the resulting fines and penalties) were not merely possible, but likely, and “could have increased Immucor’s perceived liability in fines and other penalties.” Id. at *13, 15 (emphasis added). Here, Plaintiffs contend only that Cobalt failed to disclose Angolan government official ownership of Nazaki, but that does not establish an FCPA violation, or even an increased risk of a violation, given that Nazaki was a full paying member of the contractor group that acquired its interests directly from the Angolan government. See supra 18–20.

20934048 27


registration-document allegation is not well pleaded, see supra 13; and (3) the CAC

paragraph cited for the Opposition’s claim that Cobalt knew from “its extensive business

in Angola” that Nazaki was owned by Angolan government officials pleads no such

thing. Opp. 26 (citing CAC ¶ 196 (making the unsupported inferential leap, in an effort

to plead scienter, that because of Bryant’s work with Sonangol while at BP Angola, he

must have known that Vicente had a concealed ownership interest in Nazaki)).

4. Viewed together, the individually accurate statements do not become misleading, nor were any material facts omitted.

Despite repeatedly taking snippets of Cobalt’s statements out of context to call

them false or misleading, Plaintiffs harangue the Cobalt Defendants for purportedly

failing to analyze the challenged statements together. Opp. 25. As a threshold matter,

the sole case they cite, Lormand v. US Unwired, Inc., holds only that courts must

examine factual allegations collectively when addressing scienter, not falsity. 565 F.3d

228, 251 (5th Cir. 2009). Regardless, viewing Cobalt’s statements collectively changes

nothing. They do not “misle[ad] investors into believing that Nazaki and Alper were not

owned by Angolan government officials,” as the Opposition claims, Opp. 23 (emphasis

in original); rather, viewed holistically and in context, the disclosures accurately

chronicle the emergence of the allegations of Angolan government official ownership of

Nazaki, the subsequent government investigations, and Cobalt’s consistent belief that its

Angolan operations did not violate the FCPA:

• 3/30/10 10-K: In discussing FCPA risks, Cobalt disclosed that Nazaki and Alper had been assigned to the contractor group by the Angolan government and that its familiarity with those companies “is limited” because it had not worked with them in the past. Ex. 5, 3/30/10 10-K, 51.

20934048 28


• 3/1/11 10-K: In discussing FCPA risks, Cobalt reiterated its prior statements but noted it had since been made aware of allegations, which it was continuing to look into, of connections between senior Angolan government officials and Nazaki, the full paying member of the contractor group. Ex. 8, 3/1/11 10-K, 47–48.

• 3/11/11 8-K: Cobalt noted what it said in the March 1, 2011 10-K, disclosed that the SEC had contacted it to learn more about the allegations, and stated Cobalt had voluntarily reached out to DOJ. Cobalt then expressed its belief that its Angolan activities complied with the FCPA and provided the basis for that belief—before it conducted any activities in Angola, it engaged V&E and O’Melveny to provide FCPA advice in connection with establishing its Angolan contracts, and it continued to consult with and be represented by both firms. And Cobalt provided background on the contractor group generally and Nazaki’s role in particular—unlike Alper, a “carried” member, Nazaki was a full paying member and had made all payments required of it under the RSAs. Ex. 9, 3/11/11 8-K, 2.

• 2/21/12 10-K: In discussing FCPA risks, Cobalt repeated the background from its prior 10-Ks, noting that its familiarity with Nazaki and Alper was limited. Cobalt also provided updates on the SEC and DOJ investigations, including the SEC’s issuance of a formal order of investigation in November 2011. And Cobalt reiterated its belief that it was FCPA compliant. Ex. 13, 2/21/12 10-K, 50–51.

• 2/26/13 and 2/27/14 10-Ks: Cobalt gave the same FCPA risk disclosure, repeating what had happened to that point and reporting no change in the government investigations. Ex. 29, 2/26/13 10-K, 57; Ex. 47, 2/27/14 10-K, 54–55.

At most, these disclosures assured investors that, notwithstanding the allegations that

Nazaki was owned by Angolan government officials, Cobalt believed its Angolan

activities did not violate the FCPA. Plaintiffs’ insistence that the disclosures also

provided assurances as to Nazaki’s ownership rests on their incorrect assumption that

whether Cobalt violated the FCPA rises or falls on whether Nazaki was owned by

Angolan government officials. It does not. See Mot. 29–30.

Rather than address this analytical gap in their theory, Plaintiffs seize on three

cases they claim hold that “misleading statements concerning a business partner—such as

those here—are actionable.” Opp. 23 (citing Plotkin v. IPaxess, Inc., 407 F.3d 690 (5th

20934048 29


Cir. 2005); Lee v. Active Power, Inc., 29 F. Supp. 3d 876 (W.D. Tex. 2014); Lormand. In

fact, those cases involved facts light years away from those here, and none even hinted at

a supposed categorical rule that statements about “business partners” are actionable.

In Plotkin, IPaxess, which had “struggled financially” and was down to $316,000

in annual revenues, issued two press releases announcing (1) a letter of intent to enter into

a “strategic partnership” with two companies—AGPI and Lynxus—that would call for

$25 million in annual purchases from IPaxess and (2) a $6.5 million purchase order from

AGPI/Lynxus. 407 F.3d at 692–93. In the press releases, IPaxess created the impression

that AGPI and Lynxus were “significant international companies which could serve as

credible business partners to IPaxess”:

Concerning AGPI, the releases state[d]: “With current or developing operations in Latin America, Africa, Asia and the Middle East, AGPI is rapidly becoming a leading provider of telecommunications transport services.” The releases describe[d] Lynxus as “one of North America's fastest growing enhanced application providers.”

Id. at 697. In fact, the companies were new, tiny, and related, and “[t]he deals described

in [IPaxess’s] press releases failed quickly and spectacularly.” Id. at 694, 698. The Fifth

Circuit held that “[t]he average investor would certainly be surprised to learn that

contrary to the depiction of AGPI/Lynxus in the press releases, the two companies were

new, small and related to each other” because “[s]uch characteristics would tend to

undermine the investor’s impression of the solidity of the new contracts and would imply

instead that IPaxess had embarked on a speculative venture.” Id. at 699. Accordingly,

the Fifth Circuit held that “[t]he omission of those facts was material to a reasonable

investor’s appreciation of the implications of the deals for IPaxess’s bottom line.” Id.

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In Lee, Active Power announced its new Chinese distributor was Digital China, a

leading Chinese IT company and subsidiary of a multi-billion dollar Fortune China 100

company. 29 F. Supp. 3d at 878. Active Power touted that the new partnership would

reverse its lagging trends in China and Asia generally and issued a 10-Q reflecting $4.186

million of purported sales to Digital China. Id. But Active Power’s partner was actually

Qiyuan, a small Hong Kong firm controlled in part by the wife of the head of Active

Power’s China operations. Id. When that information came to light, Active Power was

forced to restate its financials because the collectability of $4.186 million from Qiyuan,

as opposed to Digital China, was not reasonably assured. Id. at 879.

Lormand involved Sprint’s “affiliate program,” through which it contracted third

parties to construct networks in exchange for exclusive rights to sell Sprint products and

services in designated areas. 565 F.3d at 233. “Sprint offered three types of affiliations

(Types I, II, and III) that involved varying levels of Sprint control” over the affiliate’s

operations. Id. US Unwired contracted with Sprint to become a Type III affiliate but,

after “succumb[ing] to Sprint’s coercive economic pressure and abusive tactics,” agreed

to become a Type II affiliate. Id. at 233–34. Although US Unwired publically touted the

benefits of converting to Type II affiliation, privately its executives knew that the

business strategy involved in being a Type II affiliate “would be disastrous for the

company.” Id. at 234. In fact, the sub-prime subscriber program US Unwired had to

adopt as a Type II affiliate was financially devastating to the company. Id. at 262. The

Fifth Circuit held that US Unwired’s statements touting the promised benefits of

converting to Type II affiliation “omitted known risks of severe magnitude” to its

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business, and that “the total mix of information was misleading because it was highly

skewed toward[s] the promised benefits of Type II affiliation.” Id. at 249.

As these cases show, whether statements about business partners are misleading

depends on what was actually said, and Cobalt’s statements about Nazaki and Alper bear

no resemblance whatsoever to what the defendants said in those cases.

• Unlike IPaxess, Cobalt never touted Nazaki and Alper as “significant international companies,” Plotkin, 407 F.3d at 697; in fact, Cobalt conveyed the opposite by stating it had limited familiarity with the companies due to not having worked with them before.

• Unlike Active Power, Cobalt did not falsely associate Nazaki or Alper with an oil major or some other established company. Lee, 29 F. Supp. 3d at 878.

• And unlike US Unwired, Cobalt never touted any benefits of being in a contractor group with Nazaki and Alper, Lormand, 565 F.3d at 234, 249; on the contrary, Cobalt repeatedly disclosed Nazaki’s and Alper’s presence in the contractor group as an FCPA risk factor.

Not even a contortionist could make those cases support the Opposition’s assertion that

“[c]ourts have repeatedly held that misleading statements concerning a business

partner—such as [Cobalt’s disclosures about Nazaki and Alper] here—are actionable.”

Opp. 23; see also id. at 6.

5. The Opposition does nothing to establish that the allegedly false and misleading FCPA-related statements were material.

Finally, the Opposition presents no plausible argument that the challenged

statements about Nazaki and Alper could be materially false or misleading absent an

underlying FCPA violation. See Mot. 29, 34–37, 39, 73 (explaining that because mere

Angolan official ownership of Nazaki or Alper is not an FCPA violation, who owned

them cannot be material without other allegations connecting their ownership to some

20934048 32


kind of FCPA violation by Cobalt).

To begin with, the three cases on which Plaintiffs base their argument that the

challenged statements are actionable regardless of whether an FCPA violation occurred,

see Opp. 24–25, 40, suggest no such thing.

• Halford v. AtriCure, Inc. did not even involve an allegedly false or misleading statement about a business partner at all; instead, the challenged statements concerned AtriCure’s marketing of its products, its training of physicians, its participation in the filing of claims for Medicare reimbursement, and its revenue and earnings. See No. 1:08-CV-867, 2010 WL 8973625, at *4–9 (S.D. Ohio Mar. 29, 2010). The court held that whether those particular statements were false did not depend on whether AtriCure’s activities violated FDA regulations. Id. at *9 (“For example, Defendants made several statements indicating that the company does not educate or train doctors to use any of its products for [off-label use]. However, the allegations in the Amended Complaint based on the [CW] statements indicate that this statement is false or misleading [because the company promoted off-label use]. It is the falsity of Defendants’ statements which is critical, not whether the underlying activity is found to be illegal by the DOJ.”).

• In In re Syncor International Corp. Securities Litigation, the court considered whether an SEC cease and desist order, which found Syncor had violated the FCPA rendered false or misleading statements attributing Syncor’s current success and future expectations to international expansion. See 327 F. Supp. 2d 1149, 1155, 1167–73 (C.D. Cal. 2004). The court answered that question no and dismissed the complaint.33 Id. at 1173–74. Although the court noted that “[a]n FCPA violation is not required for a section 10b or Rule 10b-5 violation,” it did so in the context of discussing scienter, not falsity or materiality, and it went on to state that regardless, the SEC had found FCPA violations. Id. at 1161. Nothing in that dicta statement absolves Plaintiffs of their obligation to plead an FCPA violation here.

• In In re Gentiva Securities Litigation, the company stated it was “in compliance with [Medicare] standards and regulations,” which—unlike Cobalt’s statements—“were not opinions but rather statements of fact.” 932 F. Supp. 2d 352, 369 (E.D.N.Y. 2013). The court held that the complaint—which detailed how Gentiva “executives knew of and themselves applied pressure on Gentiva clinicians and

33 On appeal, the Ninth Circuit reversed, holding that the challenged statements attributing Syncor’s earnings to legitimate business practices were rendered misleading by the “alleged specific facts suggesting that illegal payments were in fact a significant reason” for the growth. In re Syncor Intern. Corp. Sec. Litig., 239 F. App’x 318, 320 (9th Cir. 2007).

20934048 33


managers . . . to violate Medicare rules in order to increase Medicare payments,” id. at 360—adequately pleaded that Gentiva violated Medicare regulations and, thus, that Gentiva’s legal compliance statement was false. See id. at 369. While the court declined to decide whether Gentiva had, in fact, violated Medicare regulations, id., nothing in In re Gentiva supports Plaintiffs’ claim that they are “under no obligation to plead Defendants’ FCPA violations.” Opp. 33–34.

By contrast, in Hyperdynamics, the plaintiffs challenged as false and misleading

statements specifically denying FCPA violations as well as statements discussing FCPA

risks generally, such as: “We operate in Guinea, a country where corrupt behavior exists

that could impair our ability to do business in the future or result in significant fines or

penalties.” See 2015 WL 5024027, at *9. Although the plaintiffs alleged three instances

of purported bribery, based on donations Hyperdynamics made to the Guinean

government while negotiating a concession, the court held that the allegations did not

“establish that FCPA violations occurred or that Defendants knowingly omitted FCPA

violations.” Id. at * 10. Because the claims rested “on speculations of uncharged,

unadjudicated FCPA violations that [we]re not plausibly material,” the court dismissed

them. See id. at *12. Hyperdynamics thus undermines Plaintiffs’ argument that an FCPA

violation need not be pleaded here.34

Further, Plaintiffs’ repackaged argument that Plotkin and Lee make statements

about “business partners” per se material (in addition to per se false), Opp. 38, finds no

support in those cases. In Plotkin, the fact that AGPI and Lynxus were not the

“significant international companies” IPaxess held them out to be was material to the

financial implications of the IPaxess–AGPI/Lynxus contracts, given that the $25 million

34 Although Plaintiffs argue that Hyperdynamics is distinguishable, Opp. 25 n.8, that argument rests on Plaintiffs’ mischaracterization of AtriCure, In re Syncor, and In re Gentiva.

20934048 34


annually they had committed to the cash-strapped IPaxess would have represented almost

80 times its annual revenues. 407 F.3d at 697, 699. Likewise, in Lee, the fact that Active

Power’s distributor was a small firm controlled by an Active Power executive’s wife, not

a leading subsidiary of a multi-billion dollar company, materially affected its likelihood

of collecting on its multi-million dollar contract. 29 F. Supp. 3d at 878–79.

Cobalt, by contrast, was not dependent on Nazaki or Alper for revenue, nor did it

rely on payment from Nazaki or Alper to monetize its investment in Blocks 9 and 21;35

rather, they were merely Cobalt’s non-operating co-venturers. Thus, while statements

about business partners undoubtedly can be material, the circumstances that made

IPaxess’s and Active Power’s statements material—IPaxess’s contract represented 80

times its annual revenue, and ActivePower’s distributer was critical to the company’s

business in Asia—are not present here because Cobalt’s success in Angola did not

depend on Nazaki or Alper.

The Opposition’s remaining arguments likewise fail. For example, Plaintiffs cite

SEC v. Wyly—a case involving allegations of an elaborate insider trading scheme, to

claim that Cobalt “recognized the materiality of its Partnership by continually speaking

about it,” Opp. 38, but at issue there was the materiality of non-public information about

a corporate merger on which the corporate insiders traded, not the materiality of any

statement, see 788 F. Supp. 2d 92, 96, 123 (S.D.N.Y. 2011). It is not surprising that

Plaintiffs cannot find a case that actually supports the rule they advocate—that a

35 For example, Cobalt disclosed that Alper was carried and costs would be recouped through production, Ex. 9, 3/11/11 8-K; and that Nazaki was required to post a letter of credit to guarantee the exploration work obligations, Ex. 8, 3/1/11 10-K, at 22.

20934048 35


company acknowledges something is material merely by speaking about it—because

such a rule would eviscerate the materiality requirement.36

Similarly unavailing is the argument that media interest in Nazaki’s ownership and

a drop in Cobalt’s stock price after the Wells Notice issued demonstrates materiality.

Opp. 39.37 To begin with, the facts in Plaintiffs’ cases are not even remotely similar to

the facts alleged here and do not stand for the sweeping proposition that media interest in

or market reaction to a disclosure of negative information establishes materiality.

• In City of Pontiac General Employees’ Retirement System v. Lockheed Martin Corp., the court declined to hold misstatements about the performance of one of Lockheed Martin’s divisions immaterial, not merely because “analysts were clearly surprised and disappointed after the misstatements were corrected,” but because plaintiffs also pleaded, among other things, that the division was the company’s “fastest growing business” and “a key part of [the company’s] future growth plans,” and the change in projected profit for the division was a decrease of 11–12%. 875 F. Supp. 2d 359, 368–69 (S.D.N.Y. 2012).

• City of Pontiac General Employees’ Retirement System v. Wal-Mart Stores, Inc. considered whether Walmart’s omission of its discovery of a possible bribery scheme in its Mexican operations in 2005 and its investigation in 2006 rendered misleading its statement that, as a result of an internal review in fiscal year 2012, it initiated an FCPA investigation. No. 12-CV-5162, 2014 WL 4823876, at *1 (W.D. Ark. Sept. 26, 2014). The court held the omission could have left the

36 As courts have recognized, even where a company speaks on a topic important to the company, that does not automatically make the company’s statement material. See, e.g., In re Constellation Energy Grp., Inc. Sec. Litig., 738 F. Supp. 2d 614, 631 (D. Md. 2010) (“Simply because risk management and internal controls are important to Constellation’s business, it does not follow that any individual statement regarding these topics is per se material.”). 37 Plaintiffs’ allegation that the Wells Notice somehow constitutes a disclosure of “the truth regarding the Company’s Angolan partners,” Opp. 39 (citing CAC ¶ 119), is legally incorrect. See Mot. 68–69; cf. Loos v. Immersion Corp., 762 F.3d 880, 890 (9th Cir. 2014) (noting in loss causation analysis that “[w]hile the disclosure of an investigation is certainly an ominous event, it simply puts investors on notice of a potential future disclosure of fraudulent conduct. Consequently, any decline in a corporation’s share price following the announcement of an investigation can only be attributed to market speculation about whether fraud has occurred.”); Meyer v. Greene, 710 F.3d 1189, 1201 (11th Cir. 2013) (noting in loss causation analysis that “stock prices may fall upon the announcement of an SEC investigation, but that is because the investigation can be seen to portend an added risk of future corrective action. That does not mean that the investigations, in and of themselves, reveal to the market that a company’s previous statements were false or fraudulent.”). Thus, Cobalt’s stock drop after the Wells Notice disclosure says nothing about the materiality of the challenged Nazaki/Alper statements (even if those statements could somehow be deemed to be assurances about Nazaki’s and Alper’s ownership).

20934048 36


impression that Walmart learned of the scheme in fiscal year 2012, when, in fact, its CEO, “in an email from a top Walmart lawyer in October 2005, had been given a detailed description of the suspected corruption allegations” and had “rejected calls for a legitimate independent investigation and effectively shut down the investigation by assigning it to . . . the very office implicated in the corruption scheme.” Id. at *9–10. The court based its materiality holding on a variety of factors, not just the large stock price drops after a New York Times article revealed the 2005–06 events, or the media speculation about Walmart’s resulting FCPA exposure from the $24 million in bribes alleged to have been paid. Id. at *5, 9.

• At issue in In re Facebook, Inc. IPO Securities and Derivative Litigation were disclosures in Facebook’s registration statement that warned of a risk that increased mobile usage and the company’s product decisions negatively impact its advertising revenues when, in fact, that risk had already materialized. 986 F. Supp. 2d 487, 514, 516 (S.D.N.Y. 2013). In deeming the misleading disclosures material, the court noted the magnitude of Facebook’s revenue projection revisions; the fact that it had repeatedly highlighted its advertising revenue as its “most significant financial metric” (accounting for 98%, 95%, and 85% of its revenues in the years before the IPO, id. at 493–94), and its determination that the negative impact mobile usage was having on its revenues had to be disclosed to the syndicate analysts deciding the price and quantity of shares to be offered in the IPO. Id. at 519–20. Although the court also pointed to market reaction to the revenue cuts, id. at 520, it specifically noted that while “sharply negative market reaction can be used to support other allegations of materiality,” market reaction is “too blunt an instrument to be depended on in considering whether a fact is material.” Id. at 520 n.31 (emphasis added).

Finally, although the Opposition urges that materiality should be left to the trier of

fact, Opp. 38, “many Section 11 cases have been properly dismissed on the pleadings for

lack of materiality.” Kapps v. Torch Offshore, Inc., 379 F.3d 207, 216 (5th Cir. 2004)

(collecting cases).38 This case merits the same result.

38 See, e.g., Miyahira v. Vitacost.com, Inc., 715 F.3d 1257, 1266–68 (11th Cir. 2013) (affirming dismissal of Securities Act claims where statements about company’s plans for key employees were immaterial given disclosures made in prospectus); Ind. State Dist. Council of Laborers &HOD Carriers Pension & Welfare Fund v. Omnicare, Inc., 583 F.3d 935, 943–44 (6th Cir. 2009) (affirming dismissal of 10b-5 claims because statements about revenue and earnings growth were immaterial); Rosenzweig v. Azurix Corp., 332 F.3d 854, 869 (5th Cir. 2003) (affirming district court’s holding that “generalized, positive statements about the company's competitive strengths, experienced management, and future prospects” were immaterial as a matter of law); Raab v. Gen. Physics Corp., 4 F.3d 286, 289 (4th Cir. 1993) (affirming dismissal of predictions about future earnings as immaterial); In re China

20934048 37


C. Cobalt did not misstate when Alper transferred its interests.

Plaintiffs cling to their allegation that Cobalt falsely called Alper a member of the

contractor group in the May 2014 Offering Materials, see Opp. 22, 30–31, despite being

confronted with what the Angolan government’s March 25, 2014 decrees actually said

about Alper—merely that the transfer of its interests in Blocks 9 and 21 to Sonangol P&P

was authorized, not that Alper had already left the contractor group See Mot. 41-42. But

in defending that allegation, Plaintiffs reveal that they have not met their burden of

pleading falsity. Implicit in their assertion that “there is no indication that the termination

was not effected ‘on or about March 25, 2014,’” Opp. at 30 (emphasis added), is an

admission that the decrees do not address when Alper ultimately transferred its

interests.39 As such, Plaintiffs have not pleaded anything more than a “sheer possibility”

that Cobalt’s May 2014 statements were false, which is insufficient.40

In any event, the Opposition does not even attempt to address the CAC’s failure to

plead that Alper’s exit from the contractor group in March as opposed to August would

have been material to a reasonable investor—a fatal defect. See Mot. 74.

Valves Tech. Sec. Litig., No. 11 Civ. 0796(LAK), 2012 WL 4039852, at *8 (S.D.N.Y. Sept. 12, 2012) (dismissing Securities Act and Exchange Act claims based on failure to disclose possible FCPA violations by a to-be acquired entity, because complaint failed to adequately establish materiality); CBRE, 638 F. Supp. 2d at 275–77 (dismissing Securities Act claims because complaint failed to adequately plead omissions were material). 39 Although the Opposition asserts that JPMorgan reported in August 2014 that Alper had already decided to leave the contractor group, Opp. 30 (citing CAC ¶ 123), the CAC’s description of the report makes clear that the author was relying on the decrees—“J.P.Morgan analysts obtained the expulsion decrees and noted that . . .”—the express language of which shows that the JPMorgan report misinterpreted them. See CAC § 123; Exs. 50 & 51. 40 See Iqbal, 556 U.S. at 679 (“[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has . . . not ‘show[n]’—‘that the pleader is entitled to relief.’” (quoting FED. R. CIV. P. 8(a)(2))); id. at 678 (“Where a complaint pleads facts that are ‘merely consistent with’ a defendant’s liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.’” (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007))).

20934048 38


D. Cobalt accurately described its payments to Sonangol for the Sonangol Research & Technology Center (“SRTC”).

Plaintiffs also cling to their allegation that because the SRTC does not currently

exist, Cobalt’s disclosures of the amounts it paid the Angolan government for social

projects, such as the SRTC, must have been false. See Opp. 22, 30. But Plaintiffs do not

even bother to defend their throwaway allegation that the payments were somehow

illegitimate. See Mot. 42 n.61. Nor do they address the terms of the Block 20 PSC—

which expressly obligated Cobalt and BP to pay the Angolan government for social

projects like the SRTC in consideration for receiving its interest in Block 20 and which is

entirely unrelated to Nazaki, Alper, Block 9, or Block 21. See Mot. 42–43. Indeed, the

only thing Plaintiffs say is that Cobalt was wrong to speculate that the SRTC is “in the

planning stages.” Opp. 30. But, as the Motion makes clear, see Mot. 43, Cobalt was

simply pointing out what was said in the very article on which Plaintiffs rely for their

falsity argument. See Ex. 56 (“BP stated that Sonangol, Angola’s state-owned oil

company, ‘has informed BP that the SRTC is still in planning stage.’”).

Regardless, because the status of a project funded by Cobalt’s fully disclosed

contractual obligation is not material absent allegations of an FCPA violation, see Mot.

43, 74—an argument the Opposition makes no effort to rebut—dismissal is appropriate.

E. The Opposition does not salvage the CAC’s attacks on Cobalt’s statements about its Lontra and Loengo wells.

As the Motion explains, Cobalt’s generalized descriptions of its prospects as “oil-

focused” and “high impact” are classic puffery and could not mislead anyone given

Cobalt’s many warnings about the speculative nature of oil drilling. See Mot. 53–54, 74–

20934048 39


75.41 Nevertheless, Plaintiffs insist that the descriptions were not puffery because Lontra

and Loengo allegedly “regarded a key aspect of Cobalt’s financial success,” citing the

court’s purported holding in Kaltman v. Key Energy Services, Inc. that the phrase

“exceptionally well positioned” was not puffery. Opp. 41 (citing 447 F. Supp. 2d 648,

660–62 (W.D. Tex. 2006)). But setting aside the fact that Cobalt did not use that phrase,

the court did not deem the specific phrase actionable; rather, it held that the press release

in which the phrase was used—which described specific data in the company’s quarterly

operating results42—was not too generalized or vague to be actionable.

Plaintiffs also insist the generalized descriptions misleadingly omitted “facts” as to

Lontra and Loengo see Opp. 35–36, but that argument rests on a series of overstatements

of the actual allegations in the CAC. See Reply App’x A (comparing Opposition’s

assertions to CAC’s allegations). In reality, the “facts” purportedly omitted boil down to

nothing more than the vague assertions, supposition, and personal opinions of a CW—

who was not well positioned to know the information, see supra 10—that

• at some unspecified point, Cobalt delayed disclosing some unspecified piece of information about some unspecified well for some unspecified period at Sonangol’s request;

41 The Opposition criticizes Cobalt for calling Lontra and Loengo “key,” see Opp. 35, but that term appears nowhere in the cited CAC paragraphs, see CAC ¶¶ 124, 229–40. The Opposition also touts Cobalt’s discontinued use of “high impact” after an SEC letter, see Opp. 35, but completely ignores the Fifth Circuit’s holding that a company’s use of different language in a later disclosure does not render its prior disclosure misleading. See Mot. 54 n.99. 42 The full press release stated: “While current activity levels have moderated, the Company is exceptionally well positioned and is in fact executing on its near-term and three-year stated objectives. During the quarter and year to date, our strong cash flow after capital expenditures, supported by our strong maintenance base of business, has allowed us to continue to reduce debt, expand our rental tool and international operations, as well as launch our technology initiatives. . . . with our strong cash position, new bank facility and improved safety performance, we expect to see a substantial decrease in our fixed cost structure in 2004. . . . we expect that at current activity levels, operating costs should decrease between $5 and $10 million annually as a result of reduced insurance and workers compensation costs as well as improved operating efficiencies anticipated from our technology initiatives and preventive maintenance programs.” 447 F. Supp. 2d at 660.

20934048 40


• at some unspecified moment before its December 2013 disclosure, someone at Cobalt had some unspecified piece of information supporting a conclusion that Lontra had a high gas content;

• at some unspecified point while drilling Lontra, some unspecified person at Cobalt somehow knew a gaseous hydrocarbon column had been hit, but Cobalt delayed disclosing that information for some unspecified period; and

• at some unspecified point and for some unspecified reason, the CIO thought “there was ‘not even a question’ that Loengo was not a good prospect and that there was ‘not even a remote chance’ of success on” Loengo.

CAC ¶ 111–12, 16. Such allegations could not be further from the kind of “material,

firm-specific adverse facts” that Plaintiffs claim must be disclosed. Opp. 36. But even if

Plaintiffs could get past the deficiencies in the CIO’s allegations, they still have not

pleaded how the alleged omissions render the generalized descriptions materially

misleading when made. See Mot. 54, 74–75. Calling the Motion’s argument “absurd,”

Opp. 36, does not suffice.43

EXCHANGE ACT CLAIMS

I. The Exchange Act claims must be dismissed for failure to give rise to a strong inference of scienter.

The Opposition also does nothing to cure Plaintiffs’ failure to plead the sort of

particularized facts necessary to support an inference of fraudulent intent that is “more than

merely ‘reasonable’ or ‘permissible,’” but rather “cogent and compelling, thus strong in

light of other explanations.” In re Anadarko Petrol. Corp. Class Action Litig., 957 F.

Supp. 2d 806, 818 (S.D. Tex. 2013) (citing Tellabs, Inc. v. Makor Issues & Rights, Ltd.,

551 U.S. 308, 324 (2007)). Instead, it stacks layers of inference and speculation on top of

43 As Plaintiffs’ claims under Section 11 of the Securities Act must be dismissed, so too must their claims under Section 15, as it imposes derivative liability on control persons only for acts violating Section 11. In re Enron Corp. Sec., Deriv. & “ERISA” Litig., 463 F. Supp. 2d 628, 632–34 (S.D. Tex. 2006).

20934048 41


repackaged falsity allegations in an attempt to impute the requisite mental state to the

Executive Defendants. That approach, borne of necessity since Plaintiffs have no well-

pleaded allegations giving rise to a strong inference of scienter, falls short of the PSLRA.

A. Plaintiffs’ continued inability to articulate a motive on behalf of the Executive Defendants weighs heavily against a strong inference of scienter.

Why would Bryant, Wilkirson, and Farnsworth embark on a complex, multi-year

effort to intentionally mislead investors about the ownership of their Angolan co-

venturers while, at the same time, proceeding with plans to spend tens of millions drilling

a well they knew contained more gas than oil and another known dry hole? The CAC

provides no solutions to that fundamental question, and the Opposition is no more

enlightening. Having no ready answer, Plaintiffs spend one paragraph concocting

speculative theories about the Executive Defendants’ motivation to commit securities

fraud. Opp. 62. But these arguments lack the requisite factual foundation, and it is little

wonder that Plaintiffs exert minimal effort advancing them.

First, Plaintiffs’ motive allegations as to Bryant are inherently deficient under the

PSLRA. Plaintiffs’ theory that Bryant “knew the only way Cobalt could acquire rights to

Angolan oil and, at the same time appease investors, was to partner with sham entities

controlled by Angolan officials,” is supported by no actual facts, much less well-pleaded

and particularized ones. Id. In the same vein, Plaintiffs still fail to allege particularized

facts showing that Bryant’s sole stock sale during the class period came at a suspicious

time or involved a suspicious amount. See Southland Sec. Corp. v. INSpire Ins.

Solutions, Inc., 365 F.3d 353, 368 (5th Cir. 2006) (holding that allegations of insider

20934048 42


trading only enhance the strength of the inference of scienter when “in suspicious

amounts or at suspicious times” (quoting Abrams v. Baker Hughes Inc., 292 F.3d 424,

435 (5th Cir. 2002))). Indeed, Plaintiffs neglect to note that Bryant’s sale reflected just

15.59% of his holdings and occurred after Cobalt disclosed that the SEC and DOJ had

commenced their investigations. See Mot. 56 n.104 (citing Ex. 15, 3/2/12 Bryant Form

4); see also Oppenheim Pramerica Asset Mgmt. S.A.R.L. v. Encysive Pharm. Inc., No.

Civ. A. H.-06-3022, 2007 WL 2720074, at *5 (S.D. Tex. Sept. 18, 2007) (recognizing

that the sale “of only a small percentage of [an insider’s] stock holdings does not

contribute to an inference of scienter” and noting that 17.59% was a small percentage).44

More broadly, the vaguely articulated theory that the Executive Defendants had

“personal, pecuniary motives” to defraud investors because Cobalt “was able to complete

billion-dollar Offerings,” Opp. 62, is nothing more than a generalized motive that could

be imputed to any publically owned, for-profit endeavor. On its face, it is insufficient to

plead a strong inference of scienter.45

In the end, Plaintiffs can offer no cogent rationale for why any Executive

Defendant intentionally would have defrauded the investing public. And while Plaintiffs

44 Plaintiffs’ failure to allege sales in any amount as to the other two Executive Defendants further undermines any inference of scienter. See Nathenson v. Zonagen Inc., 267 F.3d 400, 410, 421 (5th Cir. 2001) (“[T]he fact that the other defendants did not sell their shares during the relevant class period undermines plaintiffs’ claim.” (quoting Acito v. IMCERA Grp. Inc., 47 F.3d 47, 54 (2d Cir. 1995))). 45 See Coates v. Heartland Wireless Commc’ns, Inc., 100 F. Supp. 2d 417, 431 (N.D. Tex. 2000) (“A generalized motive that could be imputed to any publicly-owned, for-profit endeavor, is not sufficiently concrete for purposes of inferring scienter.’”); see also Encysive Pharm. Inc., 2007 WL 2720074, at *5 (“It is rare that a company conducts a public stock offering for any reason other than to raise money, and, therefore, this does not raise an inference of scienter); Chill v. Gen. Elect. Co., 101 F.3d 263, 268 (2d Cir. 1996) (recognizing that if scienter could be pleaded solely based on the “motive to maintain the appearance of corporate profitability, or of the success of an investment” then “virtually every company in the United States that experiences a downturn in stock price could be forced to defend securities fraud actions” (quoting Acito, 47 F.3d at 54)).

20934048 43


are not per se required to plead viable motive allegations to allege scienter, Opp. 62, “the

strength of [the] circumstantial evidence of scienter must be correspondingly greater”

where motive is not apparent. R2 Invs., 401 F.3d at 644. Plaintiffs cannot meet this high

bar.

B. Plaintiffs’ remaining allegations fall well short of establishing a strong inference of scienter.

Without any well-pleaded allegations of actual knowledge of wrongdoing on the

part of any Executive Defendant, Plaintiffs try to build a case of severe recklessness. But

the Fifth Circuit has made clear that

[s]evere recklessness is limited to those highly unreasonable omissions or misrepresentations that involve not merely simple or even inexcusable negligence, but an extreme departure from the standards of ordinary care, and that present a danger of misleading buyers or sellers which is either known to the defendant or is so obvious that the defendant must have been aware of it.

Spitzberg v. Houston Am. Energy Corp., 758 F.3d 676, 682, 684 (5th Cir. 2014) (quoting

Shaw, 537 F.3d at 533). This standard is exceedingly difficult to meet. For example, the

plaintiffs in Stockman v. Flotek Industries, Inc. alleged that the CEO, Dumas, was

severely reckless in “tout[ing] false projections to the market . . . because [he] ‘never

wanted to hear any bad news’ and would tell the divisions to ‘just go out and find it’ if

they were not projecting the numbers [he]wanted”; that “management ‘cringed’ at

projections [he] stated to the market that were contrary to actual performance because he

would just ‘make it up as he went’”; and that he touted guidance that Division presidents

told him “was ‘impossible’ to achieve and ‘not fair’ to investors.” No. CIV. A. H-09-

2526, 2010 WL 3785586, at *27 (S.D. Tex. Sept. 29, 2010). These allegations were

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supported by CWs, but the court held them insufficient to meet the severe recklessness

standard because they did not contain particularized facts showing that Dumas had

actually received communications or reports showing his statements to be false before he

made them. Id.

Rather than meaningfully address the severe recklessness standard—or even

discuss a case that found severe recklessness on facts anything like those alleged in the

CAC46—Plaintiffs instead try to water down the standard all the way to simple

negligence. See Opp. 51–52, 61. But the issue is not whether, as Plaintiffs suggest, the

Executive Defendants lacked a reasonable basis for what they said about Nazaki and

Alper—a classic formulation of simple negligence; it is whether they went beyond

“inexcusable negligence” all the way to “an extreme departure from the standards of

ordinary care.” Shaw, 537 F.3d at 533. Plaintiffs’ allegations, even considered

together,47 do not come close to meeting that exacting standard.

1. The Executive Defendants’ positions and the nature of Cobalt and its Angolan operations are insufficient to create any inference of scienter.

The Opposition’s attempt to build a strong inference of scienter on the Executive

46 Plaintiffs point to Spitzberg, Opp. 51, 61, but it does not help. There, the court held that the defendants were severely reckless publicly touting that certain prospects had “estimated recoverable reserves of 1 to 4 billion barrels” because their use of the well-known industry term “reserves” communicated that geological testing had been completed when, in fact, it had not even begun. See 758 F.3d at 680–81. By contrast, the challenged statements about Lontra and Loengo contained no similarly misleading industry terminology. The challenged statements about Nazaki and Alper made no assurances about who owned them. And plaintiffs’ tired mantra that Angolan official ownership was readily apparent to Cobalt rests on allegations that are not particularized and do not show an extreme departure from the standards of ordinary care by any Executive Defendants. 47 Although the Opposition correctly notes that scienter depends on whether the particularized facts together raise a strong inference of scienter, Opp. 52, the Fifth Circuit recently confirmed that courts should analyze each individual allegation: a “district court may best make sense of scienter allegations by first looking to the contribution of each individual allegation to a strong inference of scienter” before taking “a holistic look at all the scienter allegations.” Owens, 789 F.3d at 537 (emphasis added).

20934048 45


Defendants’ positions and the alleged “importance of the Partnership to Cobalt,”

Opp. 56–57, runs afoul of well-settled Fifth Circuit law. First, the Fifth Circuit has

repeatedly held that scienter “may not rest on the inference that the defendants must have

been aware of the misstatement based on their positions with the company.” See

Mot. 63–64; see also Shaw, 537 F.3d at 535 (rejecting argument that defendants “must

have known of the irregularities because of their executive positions in the company”);

Abrams, 292 F.3d at 432 (holding plaintiffs’ “allegations fail[ed] to reach the required

standard” because they did not allege “that the defendants knew about the internal control

problems, only that they should have known or that their lack of knowledge based on

their corporate positions demonstrates recklessness”); In re Azurix Corp. Sec. Litig., 198

F. Supp. 2d 862, 890 (S.D. Tex. 2002) (“Merely alleging that the defendants knew or had

access to information by virtue of their board or managerial positions is not sufficient to

plead scienter.”). Thus, Plaintiffs’ argument that, by virtue of their positions as “top

executives” and “top officers,” the Executive Defendants knew or were severely reckless

in not knowing information about Cobalt’s Angolan operations, Opp. 56–57, is

insufficient to support a strong inference of scienter.48

48 Plotkin does not support a strong inference of scienter based on Cobalt’s Angolan drilling efforts or its attenuated relationship with its Angolan assigned co-venturer. Given the critical importance of the deals to IPaxess’s financial health, the Plotkin court held it reasonable to infer that the IPaxess defendants had familiarized themselves with information related to the financial conditions of the counter-parties that would be paying millions of dollars each year in revenue critical to IPaxess. 407 F.3d at 692–93, 700. Key to the court’s decision was IPaxess’ dependence on the Lynxus/AGPI contracts for its continued survival. Id. at 700. The amount to be paid was more than four times Lynxus’s revenue for the prior year, and AGPI had been incorporated less than six months before the agreements’ announcement. Id. Plaintiffs never plead—because they cannot—that Cobalt’s financial health depended in any way on Nazaki. Instead, Plaintiffs ask the Court to infer that the Executive Defendants possessed and concealed knowledge of the beneficial owners of an Angolan company that was awarded non-operating interests alongside Cobalt in two oil blocks by the Angolan government—facts with no direct bearing on Cobalt’s operational success in Angola. As such, Plotkin is irrelevant.

20934048 46


Second, Plaintiffs’ reliance on Nathenson v. Zonagen Inc., 267 F.3d 400 (5th Cir.

2001), to argue that the core operations doctrine applies based on Cobalt’s size, Opp. 57

& n.29, misses the mark. Nathenson is the rare exception to the rule that knowledge for

scienter purposes cannot be imputed from the knowledge of others. In fact, as the Motion

explains, see Mot. 64–65, cases within the Fifth Circuit recognize that the doctrine has

been confined essentially to the facts of Nathenson. See, e.g., Dawes v. Imperial Sugar

Co., 975 F. Supp. 2d 666, 699 (S.D. Tex. 2013) (recognizing that Nathenson is a “limited

exception to the particularized pleading required for scienter,” which “[t]he Fifth Circuit

and other courts have been reluctant to apply”) (collecting cases).

Plaintiffs do not allege, nor could they, that Cobalt’s interests in three Angolan

blocks were tantamount to the sole business unit or product of a small company.49 When

it made the challenged statements, Cobalt had many assets in deepwater Gulf of Mexico

and offshore Angola and Gabon. Ex. 3, 10/30/09 S-1/A, 8. At most, Plaintiffs allege that

the “Partnership and its operations in Angola were of central import to its investors and

the Executive Defendants,” Opp. 57, but that is wholly insufficient for the core

operations doctrine to apply here. See, e.g., Dawes, 975 F. Supp. 2d at 698 (refusing to

impute knowledge relating to “important issues affecting” the business).

49 For that reason, this case is nothing like Fitzpatrick v. Uni-Pixel, Inc. There, the plaintiffs alleged that the defendants made false or misleading misstatements about Uni-Pixel’s ability to produce UniBoss, the company’s touch screen technology. 35 F. Supp. 3d 813, 818 (S.D. Tex. 2014). Because Uni-Pixel was “largely a one-product company”—indeed, a press release acknowledged that UniBoss was the company’s “current focus”—and employed only 27 employees, the court determined that independent defendants, as senior managers, had actual knowledge of the details of the company’s internal affairs. Id. at 830. Although Plaintiffs claim that those facts support finding a strong inference of scienter here, they base that argument on a misleading reference to Cobalt’s size four years before the earliest challenged statement. Opp. 56–57. In fact, by the time of the IPO in 2009, Cobalt had twice the number of employees as Uni-Pixel. Compare Ex. 3, 10/30/09 S-1/A, 102 (stating that Cobalt had 54 employees in the Fall 2009), with Fitzpatrick, 35 F. Supp. 3d at 830 (noting that Uni-Pixel had 27 full-time employees).

20934048 47


2. The CWs’ allegations add nothing to scienter.

The CWs’ allegations are not sufficiently reliable or particular to give rise to any

inference of scienter, either. See supra 18–12; see also Mot. 22. For example,

• The CAC does not plead particularized facts sufficient to show that the CAC’s lone source for its well allegations—the former CIO—was position to have information attributed to him. See supra 10; see also Mot. 22–23, 48–49.

• The CAC’s allegations regarding a Board investigation, Opp. 59, are based entirely on unreliable CW statements.50

• The driver coordinator’s allegation that Cobalt executives met with Vicente, Kopelipa, and Dino over 20 times is entirely unreliable. At most, the CAC alleges that, on several occasions, the driver drove Cobalt executives to the China International Fund building—the location of Cobalt’s branch office in Angola. The CAC fails to explain how the driver would know who the Cobalt employees met or even where in the building they went after he dropped them off. 51

• And, notably, no CW claims to have discussed Nazaki’s ownership with any Executive Defendant. See Mot. 61.

Likewise, Plaintiffs’ attempt to bolster their CWs by noting that some allegations

are supported by more than one CW, Opp. 58–59, fails because they cannot establish

reliability simply by pointing to marginally overlapping opinions on issues on which

none of the CWs has a proper basis to opine. In re Metawave Commc’ns Corp. Sec.

Litig., 298 F. Supp. 2d 1056, 1070 (W.D. Wash. 2003) (“[A] shared opinion among

[CWs] does not necessarily indicate either falsity or a strong inference of scienter.”).

50 The CAC does not allege that any CW was in a position to have such knowledge: (1) the former CIO was not even employed by Cobalt when the alleged investigation occurred, (2) the HR assistant merely has repeated hearsay from someone else who is not alleged to have participated in the investigation, and (3) the executive assistant only describes unspecified meetings between Rich Smith and Cobalt’s attorneys. See Mot. 31. 51 Plaintiffs argue that the Motion “incorrectly asserts that the 20 meetings” occurred at Cobalt’s offices, Opp. 10 n.5, but the Motion never concedes that the meetings occurred; rather, it correctly pointed out that the most the driver alleges is that he drove Cobalt employees to the China International Fund building, the location of Cobalt’s branch office in Angola. Mot. 61 & n.111; see Ex. 12, De Morais Compl. at 2 (recognizing Cobalt’s Angola branch office is located on the 17th floor of the China International Fund building).

20934048 48


Piling inadequate allegations on top of inadequate allegations results in a house of cards

that is not permitted under the PSLRA. See Cal. Pub. Emps.’ Ret. Sys. v. Chubb Corp.,

394 F.3d 126, 155–56 (3d Cir. 2004) (“Cobbling together a litany of inadequate

allegations does not render those allegations particularized in accordance with Rule 9(b)

or the PSLRA.”). The Opposition simply fails to show that the CW allegations are

sufficiently reliable and particular to give rise to any inference of scienter.

3. The allegation that the Executive Defendants repeatedly denied media reports does not raise an inference of scienter.

Plaintiffs also argue that the Executive Defendants repeatedly denied reports of a

connection between Nazaki and Angolan officials, and that such denials support a strong

inference of scienter. Opp. 52–53. But the three documents Plaintiffs cite—a May 2010

Global Witness article, a March 2011 8-K,52 and an April 2012 press release, Opp. 53—

do not actually contain a denial of the ownership allegations, and the cases upon which

they rely involve facts that could not be more different than those alleged here.

As a threshold matter, none of these documents contains statements attributed to

any Executive Defendant, and Plaintiffs fail to plead any specific factual allegations

linking the Executive Defendants to those statements. See Southland, 365 F.3d at 365

(“[C]orporate officers may not be held responsible for unattributed corporate statements

solely on the basis of their titles, even if their general level of day-to-day involvement in

the corporation’s affairs is pleaded. However, corporate documents that have no stated

author or statements within documents not attributed to any individual may be charged to

52 Although the Opposition refers to “Forms 10-K,” Opp. 53, it cites to and quotes from the March 11, 2011 8-K.

20934048 49


one or more corporate officers provided specific factual allegations link the individual to

the statement at issue.”).

But even putting aside that deficiency, Plaintiffs can construct their argument only

by recasting Cobalt’s statements as affirmative denials of Nazaki ownership allegations

when, in fact, they were not.

• The May 2010 Global Witness article does not show that Cobalt denied the allegations—it does not actually allege that Nazaki was owned by Angolan officials, and it does not say that Cobalt denied any connection. See Ex. 6.

• The March 2011 8-K does not constitute a denial of the allegations; rather, the excerpts cited by Plaintiffs demonstrate that Cobalt promptly disclosed the allegations about Nazaki to the public along with appropriate contextual information, including (1) Nazaki’s status as a full-paying (as opposed to “carried”) member of the consortium; (2) that Cobalt had conducted due diligence on Nazaki; (3) that the SEC had inquired about the allegations and Cobalt had contacted the DOJ; and (4) that Cobalt believed its Angolan operations complied with all laws including the FCPA. Ex. 9.

• The April 2012 press release strongly denies “any allegations of wrong doing,” Ex. 18, but that is not tantamount to a denial of the allegations that Angolan government officials secretly owned Nazaki. See infra 58; see also supra 20–21. Rather, it is a straight-forward statement of Cobalt’s belief in the lawfulness of its own conduct.53

But even if these documents could be considered denials, they do not give rise to

an inference of scienter. The facts of the cases on which Plaintiffs rely to argue

otherwise, Opp. 52–54, are, once again, light-years away from those pleaded here.

• In In re ArthroCare, the company issued a massive restatement of more than four years’ worth of earnings as a result of a fraud scheme involving serious accounting issues (including numerous GAAP violations), internal control failures, improper insurance billing, and healthcare compliance violations in two of the company’s

53 Plaintiffs fail to plead particularized facts calling into doubt the other statements in the press release, including that the FT had declined Cobalt’s repeated requests for documentation indicating it had acted improperly, and that Cobalt had informed the FT in the course of discussions about certain “demonstrably false allegations” provided to Cobalt.

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three core business units. See 726 F. Supp. 2d at 702–08. In holding that red flags in the media contributed to a strong inference that two executives acted with scienter, the court specifically noted that the executives “were directly confronted by the financial media” with reports that (1) “detailed with striking specificity some of the major improprieties” AthroCare later admitted, and (2) “were based on publically available information which would have been readily available to [the executives]”; yet, for six months, the executives called the reports “lies, rumor-mongering, and propaganda by short sellers.” Id. at 712–13, 717–18. By contrast, the CAC does not rely on media reports about Cobalt’s own practices or policies but instead alleges that Cobalt failed to disclose ownership information about a third party, and not one whose ownership information was publically available on an SEC or secretary of state website.54

• In In re Sunbeam Securities Litigation, the company overstated by almost $100 million the amount of a one-time pre-tax charge that was necessary to implement a highly touted corporate restructuring and growth plan, creating reserves that the company fraudulently used to boost its financial results. 89 F. Supp. 2d 1326, 1331–32 (S.D. Fla. 1999). The executive defendants’ denial of financial media reports about the company’s improper accounting and financial reporting practices as “propaganda stirred up by ‘shorts’” was one fact cited by the court in finding a strong inference of scienter, but it also relied on other notable allegations: the executives “were directly confronted by well-positioned Sunbeam employees about Sunbeam’s revenue recognition practices,” had “openly discussed and joked about” the fraudulent practices, and had themselves instituted the practices that caused the misstatements. Id. at 1338–39. Thus, In re Sunbeam is distinguishable for the same reasons as In re ArthroCare—namely, because it involved improper accounting and financial reporting practices (which the company admitted had, in fact, occurred) within the company’s own business, rather than the identities of concealed beneficial owners of a third party.

In short, Plaintiffs’ media report allegations are insufficient to demonstrate that the

Executive Defendants were aware of, or severely reckless in not knowing, some

concealed truth that rendered any of the challenged statements false or misleading.

4. Plaintiffs’ remaining allegations do not give rise to a strong inference of scienter.

Plaintiffs’ remaining arguments do not meaningfully address the issues raised in

54 Further, unlike in ArthroCare, the “facts” regarding Nazaki were not publically available. As discussed above, the CAC’s allegations that government official ownership was apparent on the face of Nazaki’s registration documents is contradicted by the very documents on which the CAC relies. See supra 13.

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the Motion, see Opp. 58–59, do not satisfy the PSLRA, and do not support any inference

of scienter, much less the requisite strong one.

• Bryant’s Background and Statement about Transparency (Opp. 57–58): Plaintiffs cite no authority that supports basing scienter on a generalized statement about “transparency.”55 Nor are Bryant’s prior business experiences and relationships in Angola the type of particularized facts that can give rise to a strong inference of scienter. See Mot. 65.

• Nazaki Registration Documents (Opp. 54–56): No well-pleaded facts support the allegation that Angolan government official ownership was apparent from the face of the Nazaki registration documents, or that it was otherwise “readily available” to the Executive Defendants. See supra 13. This dooms Plaintiffs’ argument that any failure to know Nazaki’s “true owners” demonstrates severe recklessness with respect to any statement,56 Opp. 54, as well as any contention that the Executive Defendants had ample opportunity to uncover the truth, Opp. 55–56.57

• Alper’s Interest: As Plaintiffs admit, Opp. 30, the March 2014 decrees did not expel Alper from the contractor group; they simply authorized a future transaction with Sonangol. Exs. 50, 51. And, if Cobalt had known that Alper was a “sham entity,” it would have had no plausible incentive to delay disclosing that Alper no longer had an interest in the contractor group; indeed, the only plausible inference is that in August 2014, Cobalt “received documentation confirming that . . . Alper” was no longer a member of the contractor group, just as it disclosed. Ex. 64.

5. None of the CAC’s well-related allegations give rise to any inference of scienter.

Rather than joining issue on the points raised in the Motion, Plaintiffs re-urge their

bare allegations about the Executive Defendants’ Lontra and Loengo statements. Opp.

60–61. First, based exclusively on dubious information provided by one CW, see infra

55 In re BP p.l.c. does not suggest otherwise. See In re BP p.l.c. Sec. Litig., 843 F. Supp. 2d 712, 783 (S.D. Tex. 2012) (holding that the CEO’s 18 different statements about BP’s effort to reform its safety procedures supported an inference that the CEO paid special attention to that effort or was reckless in not doing so). 56 Plaintiffs’ reliance on Plotkin is misplaced. Opp. 54. There it was reasonable to assume the financial condition of the company’s partners was available and reviewed by the defendants because of the type of information at issue. Here, the CAC’s well-pleaded allegations do not support a similar “reasonable inference.” 57 The CAC’s allegations concerning Alper’s registration documents fail for the same reasons. Moreover, Plaintiffs do not adequately plead that Alper’s owners were government officials at any relevant time. See supra 13 n.11

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63–64; supra 40–41, Plaintiffs effectively argue that Cobalt spent tens of millions of

dollars drilling and testing two Angolan wells, all the while knowing that one contained

more gas than oil and the other was a dry hole. But they never explain how that

allegation is as cogent and compelling as the more rationale alternative: based on the

seismic data and analysis, the Executive Defendants believed when they made their

statements that the wells had the potential to be successful. Mot. 63.

Plaintiffs also assert, again based on information provided by the CIO, that

Farnsworth participated in a meeting where a requirement to “sit on information” was

discussed. Opp. 60. But the most the CAC actually alleges is that Farnsworth attended a

meeting in which Cobalt decided to delay disclosure of something for some reason.58 See

CAC ¶ 112 (“Cobalt’s former CIO heard in an executive meeting – which was attended

by the CIO, Defendant Farnsworth, Executive Vice President for Execution and

Appraisal James Painter, Van Whitfield, Vice President for Government and Public

Affairs Lynne Hackedorn, and Mike Drennon, among others – that the Company decided

to delay disclosure.”). This type of nebulous allegation is far from well-pleaded and falls

short of the particularity requirements demanded by the PSLRA.

In sum, nothing in the Opposition salvages the CAC’s failure to plead

particularized facts raising a strong inference—one that is cogent and compelling, in light

of competing inferences—that any of the allegedly false statements was made with the

requisite scienter. Dismissal is there appropriate—indeed, required.

58 Plaintiffs’ contention that the requirement to sit on information “was openly discussed” during a meeting attended by Farnsworth, Opp. 60, finds no support in the CAC. See CAC ¶¶ 112–13; Reply App’x A.

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II. The Opposition does not show that any of the challenged statements were materially false or misleading when made. The Opposition’s approach to the Exchange Act claims is the same as its approach

to the Securities Act claims—it focuses on attacking the challenged statements as

misleading rather than literally false, it insists that the FCPA-related statements were

materially misleading even if there was no FCPA violation, and it tethers its attacks on

the well-related statements exclusively to the allegations of Cobalt’s IT manager, who

was not well placed in the Company to know what he claims. See Opp. 43–48. All of

these arguments fail, not only for the reasons described in the Securities Act section

above, see supra 16–41, but also because they do not meet the PSRLA’s particularity

requirements.

A. The additional attacks on Cobalt’s opinion that its Angolan activities complied with the FCPA do not make the opinion false or misleading.

As set forth above, the CAC does not adequately plead that Cobalt’s belief it

complied with the FCPA was misleading. See supra 17–21. The Opposition’s attempts

to paint that belief as an actionable untrue statement of material fact under in the

Exchange Act’s misstatement provision, see Opp. 45, fare no better.

First, contrary to Plaintiffs’ assertion, Cobalt’s opinion contained no “embedded

statements of fact,” let alone embedded statements of fact that were untrue. Id. (quoting

Omnicare, 135 S. Ct. at 1327). In Omnicare, the Supreme Court held that a belief

statement that contains an untrue embedded statement of fact can be actionable and

provided an example: “I believe our TVs have the highest resolution available because

we use a patented technology to which our competitors do not have access.” 135 S. Ct. at

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1327. That belief statement contains an embedded statement of fact—that the company

used a patented technology to which its competitors did not have access. See id. By

contrast, Cobalt’s opinion—that it “believes its activities in Angola have complied with

all laws, including the Foreign Corrupt Practices Act (the “FCPA”)”, Ex. 9, 3/11/11 8-

K—contains no statement of fact; that is, Cobalt did not say it believed it complied with

the FCPA because of any particular fact.

But even if the purportedly embedded facts to which Plaintiffs point could be read

into Cobalt’s opinion—Cobalt’s limited familiarity with Nazaki and Alper, the

allegations of a connection between Nazaki and senior Angolan officials, and Nazaki’s

full paying interest, Opp. 45—Plaintiffs still have not pleaded a plausible claim.

Plaintiffs’ suggestion that Cobalt stated it believed it was FCPA compliant because of its

limited familiarity with Nazaki and Alper or because of the allegations about Nazaki not

only is nonsensical; it also requires transforming the “limited familiarity” and

“allegations” statements into an assertion that Nazaki and Alper were not owned by

government officials. But that clearly is not what Cobalt said. See supra 24–26. And if

Cobalt stated it believed it was FCPA compliant because Nazaki was a full-paying

member of the contractor group, i.e., because Cobalt was not paying Nazaki’s way in the

venture, then that embedded fact certainly does not undermine Cobalt’s belief that it

complied with the FCPA. See supra 24.

Second, Plaintiffs’ claim that Cobalt’s opinion is actionable “because Defendants

did not actually believe they were in compliance with the FCPA,” Opp. 45, fails for a

host of reasons. At the outset, Plaintiffs’ bald assertion—which does not even bother to

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cite the CAC or otherwise identify the basis for calling the belief statement a lie, see id.—

is utterly conclusory and exactly the kind of allegation that Omnicare deemed

insufficient. See 135 S. Ct. at 1333. To the extent Plaintiffs claim that Cobalt did not

actually believe its statement because an internal investigation purportedly uncovered

bribery, Plaintiffs fail to plead this allegation with particularity. It rests entirely on

unreliable CW statements, see Mot. 30–31; see also supra 48 n.49, and does not meet the

high standards set by the PSLRA.

To the extent Plaintiffs base their claim that Cobalt did not actually believe it was

FCPA complaint on the allegations of Angolan official ownership of Nazaki and Alper,

the claim still fails. As explained above, the CAC does not even plead an FCPA

violation, see supra 18–20, let alone plead one with the requisite particularity. Plaintiffs’

re-urged argument that they need not allege an FCPA violation to succeed on their

claims, Opp. 45 (citing Sapssov v. Health Mgmt. Assocs., Inc., 22 F. Supp. 3d 1210 (M.D.

Fla. 2014)), still fails. Plaintiffs cannot prevail on any claim that Cobalt did not believe

what it said about FCPA compliance without first pleading that what Cobalt said was

wrong, and that requires a pleaded FCPA violation. See supra 17–21. Sapssov does not

hold otherwise. There, the court considered whether a fraudulent practice of admitting

Medicare patients rendered HMA’s statements about its positive financial results and

admission practices false and misleading. 22 F. Supp. 3d at 1222–23. The court held that

the plaintiffs did not need to allege an FCA violation because of the nature of the

challenged statements, which were not about HMA’s belief that it complied with

Medicare regulations but rather about the cause of its financial success. Id. at 1226–27.

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Sapssov simply does not stand for the sweeping proposition that a plaintiff is never

required to plead a violation to state a securities fraud claim, and it does not alleviate

Plaintiffs of their burden under Omnicare to plead an underlying violation when attacking

a legal compliance opinion.

B. The Opposition does not salvage the other FCPA-related statements in the Offering Materials.

Plaintiffs’ allegations in support of the other challenged FCPA-related statements

in the Offering Materials fail even to meet Rule 8(a) standards. See supra 21–37. When

measured against the PSLRA’s high bar, the allegations fall even further short—a fact

that the Motion points out and that the Opposition does not even address. For example,

• No particularized facts support the allegation that Alper’s owners were Angolan government officials, as Plaintiffs cite no source for this allegation and never plead that the owners’ purported government positions coincided with when Alper owned its interests in Blocks 9 and 21, see CAC ¶ 69.

• No particularized facts support the allegation that Nazaki was not current on its bills when Cobalt called it fully paying, as Plaintiffs cite only an August 14, 2014 article that contains no particularized facts about when or how Nazaki failed to comply with its economic commitments. CAC ¶ 123.

• No particularized facts support the SRTC allegations, as the article on which they are based provides no details about the “well-placed industry insider[]” sources who, as a result, have not been shown to be reliable. Ex. 56, 8/4/14 Global Witness Article.

• No particularized facts support the assertion that in 2011, the allegations of a connection between Angola officials and Nazaki were anything more than just that—allegations, and the articles on which Plaintiffs rely for their registration document argument likewise contain no particularized facts.

By failing even to respond to these deficiencies pointed out in the Motion, the Opposition

effectively concedes them.

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C. The Opposition does not establish that any of the other FCPA-related statements were materially false or misleading.

In addition to the FCPA compliance opinion and the FCPA-related statements in

the Offering Materials, the CAC challenges statements in a press release, investor call,

and investor decks. Opp. 43–44. But the Opposition does not cure the CAC’s failure to

plead particularized facts showing those statements were materially false or misleading.

• April 16, 2012 Press Release: Plaintiffs’ attack on Cobalt’s “strongly refuted” statement both raises an allegation not pleaded in the CAC,59 and rewrites what Cobalt actually said in the press release. Cobalt did not state that it “‘strongly refuted’ the April 15, 2012 FT report that Nazaki was owned by Vicente, Kopelipa, and Dino,” Opp. 43. Rather, it “strongly refuted any allegations of wrong doing and once again stood behind its principles of full compliance with all laws in all jurisdictions in which it operates.” See Ex. 9 (emphasis added). As the Cobalt Defendants have explained, refuting allegations of wrongdoing on the part of Cobalt cannot be equated with denying allegations of Angolan ownership of Nazaki. Plaintiffs simply have not pleaded, let alone with the requisite particularity, that what Cobalt really said in the press release was false or misleading.

• May 1, 2012 Investor Call. Plaintiffs also fail to plead with particularity that any of Cobalt’s statements about its due diligence, see, e.g., CAC ¶ 133, commitment to transparency, CAC ¶ 152, or FCPA compliance efforts, id. ¶¶ 133, 139, 151–52, were false or misleading. See Mot. 35–36. Plaintiffs’ argument that these statements were misleading rests on their registration document theory, Opp. 43–44, which, as explained above, is insufficient even under Rule 8(a). In any event, the allegation that Cobalt knew or should have known of Angolan official ownership of Nazaki or Alper does not render anything Cobalt said about its extensive due diligence, commitment to transparency, or FCPA compliance efforts untrue or misleading. See Mot. 36–37.

• 2013 Investor Decks: Recognizing that Cobalt’s statements about its “world class” partners and “partnerships with leading deepwater operators” never mention Alper or Nazaki, Plaintiffs make an even more far-fetched argument that when using the heading “[w]orld class operations and partners” to describe worldwide

59 See CAC ¶¶ 148–49 (calling only two statements in the press release false or misleading—Cobalt “began its investigation into its Angola business relationships in 2007,” and “Cobalt has based its decisions and actions on the results of these extensive investigations and will continue to maintain rigorous due diligence in all of its worldwide activities”).

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operations and noting in a bullet its “[p]artnerships with leading global deepwater operators,” Ex. 40 (emphasis added), Cobalt needed to add an asterisk and a list of the non-operating partners that Cobalt did not deem “world class” or “leading,” so investors would not think Nazaki and Alper—companies that Cobalt had been including in its FCPA risk disclosures for years at that point—were “world class” or “leading” operators. See Opp. 44. The allegation is beyond implausible; it certainly does not “permit the court to infer more than the mere possibility of misconduct,” as the law requires. Iqbal, 556 U.S. at 679. And for all of the reasons discussed above, see supra 30–32, neither Plotkin nor Lormand supports Plaintiffs’ claim that the descriptions were anything beyond immaterial puffery.

D. The Opposition does not show that any well-related statement was false or rendered misleading by the omission of material facts.

As explained supra 39–40, the CAC does not adequately plead that the well-

related statements in the Offering Materials—namely, Cobalt’s descriptions of its

prospects as “oil-focused” and “high impact”—were materially false or misleading. The

same is true of the challenged well-related statements in Cobalt’s earnings calls and press

releases.

1. The Opposition fails to show that the challenged opinions about the potential oil content of Lontra and Loengo fall outside the PSLRA’s safe harbor for forward-looking statements.

As the Motion explains, under the safe-harbor, forward-looking statements are not

actionable when either (1) they are identified as forward looking and accompanied by

meaningful cautionary language or (2) the plaintiff fails to prove the forward-looking

statement was made with actual knowledge that it was false or misleading. See 15 U.S.C.

§ 78u-5(c)(1) (2012). These two prongs are disjunctive—that is, a defendant is immune

from liability if either prong is met. Southland, 365 F.3d at 371 (“The safe harbor has

two independent prongs: one focusing on the defendant’s cautionary statements and the

20934048 59


other on the defendant’s state of mind.”);60 In re BP p.l.c. Sec. Litig., 843 F. Supp. 2d

712, 777 (S.D. Tex. 2012) (“If a forward-looking statement is identified as forward-

looking and accompanied by meaningful cautionary statements, the statement is not

actionable and the defendants’ state of mind is irrelevant.”). The challenged statements

about the potential oil content and size of Lontra and Loengo fall squarely within both

prongs of the safe harbor, see Mot. 44–49, and the Opposition fails to show otherwise.61

Forward-Looking Statements. Plaintiffs’ argument that the challenged predictions

do not qualify as forward looking because they also involve statements “of past and

current events,” Opp. 49 & n.23, ignores the Fifth Circuit’s holding in Spitzberg that the

safe harbor protects the forward-looking part of a mixed present/future statement. See

758 F.3d at 691–92. Because (1) the CAC attacks the forward-looking portions of the

challenged statements (i.e., the estimations about Lontra’s and Loengo’s size and

potential oil content), rather than the statements of present fact, and (2) Plaintiffs never

plead, with particularity or otherwise, that any of the statements of present fact listed in

their Opposition (e.g., that Cobalt had completed 3-D seismic analysis), see Opp. 49 &

n.23, were actually false, the challenged statements are protected. See Mot. 45–47;

Spitzberg, 758 F.3d at 691–92.

60 Although Lormand suggests that the test is not disjunctive, see 565 F.3d at 244, as the district court noted in Hopson v. MetroPCS Communications, Inc., “[t]o the extent that the later-decided Lormand conflicts with Southland, this court is bound by Southland because it is well-established rule in the Fifth Circuit that one ‘panel does not have the authority to overrule a previous panel’s decision absent an intervening, contrary, or superseding decision by [the Fifth Circuit], sitting en banc, or by the Supreme Court.’” No. 3:09-CV-2392-G, 2011 WL 1119727, at *18 n.19 (N.D. Tex. Mar. 25, 2011) (quoting SEC v. Janvey, No. 09-10963, 2010 WL 5173073, at *2 (5th Cir. Dec. 17, 2010)).

61 The Opposition offers no response to the Motion’s argument that, in addition to being protected by the safe harbor, these statements are inactionable opinions. Mot. 49–50. Dismissal is appropriate on that basis alone.

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Furthermore, the Opposition’s assertion that the safe harbor does not apply to

omissions, Opp. 49–50, relies on the court’s description of the plaintiff’s argument, not

the court’s holding, in Kurtzman v. Compaq Computer Corp., No. CIV.A.H-99-1011,

2000 WL 34292632, at *24, 38–40 (S.D. Tex. Dec. 12, 2000).62 That Plaintiffs’

argument is incorrect is further confirmed both by Plaintiffs’ other cases, which

recognize that “[c]autionary language, if sufficient, renders the alleged omissions or

misrepresentations immaterial as a matter of law,” Campton v. Ignite Rest. Grp., Inc., No.

CIV. A. 4:12-2196, 2014 WL 61199, at *8 (S.D. Tex. Jan. 7, 2014) (emphasis added)

(quoting Truk Int’l Fund LP v. Wehlmann, 737 F. Supp. 2d 611, 620 (N.D. Tex. 2009)),

and by the plain language of the safe harbor, 15 U.S.C. § 78u-5(c)(1) (explaining that

safe harbor applies to any private action “based on an untrue statement of a material fact

or omission of a material fact necessary to make the statement not misleading”)

(emphasis added). But even if Plaintiffs were somehow correct, they have not

sufficiently pleaded any omissions, as explained below. See infra 63–64; see also supra

40–41.

Cautionary Language. Plaintiffs next argue that the cautionary language

accompanying the challenged forward-looking statements is “boilerplate” and too

“general in nature” to be meaningful. Opp. 50. In fact, it is Plaintiffs’ one-sentence

argument that is too generic, as Plaintiffs never explain why the Company’s detailed and

62 The cases to which the Kurtzman plaintiff pointed do not support that assertion, either. See Rubinstein v. Collins, 20 F.3d 160, 166–67 (5th Cir. 1994) (pre-safe harbor case explaining the contours of the bespeaks caution doctrine); Robertson v. Strassner, 32 F. Supp. 2d 443, 449–50 (S.D. Tex. 1998) (explaining bespeaks caution doctrine does not protect present statements of fact).

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specific risk disclosures were inadequate. See Mot. 45–47.

Cobalt specifically warned that its success was subject to uncertainties, including

“well production performance,” “the discovery and development of oil and gas reserves,”

and “uncertainties inherent in making estimates of [its] oil and natural gas data.” Mot.

46–47. In other words, Cobalt expressly cautioned investors about the very risk

complained of by Plaintiffs—that predictions of well content might not turn out to match

reality. Such warnings are sufficiently specific. See, e.g., Hopson, 2011 WL 1119727, at

*17 (finding warnings that “the highly competitive nature of our industry,” “an economic

slow down, recession or depression in the United States,” and “our ability to sustain the

growth rates we have experienced to date” could affect earnings sufficiently specific to

warn of risk of lower earnings than projected). And they are nothing like the generic

warnings in the cases cited by Plaintiffs. See Lormand, 565 F.3d at 245–48 (rejecting as

“generic” warnings that disclaimed any “guarantee . . . of future performance” and

characterized risks as of “limited magnitude”); Campton, 2014 WL 61199, at *8

(rejecting generic warnings that company was “working to ‘identify those areas in which

changes should be made to our financial and management control systems . . . [including]

corporate governance, corporate control, internal audit, disclosure controls and

procedures and financial reporting and accounting systems’”) (alterations in original).

Finally, although the Opposition complains that Cobalt’s cautionary statements

“were repeated virtually verbatim in all of [its] SEC filings,” Opp. 50, the frequency of

the Company’s specific disclosures of the specific risks that later materialized actually

serves to highlight the adequacy of Cobalt’s cautions.

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Actual Knowledge. The Opposition also contends that the safe harbor is

inapplicable because the Cobalt Defendants purportedly knew when the statements were

made that they contained false and misleading information. Opp. 50–51. Because the

statements satisfy the first-prong of the safe harbor test, the Court need not even reach the

second. See Southland, 365 F.3d at 371; see also supra 59–60.63 But even if actual

knowledge were relevant, Plaintiffs have failed to plead at all, let alone with the requisite

particularity, that any Cobalt Defendant had actual knowledge that any of the challenged

statements was false. See Mot. 47–49. Instead, Plaintiffs continue to rely on the

allegations by Cobalt’s IT manager. See Opp. 50–51. But those allegations go way

beyond his area of responsibility and personal experience, given that they relate to events

that have nothing to do with IT issues and that occurred after he worked at Cobalt. See

supra 10; 40–41; Mot. 48–49. Even if he were somehow in a position to have

information about seismic surveys and well results, his allegations are fatally lacking in

particularized facts, such as

• what specific information Cobalt supposedly withheld, when, or for how long,

• how “early on” anyone at Cobalt knew about the “high gas content” and who knew this information, and

63 The cases cited by Plaintiffs, Opp. 50, do not hold otherwise. For example, Plaintiffs once again cite the court’s description of the plaintiff’s argument in Kurtzman, 2000 WL 34292632, at *24, which predates Southland in any event. And far from explaining that “the safe harbor is inapplicable where . . . Defendants knew that the ‘risks’ identified in their ‘cautionary language’ had already materialized,” Opp. 50, Campton examined the specificity necessary to give meaning to a cautionary statement. See 2014 WL 61199, at *8. Although some circuits have accepted the argument that cautionary language is not meaningful if it does not disclose a known risk, see In re Harman Int’l Indus., Inc. Sec. Litig., 791 F.3d 90, 102–03 (D.C. Cir. 2015); Slayton v. Am. Exp. Co., 604 F.3d 758, 770 (2d Cir. 2010); Asher v. Baxter Int’l Inc., 377 F.3d 727, 734 (7th Cir. 2004), others have deemed the issuer’s state of mind irrelevant to whether cautionary language is meaningful. See Miller v. Champion Enters., Inc., 346 F.3d 660, 678 (6th Cir. 2003); In re Cutera Sec. Litig., 610 F.3d 1103, 1112 (9th Cir. 2010); Harris v. Ivax Corp., 182 F.3d 799, 803 (11th Cir. 1999). While the Fifth Circuit has clearly recognized the disjunctive nature of the safe-harbor test, Southland, 365 F.3d at 371, it has not directly addressed this issue.

20934048 63


• how anyone knew that Loengo did not contain commercial hydrocarbons before it was drilled or why the Company and its partners would spend more than $50 million drilling a known dry hole.

CAC ¶¶ 111–12, 116; see also Mot. 48–49; Hopson, 2011 WL 1119727, at *18 (holding

knowledge was insufficiently pleaded for purposes of safe harbor where plaintiff did not

identify what information was purportedly provided to defendants, who reviewed the

information, or how the information contradicted statements made by defendants).64

In short, the challenged statements regarding the potential oil content of Lontra

and Loengo are covered by both prongs of the safe harbor.

2. The Opposition does nothing to rehabilitate the other well-related statements.

Plaintiffs’ challenges to Cobalt’s remaining well-related statements, see Opp. 46–

47, fare no better. Cobalt’s descriptions of the wells as “oil-focused,” “significant,” and

“high-impact” are inactionable puffery, see supra 39–40; Mot. 52–55, and the Opposition

does not even respond to the other specific pleading deficiencies pointed out in the

Motion. See, e.g., Mot. 50–52 (arguments regarding October 29, 2013 call); Mot. 54–55

(descriptions of Lontra). Instead, it asserts that every well-related statement is false or

misleading based on statements from the CIO, Opp. 46–47, but, once again, the CIO’s

position and period of employment provide no foundation for Plaintiffs’ allegations,

which are fatally lacking in particularized facts. See supra 10; Mot. 48–49.

64 Plaintiffs correctly note that the Court must “accept as true the well-pleaded factual allegations” at the motion to dismiss stage, Opp. 51 n.24 (quoting Lormand, 565 F.3d at 244), but that does not eliminate Plaintiffs’ obligation to satisfy the particularity requirements of the PSLRA and 9(b). See, e.g., Firefighters Pension & Relief Fund v. Bulmahn, No. 13-3935, 2015 WL 4879217, at *8 (E.D. La. Aug. 14, 2015) (holding particularity requirement applies to allegations of actual knowledge for purposes of the PSLRA safe-harbor).

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III. The Opposition does not save Plaintiffs’ failure to plead loss causation.

To adequately plead loss causation, Plaintiffs must make a plausible showing that

when “the ‘relevant truth’ about the fraud began to leak out . . . it caused the price of the

stock to depreciate and thereby proximately cause the plaintiff[s’] economic loss.”

Lormand, 565 F.3d at 255; Dawes, 975 F. Supp. 2d at 709 (describing the relevant truth

as “the truth obscured by the fraudulent statements”). Specifically, Plaintiffs must allege

that the price declined in response to “a corrective disclosure,” i.e., a statement

demonstrating the “the truth ‘ma[de] its way into the marketplace.’” Alaska Elec.

Pension Fund v. Flowserve Corp., 572 F.3d 221, 229 (5th Cir. 2009); see also In re Dell

Inc., Sec. Litig., 591 F. Supp. 2d 877, 907 (W.D. Tex. 2008) (“Plaintiffs must allege . . .

the market reacted negatively to a corrective disclosure, which revealed the falsity of

[the] previous representations.”).65 Plaintiffs’ five purported corrective disclosures,

viewed either separately or together, do not meet this standard.

As a threshold matter, Plaintiffs cannot avoid this obligation by retreating to a

materialization-of-the-risk theory. The Fifth Circuit has yet to adopt this theory of loss

causation,66 but even if it had, Plaintiffs would still have to demonstrate that their “loss

was foreseeable and caused by the materialization of the risk concealed by [a] fraudulent

statement.” In re Omnicom Grp., Inc. Sec. Litig., 597 F.3d 501, 513 (2d Cir. 2010). The

alleged corrective disclosures in the CAC are insufficient to meet even this bar.

65 Contrary to Plaintiffs’ assertion, Opp. 64, the Motion does not argue that the alleged corrective disclosure must be a “mirror image” of the prior purported misrepresentation or omission. See Mot. 65–66. 66 See, e.g., Ludlow v. BP, P.L.C., No. 14-20420, 2015 WL 5235010, at *10 n.68 (5th Cir. Sept. 8, 2015) (“Other courts have suggested that materialization of the risk can be an adequate measure of loss causation in appropriate cases. We need not decide whether that holding is accurate[.]”) (citations omitted).

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When viewed individually, none of the allegedly corrective disclosures is

corrective—none reveals a prior truth concealed by a false or deceptive Cobalt statement.

• Financial Times. To the extent the April 15, 2012 FT articles claiming evidence of Nazaki’s government official ownership disclosed “new” information, which they do not, see Mot. 66, the CAC does not adequately connect the articles to any false or deceptive statement by Cobalt. The Opposition can muster only one alleged misrepresentation: Cobalt’s prior statements that it had conducted due diligence. Opp. 66. But as the motion explains, Mot. 35–37, the FT articles in no way render Cobalt’s statements regarding due diligence false.67

• Lontra. The Opposition fails to identify any representation revealed as false by Cobalt’s December 1, 2013 press release regarding Lontra’s gas content. See Opp. 66–67. On its face, the disclosure that Lontra’s ultimate oil-to-gas ratio deviated from estimates—a result Cobalt clearly warned against—did not reveal the falsity of any prior statements. It would be an absurd result indeed if a false statement were created by the mere fact that an outcome differs from an estimate. Mot. 67.

• Bloomberg. Plaintiffs claim that the Bloomberg article corrected information regarding “improprieties with respect to Cobalt’s partners and relationship with or payments to the Angolan government.” Opp. 68. But an article reporting that an NGO has been unable to confirm the SRTC’s existence does not correct Cobalt’s prior disclosure—that it, like other oil companies operating in Angola, was contractually obligated to make payments to Sonangol earmarked for the SRTC. Moreover, Cobalt’s contractual obligations to the Angolan government arising out of its Block 20 license—and an NGO’s criticisms regarding how a foreign government handles its funds—have nothing to do with Nazaki, Alper, or Blocks 9 and 21. The Bloomberg article, which is strikingly unrelated to any of Plaintiffs’ other allegations or purported disclosures, cannot establish loss causation.68

67 Plaintiffs claim that the Motion’s objections to Plaintiffs’ loss causation theories raise a “truth-on-the-market” defense, but truth-on-the-market is used to rebut the fraud-on-the-market presumption—a presumption relevant to reliance. Wieland v. Stone Energy Corp., No. CIV.A. 05-2088, 2007 WL 2903178, at *11 (W.D. La. Aug. 17, 2007). The Motion, on the other hand, correctly argues that Plaintiffs have not pleaded disclosures that reveal the falsity of Defendants’ purported misstatements. 68 Plaintiffs’ argument that they merely need to plead the release of some “negative information” and a decline in the market on the same day to sufficiently plead loss causation, Opp. 68, finds no support in Fifth Circuit case law. See Flowserve, 572 F.3d at 229–31 (explaining that “to establish loss causation this disclosed information must reflect part of the ‘relevant truth’—the truth obscured by the fraudulent statements” and noting a case in which plaintiffs failed to demonstrate loss causation when stock fell following a press release predicting a significant revenue shortfall but unrelated to the alleged misstatements); In re Fleming Cos. Inc. Sec. & Deriv. Litig., No. CIVA503MD1530TJW, 2004 WL 5278716, at *42 (E.D. Tex. June 16, 2004) (explaining that plaintiffs pleaded loss causation where they pleaded drops in stock price immediately after the “‘truth’ [of the fraud] was revealed”).

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• Wells Notice. The Opposition cites several cases for the unremarkable proposition that the initial announcement of a government investigation, in conjunction with other disclosures, can serve in certain instances as a corrective disclosure. See Opp. 69–71. But Plaintiffs do not predicate their loss causation theory on Cobalt’s initial announcement of the SEC investigation, an event that occurred long before August 5, 2014. See Ex. 9, 3/11/11 8-K; Ex. 13, 2/21/12 10-K, 50. Plaintiffs cite no authority to support their contention that a Wells Notice—an instrument that is neither an announcement of an investigation nor a finding of liability—constitutes a corrective disclosure. Nor does a Wells Notice reveal anything about Cobalt’s “business partners”69 or “the legitimacy of Cobalt’s Angolan business.” Opp. 70. And Plaintiffs cannot explain how the Wells Notice changed the landscape when investors had been long-informed of the since-terminated SEC investigation and the ongoing DOJ investigation.70

• Loengo. The Opposition’s arguments with respect to the Loengo announcement are equally unavailing. Cobalt’s disclosure on November 4, 2014 that Loengo did not contain commercial hydrocarbons—hardly a unique occurrence for an exploration and production company—is not corrective of any prior statement. In fact, the disclosure of an occurrence of a divulged risk—Cobalt warned repeatedly of the risks of drilling offshore Angola—is not corrective. See Archdiocese of Milwaukee Supporting Fund, Inc. v. Halliburton Co., 597 F.3d 330, 340 (5th Cir. 2010, vacated on other grounds sub nom. Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. 804 (2011); see also Mot. 69.

Recognizing that none of these purported corrective disclosures actually corrects a

prior fraudulent statement, Plaintiffs try an alternative theory—that, taken together, these

events constituted a “series of partial disclosures” making the fraud “more probable”

Opp. 64. Plaintiffs cite profusely to Public Employees’ Retirement System of Mississippi,

Puerto Rico Teachers’ Retirement System v. Amedisys, Inc., see Opp. 66, but even that

case cannot save the CAC’s disparate and disjointed theory of loss causation. In

Amedisys, the plaintiffs alleged numerous false and misleading statements based on a

69 This is particularly true since the FT published its interview with Manuel Vicente in June 2012, more than two years before the issuance of the Wells Notice. 70 Plaintiffs argue that the termination of the SEC investigation is somehow irrelevant given the ongoing DOJ investigation. But Plaintiffs overlook the fact that the Wells process relates only to the SEC, not the DOJ.

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vast, top-driven and very specific scheme to defraud Medicare by “providing medically

unnecessary treatment visits to patients in order to hit the most lucrative Medicare

reimbursements thresholds.” 769 F.3d 313, 317 (5th Cir. 2014). They further alleged

that the relevant truth—Amedisys’s fraudulent Medicare billing practices—became

known through a series of partial disclosures that specifically related to the fraudulent

Medicare billing scheme, including reports raising questions about its billing practices,

the announcement of the departures of its CEO and CIO, the disclosure of three

government investigations into its billing practices, and the release of poor financial

reports. Id. at 318–19. The court held that it was plausible that through those

disclosures, viewed collectively, that the market became aware of the concealed

Medicare fraud. Id. at 325. Thus, taken together, the plaintiffs met their burden of

pleading a corrective disclosure. Id.

Plaintiffs’ creative attempt to apply Amedisys to the theory articulated in the CAC

cannot survive the slightest scrutiny. Unlike in Amedisys, Plaintiffs are unable to define a

singular, concrete truth that the corrective disclosures revealed—individually or

collectively. Depending on what “corrective disclosure” they refer to, Plaintiffs suggest

that it revealed the truth about some nebulous “fraud” regarding (1) Cobalt’s statements

about “the legitimacy of Cobalt’s Angolan business,” Opp. 70, (2) Cobalt’s alleged

misstatements about the “purportedly high oil content in Cobalt’s offshore wells in

Angola,” Opp. 67, or (3) Cobalt’s prior statements that its “Angolan operations were

legitimate and free from corruption,” Opp. 68. The Opposition’s struggle to articulate the

“truth” the disclosures revealed is unsurprising given their disparate nature, covering

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disconnected topics ranging from

• Cobalt’s contractual payments for the SRTC on Block 20,

• two wells drilled at different times on different blocks, and

• allegations of Angolan government official ownership of Nazaki.

These disclosures are not like those in Amedisys because they do not provide a coherent

“series of events” that viewed together reveal a singular fraudulent scheme. Amedisys

simply does not stand for the proposition that a plaintiff can plead a corrective disclosure

by gathering together dissimilar episodes of negative news and labeling them corrective

of some nebulous and undefined “fraud.” “[A] loss caused solely by a general

impression in the market that ‘something is wrong’ is insufficient to establish loss

causation.” Dawes, 975 F. Supp. 2d at 709 (quoting Flowserve, 572 F.3d at 232).

IV. The Opposition does not cure the CAC’s failure to plead reliance.

Plaintiffs try to defend their failure to plead reliance as to any bond offering by

citing an out-of-circuit district court case for the notion that pleading an efficient market

for stock adequately pleads an efficient market for convertible bonds, see Opp. 74 (citing

Chu v. Sabratek Corp., 100 F. Supp. 2d 815, 826 (N.D. Ill. 2000)), but the CAC’s

reliance allegations do not even mention the bonds, much less plead they are convertible,

see CAC ¶¶ 214–16.71 Nor does Affiliated Ute help, as Plaintiffs’ own case law

recognizes that “the Fifth Circuit has repeatedly limited the Ute presumption to cases

71 Courts generally require such allegations. See, e.g., Zelman v. JDS Uniphase Corp., 376 F. Supp. 2d 956, 968 (N.D. Cal. 2005) (holding plaintiff “clearly and in detail alleged a direct relation between the [] price of [] common stock on the dates of the [notes’] issuance and redemption and the value of the [notes]”); Argent Classic Convertible Arbitrage Fund L.P. v. Rite Aid Corp., 315 F. Supp. 2d 666, 674–75 (E.D. Pa. 2004) (noting complaint alleged securities, including bonds, were traded on an efficient market).

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with claims based primarily on alleged omissions,” and “a mixed context . . . require[s]

the court to find the allegations are primarily of omissions.” In re Enron Corp. Sec., 529

F. Supp. 2d 644, 682–83 (S.D. Tex. 2006) (emphasis in original).72 “The Affiliated Ute

presumption does not apply to claims, such as those presented by Plaintiffs in this case,

which are primarily that the defendant company made false statements or made

statements which were true, but incomplete.” Griffin v. GK Intelligent Sys., Inc., 196

F.R.D. 298, 305 (S.D. Tex. 2000); accord Smith v. Ayres, 845 F.2d 1360, 1363 (5th Cir.

1988) (explaining that “a presumption of reliance [under Affiliated Ute] would not arise

where the plaintiff’s case is grounded [in Rule 10b-5(2)]”). Because Plaintiffs have

failed to plead reliance as to Cobalt’s bonds,73 dismissal is appropriate here.74 75

CONCLUSION

For the foregoing reasons, the Cobalt Defendants respectfully request that the

Court grant their motion to dismiss all claims asserted against them.

72 Contrary to Plaintiffs’ assertion, a court may classify a case as primarily omissions or misrepresentations at the motion to dismiss stage. See, e.g., In re Interbank Funding Corp. Sec. Litig., 629 F.3d 213, 215 (D.C. Cir. 2010) (upholding dismissal upon concluding case was not primarily omissions case, so the Ute presumption did not apply); Finkel v. Docutel/Olivetti Corp., 817 F.2d 356, 359 (5th Cir. 1987) (“A court must . . . analytically characterize a 10b–5 action as either primarily a nondisclosure case (which would make the presumption applicable), or a positive misrepresentation case.”), abrogated on other grounds Basic, Inc. v. Levinson, 485 U.S. 224 (1988). Enron does not hold otherwise. See 529 F. Supp. 2d at 683–84 (considering un-pleaded Ute presumption because it could be established at trial or summary judgment). 73 The Motion does argue that Plaintiffs cannot demonstrate an efficient market for convertible bonds. See Mot. 70. 74 Courts routinely determine the sufficiency of reliance pleadings at the motion to dismiss stage. See, e.g., Nathenson, 267 F.3d at 413–15; In re Turbodyne Techs., Inc. Sec. Litig., No. CV9900697, 2000 WL 33961193, at *12–14 (C.D. Cal. Mar. 15, 2000); Greenberg v. Boettcher & Co., 755 F. Supp. 776, 780–83 (N.D. Ill. 1991). 75 The claims under Section 20(a) for control person liability are solely derivative of the claims under Section 10(b) and, therefore, must be dismissed because Plaintiffs’ Section 10(b) claims are not viable. See, e.g., Shaw, 537 F.3d at 545.

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Dated: September 29, 2015 Respectfully submitted, Of Counsel: Danny David Texas Bar No. 24028267 Russell Lewis Texas Bar No. 24036968 Federal I.D. No. 569523 Amy Pharr Hefley Texas Bar No. 24046046 BAKER BOTTS L.L.P. One Shell Plaza 910 Louisiana St. Houston, Texas 77002 Tel: (713) 229-1234 Fax: (713) 229-1522 [email protected] [email protected] [email protected]

BAKER BOTTS L.L.P. By: /s/ David D. Sterling__________ David D. Sterling Attorney-In-Charge Texas Bar No. 19170000 Federal I.D. No. 07079 One Shell Plaza 910 Louisiana St. Houston, Texas 77002 Tel: (713) 229-1946 Fax: (713) 229-7946 [email protected] Attorneys for Defendants Joseph H. Bryant, James W. Farnsworth, John P. Wilkirson, Peter R. Coneway, Henry Cornell, Jack E. Golden, N. John Lancaster, Jon A. Marshall, Kenneth W. Moore, J. Hardy Murchison, Michael G. France, Kenneth A. Pontarelli, Scott L. Lebovitz, Myles W. Scoggins, D. Jeff van Steenbergen, Martin H. Young, Jr., William P. Utt, and Cobalt International Energy, Inc.

CERTIFICATE OF SERVICE

I hereby certify that on this 29th day of September, 2015, a true and correct copy

of the foregoing document was served by the Court’s CM/ECF system on all counsel of record.

/s/ Amy Pharr Hefley Amy Pharr Hefley

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