On May 19, 2020, Cohen Milstein, as sole Lead Counsel, filed a consolidated federal securities class action on behalf of Lead Plaintiff, International Brotherhood of Electrical Workers Local 98 Pension Fund and similarly situated investors against Deloitte & Touche, LLP and Deloitte LLP (“Deloitte”), on behalf of themselves and a class of all persons and entities who purchased, or otherwise acquired, the publicly traded securities of SCANA Corporation from February 26, 2016 through December 20, 2017, inclusive (the “Class Period”), and who were damaged thereby. Plaintiffs allege that Deloitte breached its duties as SCANA’s external auditor under Sections 10(b) of the Securities Exchange Act of 1934 and Rule l0b-5 promulgated thereunder.
Originally filed in November 2019, Cohen Milstein joined the case on January 24, 2020. On February 18, 2020, Senior Judge Margaret B. Seymour for the United States District Court of South Carolina appointed Cohen Milstein sole Lead Counsel.
Deloitte has been SCANA’s external auditor for over 70 years.
Plaintiffs allege that throughout the Class Period, Deloitte repeatedly violated its professional responsibilities, failed in its role of gatekeeper and deceived investors about SCANA’s accounting for, and expected completion of, a multi-billion dollar nuclear energy expansion project of the Virgil C. Summer Nuclear Station in Fairfield County, South Carolina (the “Nuclear Project”).
Specifically, Deloitte gave unqualified, “clean” audit reports on SCANA’s financial statements and internal control over financial reporting, misleading investors into believing that SCANA would complete the Nuclear Project in time to obtain $1.4 billion in nuclear tax credits. Deloitte did so despite possessing voluminous evidence that SCANA could not possibly achieve this goal, resulting in SCANA’s investors suffering over a billion dollars in losses.
For example, Plaintiffs claim that Deloitte knew by at least November 2015 that the Nuclear Project could not possibly be in service by 2021, based on a report published by Bechtel Corporation (“Bechtel”), one of the world’s most respected engineering, construction and project management companies, which was hired by SCANA to conduct an analysis of the Nuclear Project, other internal documents, as well as the overall progress of construction. Deloitte nonetheless misleadingly told investors in violation of Public Company Accounting Oversight Board standards (“PCAOB Standards”) that SCANA’s financial statements confirming that the Nuclear Project was on schedule were “present[ed] fairly, in all material respects” and in accordance with GAAP, and that SCANA’s related internal control over financial reporting was effective.
Throughout 2016 and early 2017, Deloitte continued to receive documents, including audit evidence required to be reviewed by Deloitte, that further warned and raised substantial doubts regarding the feasibility of the Nuclear Project and SCANA’s ability to place the Nuclear Project in service in time to qualify for the federal tax credits.
Unbeknownst to the investing public, Deloitte’s clean audit reports lacked any reasonable basis. Had it not been for Deloitte’s imprimatur on SCANA’s materially false and misleading financial statements, Lead Plaintiff and the Class would not have purchased their SCANA shares, and certainly not at the prices they paid.
Ultimately, the truth about the Nuclear Project and the risks of non-completion in time to obtain the nuclear tax credits began to be revealed in a series of partial disclosures beginning in late 2016 related to the cost overruns and eventual Chapter 11 bankruptcy of Westinghouse Electric Company LLC, the lead contractor on the Nuclear Project. On July 31, 2017, SCANA issued a press release announcing that it was abandoning the Nuclear Project. (Construction of the Nuclear Project was only approximately one-third complete at the time.) It soon became clear that the abandonment was not the result of the Westinghouse bankruptcy or new construction issues, but rather, Plaintiffs allege, the manifestation of issues that SCANA and Deloitte had known about—but deliberately or recklessly concealed—for many years.
The fall-out from SCANA’s abandonment of the Nuclear Project was severe and is still ongoing more than three years later. In August 2017, special committees of the South Carolina General Assembly began conducting public hearings regarding the decision to abandon the Nuclear Project. In September 2017, SCANA was served with a subpoena from the United States Attorney’s Office for the District of South Carolina, and South Carolina’s Attorney General’s Office and Speaker of the House of Representatives requested that the South Carolina Law Enforcement Division conduct a criminal investigation into the handling of the Nuclear Project by SCANA. One month later, on October 16, 2017, the SEC subpoenaed SCANA for information regarding the Nuclear Project, including Deloitte’s audit work. Then, on February 27, 2020, the SEC filed a damning 416 paragraph complaint against SCANA and two of its senior officers. The SEC Complaint makes clear that SCANA’s Class Period statements regarding the status and ultimate failure of the $9 billion Nuclear Project violated the securities laws, and that numerous reports and documents were available to any reasonably diligent auditor demonstrating that SCANA’s financial statements were not in accordance with GAAP, despite Deloitte’s “clean” audit reports to the contrary. While the SEC has tentatively settled its claims against SCANA for a $25 million penalty and $112.5 million in disgorgement, both civil and criminal investigations into various parties connected to the Nuclear Project are still ongoing, including an FBI investigation into alleged criminal wrongdoing. Notably, it was only the result of these regulatory investigations and the litigation that followed that Deloitte’s involvement in the fraud was revealed.
In total, SCANA’s stock price declined from a Class Period high of $76.12 per share on July 6, 2016, to $37.39 per share, a decline of more than 50%, as the news about the fraud and its risks materialized, causing substantial losses to investors.
The case was originally filed as Floyd v. Deloitte & Touche LLP et al., Case No. 3:19-cv-03304, U.S. District Court, South Carolina
The case is currently styled: International Brotherhood of Electrical Workers Local 98 Pension Fund, et al. v. Deloitte & Touche LLP et al., Case No. 3:19-cv-03304, U.S. District Court, South Carolina