Federal District Court Sustains Securities Law Claims Against Cobalt International Energy, Inc., Underwriters and Private Equity Sponsors

January 19, 2016

January 2016

NEW YORK, NY, January 19, 2016 – Entwistle & Cappucci LLP (“E&C”) announces that the Honorable Nancy F. Atlas of the United States District Court for the Southern District of Texas has denied motions to dismiss the Consolidated Amended Class Action Complaint (“Complaint”) brought on behalf of investors in common stock and convertible bonds issued by Cobalt International Energy, Inc. (NYSE: CIE) from March 1, 2011 through November 3, 2014.

Plaintiffs initiated the action on November 30, 2014, alleging violations of the federal securities laws by Cobalt, certain of its senior executives, thirteen financial institutions that underwrote over $6 billion in Cobalt securities offerings during the class period, and several private equity funds that served as Cobalt’s financial sponsors.  The Complaint alleges defendants falsely denied that two of its Angolan business partners (Nazaki Oil and Alper) were actually owned by senior Angolan government officials, thereby subjecting Cobalt to possible violations of the Foreign Corrupt Practices Act.  Defendants are also alleged to have significantly overstated the oil content of two key Angolan wells, despite having contrary information from its exploratory drilling analyses.  On March 3, 2015, E&C was appointed by the Court as Co-Lead Counsel for the Cobalt investor class, and the Complaint was filed on May 1, 2015.

In its decision, the Court sustained the securities fraud claim under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) against Cobalt, its Chief Executive Officer, Joseph Bryant, Chief Financial Officer, John Wilkirson, and Chief Exploration Officer, James Farnsworth.  Judge Atlas found the Complaint adequately alleged that the Cobalt defendants had misrepresented (i) the Angolan government ownership of Nazaki and Alper, and (ii) the oil content of its Angolan wells, which contained far less oil than represented.  The Court further held that the Complaint sufficiently alleged the elements of scienter, reliance, and loss causation for the Section 10(b) claim.  Judge Atlas also upheld a control person claim under Section 20(a) of the Exchange Act against defendants Bryant, Wilkirson, and Farnsworth in connection with the material misstatements described above.

In addition, the Court sustained a claim under Section 12(a)(2) of the Securities Act of 1933 (“Securities Act”) against defendants Goldman Sachs & Co., Morgan Stanley & Co. LLC, Credit Suisse Securities (USA) LLC, Citigroup Global Markets Inc., J.P. Morgan Securities LLC, Tudor, Pickering, Holt & Co. Securities Inc., Deutsche Bank Securities Inc., RBC Capital Markets, LLC, UBS Securities LLC, Howard Weil Incorporated, Stifel, Nicolaus & Company, Capital One Southcoast, Inc., and Lazard Capital Markets LLC, the underwriters (“Underwriters”) of three Cobalt common stock offerings and two convertible bond offerings issued during the class period (the “Offerings”).  Judge Atlas determined that plaintiffs adequately alleged standing to pursue such claims against the Underwriters based on the above misrepresentations in the Offering materials.

Finally, the Court upheld a claim under Section 11 of the Securities Act against Cobalt, its Board of Directors and the Underwriters in connection with the Offerings.  In doing so, Judge Atlas rejected defendants’ argument that such claims were barred by the applicable statutes of limitation and repose.  The Court also sustained a control person claim under Section 15(a) of the Securities Act against Cobalt’s private equity investors, Goldman Sachs Group, Inc., Riverstone Holdings LLC, First Reserve Corporation, KERN Partners Ltd, and The Carlyle Group.  Judge Atlas found adequate allegations of control by these entities based on their significant Cobalt stock ownership and their ability to appoint a majority of Cobalt’s board committee members.

The case is captioned In re Cobalt International Energy, Inc. Securities Litigation, 14-CV-3428 (NFA) (S.D. Tex.).

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