Silver Wheaton Seeks Dismissal of Securities Fraud Suit

In re
Silver Wheaton Corp. Securities Litigation

REDACTED VERSION OF DOCUMENT PROPOSED TO BE FILED UNDER SEAL

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

CLASS ACTION

REPLY MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF SILVER WHEATON DEFENDANTS' MOTION TO DISMISS SECOND AMENDED COMPLAINT

JUDGE: Hon. Christina A. Snyder

Date: August 20, 2018
Time: 10:00 a.m.
Dept: 8D, 8th Floor

Before: Hon. Christina A. Snyder

Complaint Filed: July 8, 2015

BARRY M. KAPLAN, admitted pro hac vice
Email: bkaplan@wsgr.com
GREGORY L. WATTS, State Bar No. 197126
Email: gwatts@wsgr.com
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
701 Fifth Avenue, Suite 5100
Seattle, WA 98104
Telephone: (206) 883-2500
Facsimile: (206) 883-2699

JEROME F. BIRN, JR., State Bar No. 128561
Email: jbirn@wsgr.com
DIANE M. WALTERS, State Bar No. 148136
Email: dwalters@wsgr.com
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304-1050
Telephone: (650) 493-9300
Facsimile: (650) 565-5100

Attorneys for Defendants
Silver Wheaton Corp. (now known as Wheaton Precious Metals Corp.), Randy V. J. Smallwood, Peter Barnes, and Gary Brown

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TABLE OF CONTENTS

PRELIMINARY STATEMENT

ARGUMENT

CONCLUSION

TABLE OF AUTHORITIES

CASES

Alaska Elec. Pension Fund v. Adecco S.A., 434 F. Supp. 2d 815 (S.D. Cal. 2006), aff'd sub nom. In re Adecco S.A. Sec. Litig., 256 F. App'x 74 (9th Cir. 2007)

Canada v. GlaxoSmithKline Inc., [2012] 3 S.C.R. 3

Climo v. Office Depot, Inc., Case No. 11-80364-CIV-RYSKAMP, 2012 WL 13018593 (S.D. Fla. May 24, 2012)

El Dabe v. Calavo Growers, Inc., 719 F. App'x 607 (9th Cir. 2018)

Higginbotham v. Baxter Int'l, Inc., 495 F.3d 753 (7th Cir. 2007)

In re Bausch & Lomb, Inc. Secs. Litig., 592 F. Supp. 2d 323 (W.D.N.Y. 2008)

In re Dot Hill Sys. Corp. Sec. Litig., 594 F. Supp. 2d 1150 (S.D. Cal. 2008)

In re Hansen Natural Corp. Sec. Litig., 527 F. Supp. 2d 1142 (C.D. Cal. 2007)

In re Intelligroup Sec. Litig., 527 F. Supp. 2d 262 (D.N.J. Nov. 13, 2007)

In re Pac. Gateway Exch., Inc. Sec. Litig., 169 F. Supp. 2d 1160 (N.D. Cal. 2001)

In re Rackable Sys., Inc. Sec. Litig., No. C09-0222CW, 2010 WL 199703 (N.D. Cal. Jan. 13, 2010)

In re Taleo Corp. Sec. Litig., No. C 09-00151 JSW, 2010 WL 597987 (N.D. Cal. Feb. 17, 2010)

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

In re Worlds of Wonder Sec. Litig., 35 F.3d 1407 (9th Cir. 1994)

Ind. Pub. Ret. Sys. v. SAIC, Inc., 818 F.3d 85 (2d Cir. 2016)

Karpov v. Insight Enters., Inc., No. CV 09-856-PHX-SRB, 2010 WL 4867634 (D. Ariz. Nov. 16, 2010), aff'd, 471 F. App'x 607 (9th Cir. 2012)

Korzen v. Tetra Tech., Inc., Case No. 2:13-cv-04724-SVW-SSx, 2014 WL 12603209 (C.D. Cal. Jan. 17, 2014)

Metzler Inv. GMBH v. Corinthian Colls., Inc., 540 F.3d 1049 (9th Cir. 2008)

Okla. Firefighters Pension & Ret. Sys. v. IXIA Corp., 50 F. Supp. 3d 1328 (C.D. Cal. 2014)

Okla. Firefighters Pension & Ret. Sys. v. IXIA Corp., No. CV 13-08440 MMM, 2015 WL 1775221 (C.D. Cal. Apr. 14, 2015)

Pension Trust Fund for Operating Engineers v. Kohl's Corp., 266 F. Supp. 3d 1154 (E.D. Wis. 2017), aff'd, ___ F.3d ___, 2018 WL 3434339 (7th Cir. July 16, 2018)

Podraza v. Whiting, 790 F.3d 828 (8th Cir. 2015)

Police Ret. Sys. of St. Louis v. Intuitive Surgical, Inc., 759 F.3d 1051 (9th Cir. 2014)

STATUTES

Income Tax Act, R.S.C. 1985 c. 1 § 247

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The Silver Wheaton Defendants respectfully submit this reply memorandum in support of their motion to dismiss (“Opening Memorandum” or “MTD”) and in reply to [Corrected] Plaintiffs' Opposition to Defendants' Motions to Dismiss Second Amended Complaint (“Opposition” or “Opp.”).

PRELIMINARY STATEMENT

Plaintiffs' Opposition demonstrates they have no facts showing that the Company or the Individual Defendants ever believed that the Company's accounting for the risk of the CRA Audit was fraudulent. It is apparent that Plaintiffs are intent on cribbing the Crown's allegations in the Canadian Tax Case and trying to litigate here whether the Company's interpretation of Canada's transfer pricing rules is right or wrong. But this is a securities fraud case, and Plaintiffs must show that Defendants knew their accounting was wrong or acted with deliberate recklessness. The allegations of the Second Amended Complaint (“SAC”) make it plain that, despite the production of one million pages of documents spanning ten years and several key depositions, Plaintiffs have no such facts.

Moreover, there are compelling facts refuting any inference of scienter. As the SAC concedes, Deloitte has been involved with Silver Wheaton since 2004 and, every year since then, has issued clean audit opinions, concluding that each challenged financial statement complied with applicable accounting standards. As the SAC also reflects, PwC was retained * * * to conduct annual transfer pricing studies, all of which support the fact that the Company's transfer pricing complies with applicable Canadian rules. Silver Wheaton was fully transparent with PwC and Deloitte; * * * Plaintiffs do not allege that the Silver Wheaton Defendants ever questioned (or had the expertise to question) the work done or conclusions reached by either Deloitte or PwC. And, importantly, both highly respected international accounting firms stand by their conclusions to this day, despite the CRA's reassessments and the pending Tax Court of Canada case.

* * * There are no allegations that any of the many different accounting and tax partners and managers at these firms ever believed that they or Silver Wheaton were involved in wrongdoing. If there were such a long conspiracy, discovery would have revealed documents supporting it.

Instead of facts going to scienter, the SAC offers a mind-numbing array of desultory details, many occurring years before the Class Period. * * *

These pre-Class Period allegations cannot hide the fatal defect of the SAC: Plaintiffs fail to plead particularized facts showing that any Defendant knowingly or intentionally issued false financial statements. The fact that the Company's financial statements and transfer pricing were reviewed and supported by fully informed and respected independent accounting and tax experts further negates any inference of scienter. Because Plaintiffs fail to plead a strong inference of scienter as to any Defendant, the SAC should be dismissed.

ARGUMENT

I. DELOITTE'S MOTION DEMONSTRATES THAT THE FINANCIAL STATEMENTS DID NOT VIOLATE GAAP OR IFRS

Deloitte's motion to dismiss and supporting memoranda demonstrate that Plaintiffs fail to plead facts showing that Deloitte's audit opinions, which concluded that Silver Wheaton's financial statements complied with applicable accounting standards, were false or misleading. See Deloitte Motion to Dismiss and Reply Memorandum in support thereof. Because the SAC fails to show that Deloitte violated the cited IFRS standards, Plaintiffs' claims that the Silver Wheaton Defendants violated these same standards must also fail.

II. THE SAC FAILS TO PLEAD A STRONG INFERENCE OF SCIENTER AS TO ANY SILVER WHEATON DEFENDANT

Plaintiffs are fixated on litigating the CRA's tax case, i.e., that Silver Wheaton did not properly comply with Canada's transfer pricing rules between 2005-2010. To prevail in this action, however, Plaintiffs must prove that each Defendant knowingly or with deliberate recklessness issued false financial statements by failing to account for the risk of the CRA Audit during the Class Period from March 2011 to July 2015. The SAC fails to plead such facts as to any Defendant. See, e.g., Alaska Elec. Pension Fund v. Adecco S.A., 434 F. Supp. 2d 815, 829 (S.D. Cal. 2006) (“plaintiffs must allege that the defendants ʻknew or must have been aware of the improper revenue recognition' or ʻintentionally or knowingly falsified the financial statements'”), aff'd sub nom. In re Adecco S.A. Sec. Litig., 256 F. App'x 74 (9th Cir. 2007). Likewise, Plaintiffs plead no facts “support[ing] a plausible and strong inference that the Defendants knew or should have known that their accountants had erred and that their resulting financial statements were misleading investors.” El Dabe v. Calavo Growers, Inc., 719 F. App'x 607, 608-09 (9th Cir. 2018).

A. There Is No Basis for the New Collusion Theory.

Faced with Deloitte's clean audit opinions attesting to the accuracy of the Class Period financial statements and compliance with applicable accounting standards, Plaintiffs concocted the theory the Silver Wheaton Defendants and Deloitte (and PwC) colluded and engaged in tax and accounting fraud for more than a decade. MTD at 7-8. * * *

Moreover, Plaintiffs offer no cogent explanation as to why tax and audit partners at Deloitte and PwC would engage in a decade-long tax and accounting fraud. There is no reasonable basis to believe that these individuals would jeopardize their careers for the modest fees each firm earned. ¶ 220. As the Ninth Circuit has recognized, “'[i]t is highly improbable that an accountant would risk surrendering a valuable reputation for honesty and careful work by participating in a fraud merely to obtain increased fees.'” In re Worlds of Wonder Sec. Litig., 35 F.3d 1407, 1427 n.7 (9th Cir. 1994) (citation omitted).

Plaintiffs' desperate efforts to undermine Deloitte's clean audit opinions only underscore their significance in refuting scienter. * * * Deloitte did not require Silver Wheaton either to record a tax liability or make the additional footnote disclosure that Plaintiffs contend was required. To the contrary, since the inception of the Company, Deloitte has issued audit opinions attesting to the accuracy of the financial statements and their compliance with applicable accounting standards.

As many courts have held, the concurrence of the Company's auditors is “'highly probative' of an absence of scienter.” In re Hansen Natural Corp. Sec. Litig., 527 F. Supp. 2d 1142, 1157-58 (C.D. Cal. 2007); El Dabe, 719 F. App'x at 608-9 (plaintiffs failed to plead facts showing scienter, where, among other things, “the [company's] auditor, Ernst and Young LLP, issued 'clean audit reports'”). Plaintiffs suggest that these decisions reflect a minority view, arguing that “[c]ourts regularly hold that the mere fact that an auditor signed off on financials does not immunize the defendant.” Opp. at 28-29 (citing cases in Court's June 6, 2016 Order). Defendants do not contend that clean audit opinions “immunize” a defendant. Rather, clean audit opinions provide a competing and compelling inference against scienter, as numerous courts, including the Ninth Circuit, have held.¹ The Court's prior Order, which Plaintiffs reference, predated the Ninth Circuit's decision in El Dabe, in which “'clean audit reports'” were among the factors cited in affirming dismissal of accounting claims. 719 F. App'x at 608-09.

Plaintiffs also seek to undermine Deloitte's clean audit opinions by arguing that PwC's transfer pricing studies were “frivolous” and Deloitte was “willfully blind.” Opp. at 4, 12-15, 25, 40-43. As explained more fully infra, neither characterization is accurate. But more importantly, even assuming, arguendo, that Deloitte's opinions were flawed in some manner, the SAC does not allege any facts showing that the Silver Wheaton Defendants knew that or should have questioned either the quality of Deloitte's audits or PwC's transfer pricing analyses or, more generally, their accounting and tax expertise. See El Dabe, 719 F. App'x at 608-09 (plaintiffs failed to plead facts showing scienter, where, among other things, “[t]here is no allegation that the Defendants were alerted to any possible defect in the original treatment of the contingent liability”); Pension Trust Fund for Operating Engineers v. Kohl's Corp., 266 F. Supp. 3d 1154, 1167-68 (E.D. Wis. 2017) (“plaintiffs have not alleged with sufficient particularity why or how senior executives . . . would have been so familiar with [the complex and technical accounting] rules so as to see a problem in the company's accounting before their auditors did”), aff'd, ___ F.3d ___, 2018 WL 3434339 (7th Cir. July 16, 2018); Climo, 2012 WL 13018593, at *5 (“assertion that it was obvious that Office Depot's claim was baseless is undercut by . . . allegations that [its] auditor and tax advisor, Deloitte & Touche, advised Office Depot on the . . . claim”).

B. The Pre-Class Period Allegations Do Not Give Rise to a Strong Inference of Scienter.

Plaintiffs cannot prove a Rule 10b-5 fraud case by parroting the Crown's allegations in the Canadian Tax Case. Despite almost six years of investigation, the CRA did not reassess Silver Wheaton for tax evasion under Canadian law. See * * *; Ex.11. Rather, the issues to be decided in the Canadian Tax Case are whether the CRA's re-characterization reassessments and/or alternative transfer pricing adjustments are correct, and involve complex factual and legal determinations under Canadian law. Id. The tax case does not concern the Company's disclosures about and accounting for the risk of the CRA Audit.

In any event, * * * Silver Wheaton routinely consulted with Deloitte and sought expert advice from PwC, which “demonstrat[es] a pursuit of truth rather than reckless indifference to the truth.” Higginbotham v. Baxter Int'l, Inc., 495 F.3d 753, 758 (7th Cir. 2007). * * * MTD at 7-8, 10. Plaintiffs fail to plead any facts suggesting that Silver Wheaton should have questioned the expert transfer pricing tax advice it received or Deloitte's concurrence with the accounting treatment.

1. The Corporate Structure Does Not Establish Scienter.

* * * But there is nothing improper about a Canadian parent corporation maintaining a subsidiary in a low-tax jurisdiction. MTD at 11-12. Canadian transfer pricing rules expressly contemplate the exchange of services between the parent and subsidiary as long as they are properly valued. Id.²

* * *

[Editor's Note: The references marks for footnotes ^{3, 4, 5,} and ⁶ have been redacted.]

2. Routine Pre-Class Period Activities Do Not Give Rise to a Strong Inference of Scienter.

* * *

* * * It is commonplace, however, for a Canadian parent to provide loans or funding to a foreign subsidiary. Indeed, such loans are outside the scope of the Canadian transfer pricing rules. See ITA § 247(7).

* * *

3. Plaintiffs Offer No Basis to Question Silver Wheaton's Reliance on the PwC Transfer Pricing Studies.

Since * * * when only a small number of streaming agreements had been executed, the Company has retained tax experts at PwC to provide expert transfer pricing and other tax advice. PwC's transfer pricing studies consistently confirmed that the Company's methodology was in accordance with Canadian transfer pricing rules. MTD at 9-10. Deloitte reviewed these reports as part of its annual audits and subsequently rendered clean audit opinions. Id. at 10. The fact that the Company hired outside tax experts * * * to provide expert transfer pricing guidance refutes an inference that the Silver Wheaton Defendants knowingly violated Canadian tax law. Supra at 7; cf. e.g., Karpov v. Insight Enters., Inc., No. CV 09-856-PHX-SRB, 2010 WL 4867634, at *9 (D. Ariz. Nov. 16, 2010) (fact that company hired accountants and counsel to conduct investigation weighed against compelling inference of scienter), aff'd, 471 F. App'x 607 (9th Cir. 2012).

* * *

* * * As the Supreme Court of Canada has made clear, transfer pricing cases involve fact specific issues requiring the exercise of significant judgment, and “'transfer pricing is not an exact science.'” Canada v. GlaxoSmithKline Inc., [2012] 3 S.C.R. 3, para. 61 (citations omitted). * * *

* * * And, Plaintiffs offer no facts suggesting that Silver Wheaton ever questioned the quality of PwC's work. To the contrary, PwC was retained because it had the transfer pricing expertise that the Company lacked. MTD at 9-10.

* * *

C. The Alleged Class Period Events Do Not Establish Scienter.

To plead a strong inference of scienter as to each of the Class Period financial statements, Plaintiffs must plead particularized, contemporaneous facts showing that each Defendant “'knew specific facts'” at the time the challenged financial statements were filed that rendered the “'accounting determinations fraudulent.'” In re Taleo Corp. Sec. Litig., No. C 09-00151 JSW, 2010 WL 597987, at *8 (N.D. Cal. Feb. 17, 2010) (emphasis added) (citation omitted); Metzler, 540 F.3d at 1068-69 (GAAP allegations did not plead strong inference of scienter because complaint did not “sufficiently allege that [the individual defendant] knowingly and recklessly engaged in an improper accounting practice”). No such facts are pleaded here.

1. Plaintiffs Fail to Plead Facts Showing that the Company Acted Fraudulently with respect to the Financial Statements Filed in 2011, 2012, and 2013.

The SAC fails to plead a strong inference of scienter as to the financial statements filed in March 2011, March 2012, and April 2013 (for fiscal years 2010, 2011, and 2012, respectively, filed on Form 40-F) and the 2011 quarterly financials (filed on Form 6-K).

* * * Because Plaintiffs fail to plead any contemporaneous facts to show that a tax liability should have been recorded or a contingent liability disclosed as of March 2011, the claims as to the FY2010 Form 40-F should be dismissed.

* * *

[Editor's Note: The reference mark for footnote ⁷ has been redacted.]

* * * Silver Wheaton had no duty to disclose the audit. MTD at 13-15.⁸ Nevertheless, in March 2012, the Company departed from the common Canadian practice of nondisclosure before reassessment by voluntarily disclosing that the CRA was conducting an audit of its international transactions. Id. at 14-15. The disclosures in March 2012 and thereafter have made clear that the Company's international transactions for 2005-2010, which accounted for most of its revenue, were under audit. Id. at 14. The Company warned that, if it were unable to resolve the matter favorably, there could be a material adverse impact on its financial performance, cash flows or results of operations. Id. The Company also repeated the detailed tax risk disclosures that had been present since 2005. Id. As explained in the Opening Memorandum, the disclosure hurt Silver Wheaton's stock price, as analysts understood the risk of the CRA Audit and calculated the amounts potentially at issue. Id. at 15; Ex. 18, at 1361. The fact that Silver Wheaton voluntarily disclosed the audit, contrary to common Canadian practice and to its interests, refutes an inference of scienter. MTD at 15.

Silver Wheaton's decision to disclose the audit at this early stage in March 2012, together with Deloitte's concurrence in the disclosure, undermine any inference of scienter. MTD at 17-18; see, e.g., In re Dot Hill Sys. Corp. Sec. Litig., 594 F. Supp. 2d 1150, 1160 (S.D. Cal. 2008) (“Disclosing the precise risks at issue 'negate[s] an inference of scienter.'”) (citation omitted).

a. FE1's Misguided and Uninformed Allegations Cannot Give Rise to an Inference of Scienter.

Lacking contemporaneous internal documents showing that any Defendant believed Silver Wheaton's financial statements for 2010, 2011, and 2012 were false, Plaintiffs attempt to rehabilitate FE1. E.g., Opp. at 25-27. * * *

The FAC spotlighted FE1's allegation that SW Caymans personnel hid wire transfer information from Deloitte. MTD at 16. Plaintiffs now concede that this is false, and that wire transfer information was shared with Deloitte (id.). * * *

* * *

[Editor's Note: The reference mark for footnote ⁹ has been redacted.]

As both the FAC and SAC reflect, FE1 performed administrative functions, had no involvement in Silver Wheaton's tax or accounting decisions, had no interaction with any Individual Defendants and, thus, had no knowledge of their states of mind during the Class Period. E.g., FAC ¶¶ 25-30. * * * FE1 did not understand routine business operations or have knowledge regarding “the broader business of Silver Wheaton,” as previously inferred for purposes of the prior motion to dismiss. June 6, 2016 Order at 6; supra at 16-17. FE1's allegations are thus of no probative value with respect to scienter. See Police Ret. Sys. of St. Louis v. Intuitive Surgical, Inc., 759 F.3d 1051, 1063 (9th Cir. 2014) (witnesses lacked “first hand [sic] knowledge regarding what the individual defendants knew or did not know about [the company's] financial health”); In re Rackable Sys., Inc. Sec. Litig., No. C09-0222CW, 2010 WL 199703, at *8 (N.D. Cal. Jan. 13, 2010) (allegations insufficient where CWs were “not alleged 'to have had any interaction or communication with any of the defendants'”) (cita * * *

b. * * *

* * *

[Editor's Note: The reference mark for footnote ¹⁰ has been redacted.]

2. * * *

* * *

[Editor's Note: The reference mark for footnote ¹¹ has been redacted.]

* * * Although Plaintiffs try to avoid the statistics, claiming there is no detail as to the underlying cases (Opp. at 50), the fact that such a significant percentage of cases submitted by field auditors are rejected confirms the complexity of transfer pricing and underscores the reasonableness of the Company's accounting decisions. These statistics, when considered in combination with PwC's concurrence with the Company's transfer pricing and Deloitte's clean audit opinions, strongly undermine any inference of scienter.

* * * As in past years, Deloitte issued a clean audit opinion confirming that the Company's 2013 financial statements were fairly presented and complied with applicable accounting standards. ¶ 450.

Finally, the Company had already disclosed that its international transactions for 2005-2010 were under audit, and the potential amounts at issue were estimated by analysts based on publicly available information. Nevertheless, the Company updated its disclosure in the 2013 annual report (filed in March 2014) to add language stating that it “has not received any notice of reassessment for the 2005 to 2010 taxation years in connection with the CRA Audit” (Ex. 9, Exhibit 99.2, at 937, 1005), and warning that if the CRA were to issue “one or more notices of reassessment for material amounts of tax, interest and penalties, there may be a material adverse impact on the Company's financial performance, cash flows or results of operations.” MTD at 19.

3. * * *

* * *

* * * Deloitte issued a clean audit opinion attesting that the 2014 financial statements were fairly presented and complied with applicable accounting standards. ¶ 459. PwC stood by its prior work. MTD at 1. Thus, Silver Wheaton had no reason to believe that the accounting in the FY2014 financial statements was incorrect. In addition, the Company was confident that its position would ultimately be upheld in the Canadian courts. Id. at 20-21.

D. No Facts Suggest that the Individual Defendants Believed the Company Was Misapplying Transfer Pricing Rules and Filing False Financial Statements.

Plaintiffs fail to identify a single contemporaneous document or any testimony suggesting that any Individual Defendant ever believed that the Company's accounting was incorrect and acted “fraudulently.” Alaska Elec., 434 F. Supp. 2d at 823 (“Plaintiffs must allege facts showing Defendants knew, when preparing the year-end financials[,] . . . that the receivables should have been written off, but they fraudulently chose to delay the write-down.”) (emphasis added); Wet Seal, 518 F. Supp. 2d at 1163 (absence of “details concerning the individual defendants' roles in the alleged accounting fraud” “alone is fatal” to plaintiffs' claims). To plead a strong inference of scienter, Plaintiffs must include particularized allegations that “indicate how or when each defendant became aware of the allegedly improper accounting practices, [ ]or the extent of each defendant's contribution or involvement.” In re Pac. Gateway Exch., Inc. Sec. Litig., 169 F. Supp. 2d 1160, 1167 (N.D. Cal. 2001). Because Plaintiffs fail to plead such facts, the claims against them should be dismissed. See Okla. Firefighters Pension & Ret. Sys. v. IXIA Corp., 50 F. Supp. 3d 1328, 1361-62 (C.D. Cal. 2014) (“IXIA I”) (no strong inference of scienter absent facts “demonstrating that defendants knew of the principles or knew they were being incorrectly interpreted and applied.”).

1. Mr. Smallwood.

Plaintiffs do not dispute that Mr. Smallwood is not an accountant and had no direct responsibility for accounting decisions. Opp. at 33; cf. Korzen v. Tetra Tech., Inc., Case No. 2:13-cv-04724-SVW-SSx, 2014 WL 12603209, at *5 (C.D. Cal. Jan. 17, 2014) (“Accounting treatment may not be operationally visible to a company's executives[.]”). Mr. Smallwood's background is in geological engineering, and he is not alleged to have any tax expertise. Ex. 6, at 278. * * * The SAC simply alleges that Mr. Smallwood initially was responsible for evaluating streaming opportunities. ¶ 46 (Mr. Smallwood “primarily focus[ed] on growing Silver Wheaton through the evaluation and acquisition of silver stream opportunities”).

* * *

[Editor's Note: The reference mark for footnote ¹² has been redacted.]

2. Mr. Barnes.

Mr. Barnes served as CEO of Silver Wheaton for just the first twelve days of the Class Period (until April 11, 2011). The only claim as to Mr. Barnes is that he signed the FY2010 financial statements in March 2011 and purportedly knew they were fraudulent. The SAC, however, fails to allege one contemporaneous fact showing that Mr. Barnes believed the 2010 financial statements were fraudulent.

* * *

3. Mr. Brown.

There are no allegations that Mr. Brown is a transfer pricing tax expert or ever believed that the Company failed to account properly for the ultimate risk of the CRA Audit. * * *

* * *

[Editor's Note: The reference mark for footnote ¹³ has been redacted.]

E. The Scienter Allegations Fail Both Individually and Holistically.

A number of different factors provide powerful, competing inferences that weigh strongly against an inference of scienter, including: (i) Silver Wheaton's history of transparency in its public disclosures, such as the Company's detailed public risk disclosures regarding tax risks associated with its structure and the CRA Audit; (ii) Silver Wheaton's transparency with Deloitte and PwC; (iii) PwC's transfer pricing studies; (iv) * * * (v) Deloitte's clean audit opinions; (vi) the absence of any support for plaintiffs' new collusion theory, despite the production of over 1,000,000 pages of documents; and (vii) the absence of any pleaded facts showing that any Defendant believed that the Class Period financial statements were false, despite voluminous discovery. MTD at 24-25. The competing inferences arising from these factors are far more compelling than Plaintiffs' latest theory of a decade-long fraudulent conspiracy that necessarily included audit partners, tax partners, and managers at two prominent international firms, all of whom jeopardized their professional reputations for no apparent reason other than the receipt of routine fees.¹⁴

CONCLUSION

For the foregoing reasons, the Silver Wheaton Defendants respectfully submit that the Second Amended Complaint should be dismissed with prejudice.¹⁵

Dated: August 6, 2018

WILSON SONSINI GOODRICH & ROSATI
Professional Corporation

By: Barry M. Kaplan
Email: bkaplan@wsgr.com

Attorneys for the Silver Wheaton Defendants