Securities Fraud Plaintiffs Respond to Supplemental Authority Notice

In re
Silver Wheaton Corp. Securities Litigation

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

CLASS ACTION

PLAINTIFFS' RESPONSE TO DEFENDANTS' “NOTICE” OF SUPPLEMENTAL AUTHORITY

Before: Hon. Christina A. Snyder
Date: December 17, 2018
Time: 10:00 a.m.
Courtroom: 5 – 2nd Floor

Complaint Filed: July 8, 2015
Trial Date: March 26, 2019

Laurence M. Rosen, Esq. (SBN 219683)
THE ROSEN LAW FIRM, P.A.
355 South Grand Avenue, Suite 2450
Los Angeles, CA 90071
Telephone: (213) 785-2610
Facsimile: (213) 226-4684
Email: lrosen@rosenlegal.com

Counsel for Plaintiffs and the Class

In 2009, before the start of the Class Period, the Canada Revenue Agency (“CRA”) found that Cameco Corp.'s tax position was improper. The Complaint alleges that Cameco's reassessment put Defendants on notice that the CRA was targeting resource companies that parked profits in overseas subsidiaries like Silver Wheaton.

On September 28, 2018, the Tax Court of Canada issued its decision in Cameco Corp. vs. Her Majesty the Queen.¹ Cameco reversed the CRA's reassessment.

The Complaint states a claim if it adequately alleges that Defendants knew or recklessly disregarded that it was at least reasonably possible that Silver Wheaton's tax position would not be upheld. Cameco was able to convince the Tax Court of Canada, by a preponderance of the evidence, that the CRA was wrong. That in no way means that it was not reasonably possible that the CRA was right about either Silver Wheaton or Cameco in 2009.

Nor does it mean that it was not probable as of 2009 that the CRA would ultimately find against Silver Wheaton. “Whether defendants were required to record or disclose a tax liability depends, not on whether the Canadian tax courts will ultimately affirm the CRA's reassessment, but rather on whether it is probable that Silver Wheaton will eventually be required to pay unpaid income taxes and applicable penalties. Indeed, some courts have even found that a failure to disclose a risk of enhanced tax liability is actionable regardless of the tax authority's ultimate determination on the matter.” In re Silver Wheaton Corp. Sec. Litig., No. CV15-5146-CAS(JEMX), 2016 WL 3226004, at *7 (C.D. Cal. June 6, 2016). Innocence by hindsight is not a defense. Schueneman v. Arena Pharm., Inc., 840 F.3d 698, 709 (9th Cir. 2016) (“It is the failure to disclose 'issues' and 'concerns' with the Rat Study and the FDA's interest in the outcome of those studies — not who was ultimately right about the underlying science — that matters”).

Moreover, Cameco's story is far from over. The Tax Court of Canada is a trial court, and the CRA has appealed its judgment. The appellate court might well reverse, just as the Tax Court of Canada reversed the CRA's initial determination.

Nor is the Tax Court of Canada's ruling an attack on the CRA's theory that companies cannot simply incorporate foreign subsidiaries in low tax jurisdictions to “earn” all their profits, as Silver Wheaton did here. Instead, the Cameco court merely found that in that case, and unlike here, Cameco had not funneled all of its profit to its foreign subsidiary. * * * Complaint, dkt. # 256, ¶¶ 10-11, 238. Cameco, which was accused of selling uranium to its non-Canadian subsidiary (abbreviated in Cameco as CEL/CESA) at non arms'-length prices, did not have to look very hard to find comparable transactions. Cameco sold uranium to its own customers at substantially similar prices as those it charged CEL/CESA. Cameco, Dkt. # 371-1, ¶¶ 241, 734-36, 782, 849-51. Thus, in Cameco, the CRA had to show that Cameco should have charged higher than market rates to its subsidiary; * * *

Moreover, unlike in this case, Cameco's non-Canadian subsidiary had substance. Its head, Gerhard Glattes, had been President of a NYSE-traded uranium mining company, Cameco ¶152, rather than a recent college graduate like Nik Tatarkin. Complaint ¶57. It negotiated to advance its own interests against Cameco, Cameco ¶275, and participated in all senior-level decisions through twice-weekly calls, Cameco ¶¶621, 665, in * * * Complaint ¶160. * * *, Complaint ¶180, Cameco's subsidiary obtained its funding through an Irish (i.e., non-Canadian) Cameco subsidiary. Cameco ¶141. * * *, Complaint ¶182, but Cameco's subsidiary's were invested for its own benefit. Cameco ¶145. Cameco's transactions with and on behalf of its subsidiary were not a mere sham because they were approved by Swiss nuclear regulatory agencies, Cameco ¶608, while here, * * * Complaint ¶314.

Indeed, it bears noting that in this litigation, Silver Wheaton has been at pains to testify that * * *. The Court should not credit their abrupt change of position.

Thus, Cameco and Silver Wheaton both ran transactions through a subsidiary incorporated in a low-tax jurisdiction. In both cases, it was reasonably possible that the tax position would be invalidated. If Cameco is ultimately able to convince the appellate court to affirm, it will have been because it charged its non-Canadian subsidiary market rates and the subsidiary participated in the decisions that affected it — quite unlike Silver Wheaton.

CONCLUSION

For the foregoing reasons, the arguments set out in Defendants' Notice of Supplemental Authority are without merit. The Court should deny Defendants' Motions to dismiss.

Dated: December 11, 2018

Respectfully submitted,

THE ROSEN LAWFIRM, P.A.

Laurence M. Rosen
Laurence M. Rosen, Esq. (SBN 219683)
355 S. Grand Avenue, Suite 2450
Los Angeles, CA 90071
Telephone: (213) 785-2610
Facsimile: (213) 226-4684
Email: lrosen@rosenlegal.com

Counsel for Plaintiffs and the Class