Southern District of New York Grants EY Member Firms’ Motion to Dismiss Section 1o(b) Claims

On March 17, 2026, the U.S. District Court for the Southern District of New York dismissed claims against Ernst & Young (Bahrain) (“EY Bahrain”), Ernst & Young Middle East, Ernst & Young Middle East (Abu Dhabi Branch), and an audit partner relating to EY Bahrain’s audits of Brooge Petroleum and Gas Investment Company’s (“Brooge”) 2017, 2018, and 2019 financial statements.  Plaintiffs acquired Brooge shares in a transaction through a Special Purpose Acquisition Company (“SPAC”) and alleged that the EY defendants knew or recklessly failed to know that Brooge engaged in a years-long practice of recording sham payments from an affiliated entity as if they were outside revenues from legitimate clients. Plaintiffs further alleged that the EY defendants approved investor presentations in June and October 2019 that falsely inflated Brooge’s revenue.  Plaintiffs asserted claims for false statements of material fact under Section 10(b) of the Exchange Act and Rule 10b-5(b), scheme liability under Section 10(b) and Rule 10b-5(a) and Rule 10b-5(c), and common law fraud.

The Court dismissed plaintiffs’ claims based on EY Bahrain’s audit opinion on Brooge’s 2017 and 2018 financial statements and the 2019 investor presentations as time-barred by the Exchange Act’s five-year statute of repose for private securities fraud claims.  Plaintiffs filed their initial Complaint on December 17, 2024 and asserted that their claims were timely because the five-year repose period ran from December 19, 2019, the date on which plaintiffs acquired their shares.  The Court rejected plaintiffs’ argument, holding that the repose period for Section 10(b) claims runs from the date of the defendants’ alleged culpable statement or omission.  Accordingly, plaintiffs’ claims based on alleged misstatements made before December 17, 2019 were barred by the statute of repose.

The Court also dismissed plaintiffs’ claims based on EY Bahrain’s June 2020 audit opinion on Brooge’s 2019 financial statements.  The Court held that plaintiffs failed to allege with particularity that the June 2020 audit opinion contained a false statement of material fact under Omnicare, Inc. v. Laborers Dist. Council Construction Industry Pension Fund, 575 U.S. 175 (2015) and further failed to plead scienter as to the statements in the June 2020 audit opinion.  Applying Omnicare, the Court held that the audit opinion did not include embedded or implied factual statements and that plaintiffs failed to allege facts showing that the EY defendants did not sincerely believe opinions set forth in EY Bahrain’s audit opinion.  The Court rejected plaintiffs’ argument that fraud and going concern risks identified by EY Bahrain during its audit indicated that EY Bahrain did not sincerely believe its opinions, explaining that the identification of such risks was “consistent with an audit that scrutinized the company’s finances and internal procedures and found points of concern, not a known defect that rendered its financial statements false or inaccurate.” The Court further held that plaintiffs’ allegations regarding concerns EY Bahrain raised during its audit were insufficient to establish scienter because they suggested that EY Bahrain “identified defects during the audit, considered them, and ultimately concluded, in its professional opinion, that Brooge’s financial statements nevertheless complied with governing standards,” which was not consistent with a “reckless or knowingly fraudulent intent in conducting the audit.” 

The case is Anvil Tr. v. Ernst & Young, No. 24-cv-9731 (S.D.N.Y. Mar. 17, 2026). Plaintiffs are represented by the Aegis Law Group. The EY defendants are represented by Millbank LLP.  A copy of the opinion is available here.