Former Dental Supply Company Accounting Executive Wins Dismissal From Securities Litigation Over Alleged Accounting Fraud

Paul, Weiss won a significant victory on behalf of Ranjit Chadha, the former chief accounting officer of dental equipment manufacturer Dentsply Sirona, securing the dismissal of all claims in a federal securities litigation arising out of a purported channel stuffing scheme and the subsequent restatement of Dentsply’s 2022 financials. Chadha was the only defendant dismissed from the case, with the court declining to dismiss the claims against the company and the other individual defendants.

The crux of the complaint, filed by shareholders in the Southern District of New York in July 2022, was that Dentsply Sirona, Chadha and two other former executives had engaged in a significant “channel stuffing” scheme aimed at concealing disappointing financial results during the pandemic, which led to an internal investigation and restatement of Dentsply Sirona’s financials in 2022. Channel stuffing is a deceptive business practice in which a company inflates its sales and earnings figures by deliberately sending retailers in its distribution channel more products than they are able to sell. Based on this narrative, the pension fund plaintiff alleged that the defendants had made numerous false and misleading statements concerning Dentsply Sirona’s supply chain, dealer inventory, product sales, incentive payments and other financial estimates.

At motion to dismiss, the defendants argued that many of the alleged false and misleading statements were inactionable statements of opinion or puffery, or were not alleged to be false at the time they were made; and that the plaintiff failed to allege facts giving rise to a strong inference of scienter—knowledge or intent of wrongdoing. With respect to Chadha particularly, the Paul, Weiss team drew the court’s attention to the fact that the complaint included only vague allegations regarding Chadha’s departure from Dentsply and his compensation, none of which contribute to scienter, let alone raise a strong inference of it.

In his opinion, U.S. District Judge Arun Subramanian dismissed the Section 10(b) and 20(a) claims under the Securities Exchange Act against Chadha. The court recognized that the plaintiff had failed to plead a strong inference of scienter as to Chadha, which doomed their Section 10(b) material misrepresentations claim, noting that there were “no specific allegations linking him to any fraud” and that “the inference of scienter is not as strong [as] the inference that he was kept in the dark.” The court dismissed the Section 20(a) control person liability claim against Chadha because the complaint “fail[ed] to allege the state of mind required for Section 20(a) too.” As to Dentsply Sirona and the other two individual defendants, the court dismissed certain of the alleged misstatements and the plaintiff’s Item 303 failure to disclose claim, but otherwise denied the motion to dismiss. The court did not grant the plaintiff the opportunity to amend its claims against our client. Paul, Weiss does not represent Chadha’s co-defendants in this case.

The Paul, Weiss team included litigation partner Christopher Boehning.