Securities Regulation Daily Wrap Up, FRAUD AND MANIPULATION—D. Del.: Complaint alleging fraudulent cash flow statements dismissed against chemical company and executives, (May 6, 2026)

By Kristin J. Angelino, J.D.

The court found that the company’s disclosure of discretionary timing was not misleading.

A Delaware district court dismissed a fraud action against The Chemours Company and four of its executives alleging that defendants misled investors regarding disclosures about delays in payments and acceleration of receivables, in violation of Exchange Act Section 10(b). Plaintiffs alleged that defendants made three categories of misstatements which, upon revelation of the statements’ supposedly deceptive nature, caused a significant decrease in the price of the company’s common stock. In dismissing the complaint with leave to amend, the court held that plaintiffs failed to successfully plead any of their claims, but the deficiencies identified by the court “may be” curable (The Chemours Company Securities Litigation, No. 1:24-cv-00361 (D. Del. May. 5, 2026)).

Chemours is a NYSE-listed industrial and specialty chemical company. The individual defendants served as Chemours’s executive officers during the class period and were compensated, in large part, based on their ability to generate “Free Cash Flow” for the company. Free Cash Flow is a non-GAAP metric defined as “cash flow provided by operations, less purchase of property, plant and equipment” and is manipulable to some extent.

In March 2024, the company--after earlier delaying the release of its 2023 financial results because it needed more time to evaluate its internal control over financial reporting—announced that three of the individual defendants had engaged in efforts in the fourth quarter of 2023 to (1) delay payments until the first quarter of 2024 and (2) accelerate the collection of receivables from the first quarter of 2024 into the fourth quarter of 2023. The company noted that defendants “engaged in these efforts in part to meet free cash flow targets that [Chemours] had communicated publicly” and that such actions violated the company’s Code of Ethics. Plaintiffs alleged that these disclosures constituted actionable misstatements by defendants that could be grouped into three categories: (1) Free Cash Flow misstatements, (2) internal controls misstatements, and (3) Code of Ethics misstatements. Defendants moved to dismiss for failure to state a claim.

Free Cash Flow misstatements. The alleged Free Cash Flow misstatements consisted of various statements made by defendants in a series of disclosures regarding Chemours’s financial metrics. Plaintiffs alleged that these statements were false or misleading because they failed to disclose that Chemours improperly delayed payables and accelerated receivables and violated the company’s Code of Ethics. Plaintiffs further argued that these statements were misleading because they did not indicate that the changes to the timing of payments were made intentionally. The court disagreed, holding that plaintiffs failed to provide any case law suggesting the defendants were “under an obligation to disclose that the discretionary timing was affected or influenced by some intentional action on [D]efendants’ part.” The court also was not persuaded by the two SEC consent orders cited by plaintiffs, holding that “I don’t think that a consent decree between the SEC and a non-party to the present lawsuit should enjoy much, if any, persuasive force as to the disposition of the present case.”

Plaintiffs next argued that statements made by the company regarding the reasons for a decrease in operating cash flow from 2021 to 2022 implied that the timing of payment and collection decreased operating cash flow for 2022 when, in fact, it increased it. The court also dismissed this argument, holding that it was not pleaded with sufficient particularity and that plaintiffs’ allegations of “improper delay” or “improper acceleration” of payables “does not sweep in an argument about the effects of that delay and acceleration.”

Internal controls misstatements. The alleged internal controls misstatements concerned various SOX certifications signed by certain individual defendants attesting to the existence of Chemours’s effective internal controls over financial reporting. Plaintiffs alleged that these statements were false or misleading because defendants exploited weaknesses in the company’s internal controls to improperly delay payables and accelerate receivables, and that defendants engaged in an “intentional scheme” to override internal controls and misrepresent cash flow disclosures. The court disagreed, holding that, unlike in the caselaw cited by plaintiffs, here plaintiffs failed to adequately plead fraud in Chemours’s financial statements; therefore, the court said that “it is difficult for me to see how attestations that Chemours had in place adequate internal controls could be fraudulent.”

Code of Ethics misstatements. These alleged misstatements related to the alleged failure of certain defendants to “promote full, fair, accurate, timely and understandable disclosure” in public communications, in violation of Chemours’s Code of Ethics. Since the court found that the complaint failed to plead the existence of an underlying materially misleading disclosure, the complaint also failed to plead that any of the alleged Code of Ethics misstatements constituted material misrepresentations or omissions.

Section 20(a) claims. Plaintiffs asserted control person claims against the individual defendants under Section 20(a) of the Exchange Act. Since the court found that plaintiffs failed to establish a primary violation of the securities laws, their Section 20(a) claims necessarily collapsed and were also dismissed.

The case is No. 1:24-cv-00361.

Judge: Andrews, R.

Attorneys: Brian E. Farnan (Farnan LLP) for Cindy Nguyen. Peter J. Walsh, Jr (Potter Anderson & Corroon, LLP) for The Chemours Co.

Companies: The Chemours Co.

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