Securities Regulation Daily Wrap Up, PUBLIC COMPANY REPORTING AND DISCLOSURE—D.N.J.: Judge dismisses complaint that Verizon hid risks of lead-sheathed cables, (Apr 1, 2025)

By John Filar Atwood

Plaintiffs were granted leave to file a third amended complaint within 21 days.

A New Jersey judge dismissed a complaint against Verizon Communications alleging that it concealed that it owned and abandoned hundreds of miles of copper cables encased with lead, which brought risk and financial exposure to Verizon and its shareholders because of the serious health effects to humans of lead exposure. While finding that the statements in question were not actionable, the judge granted leave for plaintiffs to file a third amended complaint within 21 days, saying that plaintiffs must connect their allegations of scienter and misrepresentation with statements made by a particular defendant (Stichting Pensioenfonds Metaal En Techniek v. Verizon Communications, Inc., No. 1:23-cv-05218-ESK-AMD (D.N.J. Mar. 31, 2025)).

Plaintiffs claimed that Verizon violated 1934 Act Section 10(b) and Rule 10b-5 by knowingly and/or recklessly hiding information about the lead-sheathed copper cables. Wall Street Journal articles published in 2023 reported that Verizon had “inherited” the lead cables through acquisitions of the former Baby Bell companies, and that the lead cables were “leaching lead into the environment” and causing adverse health effects to some employees. Former Verizon employees testified that the company purposely abandoned lead cables.

Following the publication of the articles, the value of Verizon’s shares dropped significantly. Plaintiffs sued, alleging that although the company and its management knew that its copper network included lead-sheathed cables and the risk from its ownership and abandonment of the cables, they failed to disclose the risk to investors.

Reserves for remediation. Plaintiffs took issue with multiple statements that Verizon included in its public disclosures, the first of which was that “reserves have been established to cover environmental matters relating to discontinued businesses and past telecommunications activities.” They claimed that this statement was materially false and/or misleading because Verizon did not “set aside reserves” to cover remediating its lead cables, and the statement omitted that Verizon had tens of thousands of miles of lead cables in the environment that would cost over $1 billion to remediate.

The judge determined that the statement was not actionable because the complaint does not identify any portion of the statement that is an expressly “untrue factual assertion,” and because the allegations in the complaint do not satisfy the Private Securities Litigation Reform Act’s (PSLRA) “particularity” requirement. The judge also stated that because plaintiffs said nothing about the reserve setting process and the basis for the opinion, they fail to identify particular facts going to that basis.

Plaintiffs also alleged that a series of statements by Verizon leadership concerning savings associated with converting legacy copper cables into fiber were materially false and/or misleading. Plaintiffs claimed that although the statements reference the positive environmental and fiscal effects of the conversion, the statements omitted that the legacy copper cables were encased with toxic lead and would cost Verizon billions of dollars to replace.

The judge found that plaintiffs failed to demonstrate with particularity under the PSLRA how the statements are misleading. They also failed to demonstrate how the alleged liability of Verizon’s legacy copper cables was so overwhelming that simply omitting this information when discussing the cost saving of the conversion was misleading. Simply asserting that statements are incomplete is insufficient to plausibility assert a claim under Rule 10b—5, the judge said.

Employee health concerns. Plaintiffs also cited claims in Verizon’s proxy statements about concern for its employees’ health, alleging that they were misleading because Verizon abandoned thousands of miles of lead-sheathed cables that harmed its employees while failing to provide protective equipment to those employees exposed to the lead-sheathed cables. The judge determined that these statements were not actionable because while Verizon’s statements about safety measures for its employees may be important to a reasonable investor, plaintiffs failed to assert any facts demonstrating that the statements are misleading.

Regarding plaintiffs’ claim that the allegations in the complaint that certain Verizon employees made statements with scienter, the judge ruled that scienter is not imputed to Verizon where plaintiffs’ failure to allege motive counters an inference of scienter. Even when considering all of the facts alleged, taken collectively an inference that defendants lacked scienter is more plausible than an inference that defendants made statements with scienter, the judge concluded.

The case is No. 1:23-cv-05218-ESK-AMD.

Judge: Kiel, E.

Companies: Verizon Communications, Inc.

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