MANHATTAN (LN) — U.S. District Judge Paul Oetken appointed the International Union of Operating Engineers, Local No. 793, Members Pension Benefit Trust of Ontario as lead plaintiff in the securities class action against Kyndryl Holdings Inc., denying motions from Indecap Fonder AB, the Oklahoma Police Pension and Retirement System, and the West Virginia Investment Management Board.
The complaint alleges Kyndryl and its executives manipulated free cash flow metrics and internal controls, inflating the company’s stock price during the class period from August 1, 2024, to February 6, 2026. According to the complaint, the stock fell about 21% on August 4, 2025, after Kyndryl announced first-quarter fiscal 2026 results that underperformed analysts’ projections. It plunged more than 54% on February 9, 2026, after Kyndryl disclosed material weaknesses in its internal controls and announced executive departures.
Under the Private Securities Litigation Reform Act, the court presumes the plaintiff with the largest financial interest should lead. Indecap and the Oklahoma system, collectively termed the "Institutional Investors," had the largest losses at approximately $6.46 million under a "last-in-first-out" calculation. This eclipsed the $4.17 million lost by the West Virginia Investment Management Board (WVIMB) and the $3.3 million lost by Local 793.
However, Oetken disqualified the Institutional Investors because Indecap sold all its Kyndryl stock by December 19, 2025, before the February 9, 2026, corrective disclosures. The court found this timing exposed Indecap to unique defenses, as it would have no recoverable losses if the February disclosures were deemed the sole operative event.
With Indecap removed, the Oklahoma system’s losses dropped to approximately $0.74 million, eclipsed by the remaining candidates.
WVIMB faced disqualification for being a "net gainer" during the class period. Although the board spent approximately $14.5 million purchasing stock, it received approximately $14.9 million in proceeds from sales, effectively profiting from the allegedly inflated prices by selling pre-class period shares.
Oetken rejected WVIMB’s argument that it was not a net seller because it bought more shares than it sold. He noted that the board sold pre-class period shares at inflated prices, creating a plausible argument that it benefited rather than being injured by it.
"The fact that WVIMB sold fewer shares than it purchased... does not alter the fact that, by certain calculations, it profited of Kyndryl stock at allegedly inflated prices," Oetken wrote.
Local 793 survived challenges that it was atypical for purchasing nearly 80% of its stock after the August 4, 2025, partial corrective disclosures. The court found those disclosures did not necessarily alert investors to the fraud, and Local 793 held a substantial amount of Kyndryl stock for the entire duration of the class period.
The parties have 14 days to propose a schedule for an amended complaint and motion to dismiss briefing.
Oetken is a George W. Bush appointee.