From In re Sadia, S.A. Secs. Litig., 2009 U.S. Dist. LEXIS 66998 (S.D.N.Y., July 29, 2009):

Sadia further argues that even if plaintiffs could establish that it had entered into currency hedging contracts in violation of its internal hedging policy, allegations that a corporation violated its own internal policy "amount to nothing more than a charge that [the company's] business was mismanaged," and therefore cannot form the basis of Rule 10b-5 claim.

[Footnote 78] Def. Mem. at 19 (citing In re Citigroup, Inc. Sec. Litig., 330 F. Supp. 2d 367, 375 (S.D.N.Y. 2004) ("[t]he securities laws were not designed to provide an umbrella cause of action for the review of management practices").

However, there is considerable authority for the proposition that a company's failure to follow an internal policy can form the basis for an inference of recklessness.

[Footnote 79] See In re Scholastic Corp. Sec. Litig., 252 F.3d 63, 77 (2d Cir. 2001) ("[D]efendants' asserted actions contrary to expressed policy and prior practice can form the basis for proof of recklessness."); Novak, 216 F.3d at 311 (defendants "knowingly sanctioned procedures that violated the Company's own markdown policy").

Additionally, In re Citigroup, Inc. Securities Litigation, upon which Sadia relies, is distinguishable from the case at bar because Sadia's alleged failure to adhere to Company policy was intended to deceive its own shareholders, not investors in the securities of other companies.