As I have previously noted on this site, several international trade regulatory regimes have become increasingly important for companies and their executives. These regulatory regimes include U.S. sanctions, export controls, anti-money laundering (AML), and anti-bribery and corruption laws. Recent developments, such as the War in Ukraine, trade tensions with China, and issues involving digital assets have heightened these concerns. Violations of these regimes can result in regulatory enforcement actions as well as in related civil litigation.

The latest example of a civil action following in the wake of a trade regulation enforcement action is the lawsuit filed earlier this week against data storage company Seagate Technology Holdings plc, after the company was hit with a U.S. Department of Commerce administrative penalty for violation of Export Administration Regulations (EAR) pertaining to the Chinese technology company, Huawei Technologies Co. Ltd. The recently filed securities suit shows how international trade regulation and enforcement can translate into corporate and securities litigation. A copy of the July 10, 2023, Seagate complaint can be found here.


Seagate is a global supplier of data storage products, including hard disk drives (HDD). Huawei is a Chinese technology company that is a significant global purchaser of data storage products, including HDD. In May 2019, Huawei was added to the U.S. Department of Commerce Bureau of Industry and Security’s (BIS) Export Administration Regulatory (EAR) List, in which the agency identifies and list firms subject to specific requirements for export or transfer of specified items. The BIS had determined that Huawei’s listing was necessary to protection U.S. national security interests.

In August 2020, BIS imposed export controls over certain items to address the continuing threat to U.S. national security posed by Huawei and its non-U.S. affiliates. After these rules were put in place, Seagate’s competitors, including two of the three capable of making HDDs, publicly stated they had ceased sales to Huawei.

As subsequently alleged in the securities class action complaint, “unbeknownst to investors, Seagate capitalized on the lack of competition and expanded its relationship with Huawei.” Seagate allegedly became a “sole source provider” of HDDs to Huawei and entered a three-year strategic cooperation agreement with Huawei. These arrangements allowed Seagate to report significant revenue increases in subsequent periods. The complaint alleges that Seagate transacted business with Huawei on 429 occasions, shipping more than 7.4 million HDDs, and generating revenue of over $1.1 billion. During the class period, Seagate allegedly made numerous statements concerning its compliance with trade and export control laws and regulations.

On October 26, 2022, Seagate announced that it had received a proposed charging letter from BIS alleging violations of EAR. The letter alleged that Seagate had violated EAR by providing HDDs “to a customer and its affiliates listed on the BIS Entity List between August 2020 and September 2021.” The complaint alleges that the price of Seagate’s stock fell nearly 8% on this news.

On April 19, 2023, the BIS issued a press release stating that it entered an order against Seagate imposing a $300 million penalty, as well as other impositions. As part of the settlement, Seagate had admitted to the conduct set out in the proposed charging letter.

The Lawsuit

On July 10, 2023, a plaintiff shareholder filed a securities class action lawsuit in the Northern District of California against Seagate and certain of its directors and officers. The complaint purports to be filed on behalf of a class of Seagate investors who purchased the company’s securities between September 15, 2020, and October 25, 2022.

The complaint alleges that during the class period, the defendants failed to disclose “(a) the nature and magnitude of Seagate’s HDD sales to Huawei, including that Seagate experienced a significant acceleration in sales to Huawei immediately after the BIS rules went into effect and Seagate’s competitors stopped selling to Huawei; and (b) that the underling details of Seagate’s HDD manufacturing process, including the use of covered U.S. software and technology in ‘essential production’ processes, rendered its sales to Huawei in violation of BIS export rules.” In addition, the complaint alleges that “Seagate was in blatant violation of the BIS export rules which resulted in an ongoing investigation by the U.S. Department of Commerce and exposed the Company to hundreds of millions of dollars in fines and penalties.”

The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks to recover damages on behalf of the plaintiff class.


In prior posts on this site, I have noted numerous examples where alleged violations of trade sanctions, anti-money laundering laws, and export controls have translated into corporate and securities lawsuits. Indeed, this lawsuit is not even the first I have noted involving alleged export control violations relating to Huawei. Indeed, as I noted here, in March 2020, a U.S. semiconductor company was hit with a securities class action lawsuit after disclosing that it was under investigation from the U.S. Department of Justice regarding the company’s compliance with export controls relating to business transactions with Huawei.  In the discussion section of a recent post (here), I noted numerous other examples of alleged violations of trade laws, sanction.

While the risk of litigation arising from alleged violations of trade controls and sanctions is long-standing, all of these risks are magnified in the current global environment. Tensions with Russia arising from the Ukraine War and with China as a result of escalating trade conflicts have made trade, export, and sanctions regulation increasingly fraught areas of concern. The conflicts with China may proved to be particularly problematic, as both China and the U.S. have imposed tariffs, restrictions on trade in certain commodities and goods, and wide-spread export controls. Indeed, the trade conflict between the U.S. and China arguably has escalated in recent years into a full-blown trade war.

While, as noted, the risk of corporate and securities litigation arising from trade and sanctions-related issues arguably is nothing new, these risks are significantly heightened in the current complicated trade environment. New restrictions on the sale of advanced chips to China as well as other technology related to aerospace, communications, and electric vehicle technology, among other things, are likely to further intensify these concerns.

The recently filed case underscores how the enforcement of these trade, sanctions and export controls can translate into securities litigation risk. In light of the growing tensions between the U.S. and China, as well as the continuing tensions between the U.S. and Russia (as well as other countries), the litigation risks are likely to increase as well.