Wal-Mart denied dismissal in shareholder lawsuit related to corruption charges

story by Kim Souza
ksouza@thecitywire.com

Wal-Mart Stores Inc. does not agree with the recent denial from U.S. Magistrate Judge Erin Setser regarding its motion to dismiss a shareholder lawsuit filed by a Michigan pension fund in 2012.

Setser entered her denial recommendation for Wal-Mart’s motion to dismiss on Thursday (May 8) in Fayetteville. The denial ruling is subject to review by U.S. District Judge Susan Hickey. 

Robbins Geller Rudman & Dowd representing the plaintiffs said they are encouraged, and are hopeful Judge Hickey agrees with the findings.

Wal-Mart does not concur.

“The motion to dismiss simply points out that even if the allegations in the complaint were true, they would not meet the standard necessary to move the case forward. We respectfully disagree with the magistrate's opinion, and continue to believe that the complaint does not meet that standard,” said Randy Hargrove, Wal-Mart spokesman.
“We are considering our options, including the filing of objections.

Wal-Mart has 14 days to file an objection to the denial, according to the ruling.
 
The City of Pontiac, Mich., general employees retirement system sued Wal-Mart Stores and former CEO Mike Duke for failure to disclose the suspected corruption in its Mexican business unit when it first learned of the violations. The lawsuit was filed in May 2012, less than a month after the New York Times reported the investigation, and seeks class-action status for the Dec. 8, 2011, to April 20, 2012, period.

The plaintiffs, led by the pension fund, claim that top Wal-Mart officers, including Duke, knew as early as 2005 about bribery practices in Mexico to facilitate the rapid building growth in that market. In the court filing the plaintiffs believe Wal-Mart had the opportunity to “come clean” long before they did, given there were emails between legal counsel and Duke in October 2005.

In Wal-Mart’s fiscal 2012 10Q, the plaintiffs also allege that Wal-Mart had worded the corruption disclosure as if they had just learned of the allegations, covering up the fact that some top executives had known for several years and chose to investigate internally.

Setser noted in the denial ruliing that the plaintiffs have “sufficiently alleged that omission of the 2005 revelation of the suspected corruption and defendants’ 2005 and 2006 investigation rendered defendants’ statements in the Form 10-Q materially misleading to a reasonable investor.”

She adds that “Without any reference to the 2005 and 2006 events, a reasonable investor could have certainly been left with the impression that defendants only learned of the suspected corruption in fiscal year 2012, and that, upon learning of the suspected corruption at that time, defendants promptly began investigating and referred the matters of the Department of Justice and the Securities and Exchange Commission.”

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Wal-Mart reported in late April that it had spent $439 million in legal fees, compliance costs and other expenses in the past two years related to the alleged violations of the U.S. Foreign Corrupt Practices Act.  Wal-Mart officials said during the February earnings call that compliance costs for this year would range between $200 million and $240 million, a figure that also includes the company’s internal compliance overhaul.

Link here for a PDF copy of Setser's May 8 ruling.

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