(Reuters) - New York City’s pension funds on Monday became the latest group to file a derivative lawsuit against Wal-Mart Stores Inc based on reported allegations of bribery in Mexico and a possible cover-up by Wal-Mart officials.
The suit, filed in Delaware Chancery Court, alleges that Wal-Mart’s officers and board of directors breached their fiduciary duty to both the company and shareholders by failing to properly handle claims of alleged bribery and apparently attempting to cover up details of the issue.
The issue was brought to light in an April 21 New York Times report which said that management at Wal-Mart de Mexico, or Walmex, allegedly orchestrated bribes of $24 million to help it grow quickly in the last decade and that Wal-Mart’s top brass tried to cover it up.
“Rooting out the directors and executives responsible for the current crisis would be a first step, but Wal-Mart also needs corporate governance reforms and an independent board that will protect outside shareholders and safeguard against another breakdown of internal controls,” New York City Comptroller John C. Liu said in a statement.
The lawsuit comes after the California State Teachers’ Retirement System, or CALSTRS, filed a derivative lawsuit in Delaware Chancery Court in early May. In total, 11 derivative complaints were filed in April and May in Delaware and Arkansas tracking the allegations in the New York Times story, Wal-Mart previously said. A securities lawsuit was also filed by the City of Pontiac General Employees Retirement System in Tennessee.
In a derivative lawsuit, plaintiffs seek a recovery for the company, not shareholders. The pension funds are seeking to essentially stand in the shoes of Wal-Mart and sue the company’s executives and directors for damage they have done to the retailer. Such lawsuits often result in changes in corporate governance.
“We take our responsibility to our shareholders very seriously. We will review the lawsuit closely and are thoroughly investigating the issues that have been raised,” said Wal-Mart spokesman David Tovar. “It is also important to remember that the filing of a lawsuit does not indicate the ultimate merits of the case or how the case will be resolved.”
Wal-Mart is in the early stages of a full and independent investigation, which will take time, and the company believes it would be inappropriate to come to conclusions before the investigation is complete, he added.
The bribery issue is also being investigated by the U.S. Department of Justice, the U.S. Securities and Exchange Commission and a number of government agencies in Mexico.
On June 1, Wal-Mart said that while it could not predict the outcome of the various suits, it did not believe that the outcome would have a material effect on its financial conditions or results of operations.
The New York City Comptroller’s Office was among a group of shareholders that voted against certain board members in Wal-Mart’s recent election. It previously said that it voted its shares against Chairman Robson Walton, Chief Executive Michael Duke, former CEO Lee Scott, current audit committee chairman Christopher Williams and audit committee director Arne Sorenson.
While several directors received many more votes against them than usual, they were still elected with a majority of votes cast in their favor.
The New York City funds held 5.6 million Wal-Mart shares as of March 31 and collectively have more than $121 billion in assets, according to the lawsuit.
Wal-Mart shares fell 1 percent to close at $67.53 on Monday, declining slightly less than the broader market.
Fifteen of Wal-Mart’s 16 current board members are named as defendants in the lawsuit. Marissa Mayer, who just joined the board this month, is not listed as a defendant.
Others listed as defendants include former Wal-Mart CEO David Glass and former directors Roland Hernandez, John Opie, J. Paul Reason and Jose Villarreal.
Among the executives listed as defendants are Eduardo Castro-Wright, who served as president and CEO of Walmex in the early 2000s; Thomas Mars, current chief administrative officer and past general counsel; José Luis Rodríguezmacedo Rivera, who was Walmex’s general counsel and now a senior vice president at Walmex; and Eduardo Solórzano Morales, president and CEO of Wal-Mart Latin America, chairman of Walmex, and a past president and CEO of Walmex.
Former executives listed as defendants include Thomas Hyde, John Menzer and Lee Stuckey.
Along with Comptroller Liu, the trustees of the New York City pension funds include the New York City Employees’ Retirement System, the Teachers’ Retirement System, the New York City Police Pension Fund, the New York City Fire Department Pension Fund and the Board of Education Retirement System.
Reporting by Jessica Wohl in Chicago; Editing by Richard Chang