(Recasts first paragraph, adds share price and background)
By Jonathan Stempel
May 9 A U.S. judge said Wal-Mart Stores Inc
does not deserve dismissal of a lawsuit claiming it
defrauded shareholders by concealing suspected corruption at its
Mexico operations, even after learning that a damaging media
report detailing alleged bribery was being prepared.
U.S. Magistrate Judge Erin Setser in Fayetteville, Arkansas,
on Thursday recommended denying Wal-Mart's request to dismiss
the lawsuit led by a Michigan pension fund against the world's
largest retailer and former Chief Executive Officer Mike Duke.
A Wal-Mart spokesman said the company disagrees with
Setser's recommendation, which is subject to review by U.S.
District Judge Susan Hickey. District judges are not bound by
magistrate judges' recommendations but often follow them.
Wal-Mart's stock price, which is not known as particularly
volatile, fell 8.2 percent in the three days after The New York
Times reported on its investigation into the alleged bribery on
April 22, 2012. That decline wiped out roughly $17 billion of
market value. The Times' coverage later won a Pulitzer Prize.
Plaintiffs, led by the City of Pontiac General Employees'
Retirement System, alleged that Duke and other Wal-Mart
officials knew as early as 2005 that the Walmart de Mexico unit
might have been bribing local officials to open stores faster,
but did not probe the matter adequately in 2005 and 2006.
They said Wal-Mart should have "come clean" in a quarterly
report filed on Dec. 8, 2011, soon after it had learned of the
Instead, they said the report, known as a 10-Q, was a "phony
demonstration of vigilance and virtue" that made it appear that
Wal-Mart learned of suspected corruption in 2011, addressed it
appropriately, and reported its findings to the U.S. Department
of Justice and the Securities and Exchange Commission.
Setser said in light of later developments, reasonable
investors would have viewed the 2005 and 2006 events as
significant. These included an Oct. 15, 2005, email to Duke, who
then led Wal-Mart's international operations, from Wal-Mart's
general counsel summarizing the alleged corruption.
"Plaintiff has sufficiently alleged that defendants knew the
omission in the December 2011 Form 10-Q of the 2005 revelation
of the suspected corruption and defendants' 2005 and 2006
investigation was materially misleading," Setser wrote.
Wal-Mart faces probes by U.S. and Mexican investigators into
the alleged bribery, including whether the Bentonville,
Arkansas-based company violated the U.S. Foreign Corrupt
Practices Act. The U.S. Congress also investigated the matter.
"We're very encouraged, and hopefully Judge Hickey agrees
with the findings," said Jason Forge, a Robbins Geller Rudman &
Dowd partner representing the plaintiffs. "Once Wal-Mart knew
the Times was hot on its trail, and that there was enough
substance to the allegations that it needed to tell the DOJ and
the SEC, it needed to tell investors."
Wal-Mart spokesman Randy Hargrove said, "We respectfully
disagree with the magistrate judge's opinion, and continue to
believe that the complaint does not meet the standard necessary
to move the case forward."
The lawsuit seeks class-action status for the Dec. 8, 2011,
to April 20, 2012, period. In Friday afternoon trading, Wal-Mart
shares were up 39 cents at $79.08. Through Thursday, the share
price had risen 26 percent since the article was published,
while the Standard & Poor's 500 was up 36 percent.
The case is City of Pontiac General Employees' Retirement
System v. Walmart Stores Inc et al, U.S. District Court, Western
District of Arkansas, No. 12-05162
(Reporting by Jonathan Stempel in New York; Editing by Nick
Zieminski, Jan Paschal, Toni Reinhold)