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Class Action Allowed in Walmart Mexican Bribery Case

September 26, 2016

According to Forbes, the Walton family is the richest family in America, with seven family members worth a combined $130 billion.

Their wealth is derived from their superstore chain, Walmart– and from unethical business practices such as the bribing of Mexican officials and keeping the issue to themselves for several years until the April 2012 New York Times revealed the bribery scheme– the internal knowledge of which had originated in 2005:

The Times obtained hundreds of internal company documents tracing the evolution of Wal-Mart’s 2005 Mexico investigation. The documents show Wal-Mart’s leadership immediately recognized the seriousness of the allegations. Working in secrecy, a small group of executives, including several current members of Wal-Mart’s senior management, kept close tabs on the inquiry. …

The Times examination included more than 15 hours of interviews with the former executive, Sergio Cicero Zapata, who resigned from Wal-Mart de Mexico in 2004 after nearly a decade in the company’s real estate department.

In the interviews, Mr. Cicero recounted how he had helped organize years of payoffs. He described personally dispatching two trusted outside lawyers to deliver envelopes of cash to government officials. They targeted mayors and city council members, obscure urban planners, low-level bureaucrats who issued permits — anyone with the power to thwart Wal-Mart’s growth. The bribes, he said, bought zoning approvals, reductions in environmental impact fees and the allegiance of neighborhood leaders.

He called it working “the dark side of the moon.”

The Times also reviewed thousands of government documents related to permit requests for stores across Mexico. The examination found many instances where permits were given within weeks or even days of Wal-Mart de Mexico’s payments to the two lawyers. Again and again, The Times found, legal and bureaucratic obstacles melted away after payments were made.

Not only did bribery benefit the Waltons with their Mexico operations; by keeping the bribery issues a secret for years, the Waltons were able for those years to inflate the price of Walmart stock.

In May 2012, the City of Pontiac (Michigan) General Employees Retirement System filed suit against Walmart in a class action alleging that Walmart had violated securities laws by 1) engaging in the bribery; 2) deceiving stockholders; 3) inflating its stock price via such deception, and 4) selling its stock at inflated prices.

On September 20, 2016, Arkansas federal judge Susan O. Hickey certified the class for the class action against Walmart.

The Waltons lied about exactly how long it knew about the corruption, as the plaintiffs’ lawyers, Robbins Gellar, reported on September 20, 2016:

On September 20, 2016, Judge Susan O. Hickey of the U.S. District Court for the Western District of Arkansas certified a class of investors in City of Pontiac General Employees’ Retirement System v. Wal-Mart Stores, Inc. The court named City of Pontiac General Employees’ Retirement System as the class representative and appointed Robbins Geller as class counsel. …

Wal-Mart portrayed itself to investors as a model corporate citizen that had proactively uncovered potential corruption and promptly reported it to law enforcement. In truth, a former in-house lawyer had blown the whistle on Wal-Mart’s corruption years earlier, and Wal-Mart concealed the allegations from law enforcement by refusing its own in-house and outside counsel’s calls for an independent investigation. As a result of defendants’ misleading statements, investors were purchasing shares at artificially inflated prices, which crashed when the Times revealed the truth.

Of course, all of this info is “alleged” (tongue in cheek) until the court rules otherwise. However: Hickey’s class certification includes Walmart’s deceptive statement to the Security and Exchange Commission (SEC) dated December 08, 2011– a statement which makes it appear that Walmart discovered the corruption in 2011– not in 2005:

On December 8, 2011, Defendants filed with the SEC a Report on Form 10-Q that stated the following:
During fiscal 2012, the Company began conducting a voluntary internal review of its policies, procedures and internal controls pertaining to its global anti-corruption compliance program. As a result of information obtained during that review and from other sources, the Company has begun an internal investigation into whether certain matters, including permitting, licensing and inspections, were in compliance with the U.S. Foreign Corrupt Practices Act. The Company has engaged outside counsel and other advisors to assist in the review of these matters and has implemented, and is continuing to implement, appropriate remedial measures. The Company has voluntarily  disclosed its internal investigation to the U.S. Department of Justice and the Securities and Exchange Commission. We cannot reasonably estimate the potential liability, if any, related to these measures. However, based on the facts currently known, we do not believe that these matters will have a material adverse effect on our business, financial condition, results of operations or cash flows. [Emphasis added.]

The class certification continues:

According to Plaintiff, some of the differences between what Defendants represented and what they omitted are as follows: (1) Defendants actually learned about the alleged bribery scheme in 2005, not 2011; (2) Defendants learned about the alleged bribery scheme from a former in-house attorney and not from a voluntary internal review; (3) Defendants began an illegitimate internal investigation into the alleged bribery scheme in 2006, not 2011; (4)

Defendants did not implement any remedial measures until at least 2011 despite having learned of the alleged bribery scheme in 2005; (5) Defendants closed their inquiry into the alleged bribery scheme in 2006 after rejecting a proposal from outside counsel to assist in the internal investigation; and (6) Defendants withheld all information about the alleged bribery scheme from the DOJ and the SEC from 2005-2011. Generally, Plaintiff alleges that Defendants’ Form 10-Q contained statements that gave investors the false impression that they did not need to fear that Defendants had covered up the alleged bribery scheme.

Plaintiff asserts that the omitted and/or misleading information in the Form 10-Q concealed Wal-Mart’s true worth and thus Wal-Mart was overvalued throughout the class period, which is defined as December 8, 2011, the date Wal-Mart filed its Form 10-Q, to April 20, 2012, the day before the New York Times article was published….

Then comes the following footnote:

Plaintiff alleges that Wal-Mart was facing billions of dollars in estimated expenses and losses, including penalties of over $2 billion, $1.3 billion in decreased growth, and investigation and legal fees of $2.76 billion.

Here is the definition of the class of investors. Note that Walmart execs are purposely excluded from the class, including former Walmart CEO, Michael Duke:

All persons or entities who purchased or otherwise acquired the publicly traded common stock of Wal-Mart Stores, Inc. (“Walmart”) between December 8, 2011 and April 20, 2012 (the “Class Period”), and who were damaged by defendants’ alleged violations of §§10(b) and 20(a) of the Securities Exchange Act of 1934. Excluded from the Class are defendants and Duke’s family, the officers and directors of the Company, at all relevant times, members of their immediate families and their legal representatives, heirs, successors, or assigns, and any entity in which defendants have or had a controlling interest.

The class certification includes the following note about Walmart’s stock price:

Wal-Mart’s share price had modestly risen after December 8, 2011, to close at $62.45 on April 20, 2012. On April 23, 2012, the first trading day after the publication of the New York Times article, Wal-Mart’s stock price fell $2.91 per share to close at $59.54 per share. The stock continued to drop on April 24, 2012, to close at $57.77 per share on volume of 30 million shares, and fell to $57.36 on April 25, 2012, on volume of 28 million shares.

I am surprised that the class period begins with 2011 and not the year that Walmart nixed its inquiry in 2006. I suppose that the 2011 date makes for a stronger case.

The Walton fortune is tainted by the Walton willingness to do whatever it takes to turn a profit, including exploiting people who will never come close to having the fortune that they do.

Let’s connect Walton business practice to Walton charter love:

The Waltons view themselves as above the law, and when they don’t like the law, they try to buy it– even if the law is in a state where the Waltons do not reside– as is the case with the almost $2 million money dump by siblings Jim and Alice Walton into Massachusetts’ Question 2 (charter expansion).

It is no wonder that charter schools appeal to the Waltons. Charter expansion advances the idea of public education as a business in which the bosses have most of the power:

  • Charters are primarily non-union, which makes for cheaper overhead even as it opens a wide door for employee exploitation;
  • The public money sent to charters is often removed from the public purview, which opens yet another door, this time for mismanagement, fraud, and
  • The use of student/parent exploitation via gaming admissions processes and use of “no excuses” discipline practices to bend students into unhealthy submission (or purge the dissenters).

Through purchasing charter schools to educate the masses, the Waltons are only advancing what they value:

Business that serves the top, period.

three-waltons  Siblings Jim, Alice, and Robson Walton


Released July 2016– Book Three:

School Choice: The End of Public Education? 

school choice cover  (Click image to enlarge)

Schneider is a southern Louisiana native, career teacher, trained researcher, and author of both A Chronicle of Echoes: Who’s Who In the Implosion of American Public Education and Common Core Dilemma: Who Owns Our Schools?.

both books

Don’t care to buy from Amazon? Purchase my books from Powell’s City of Books instead.

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