U.S. Judge Says Wal-Mart Must Face Mexican-Bribe Claims

By Jef Feeley 

Wal-Mart Stores Inc. (WMT) was ordered by a federal judge in Arkansas to face a pension fund’s claims the retailer defrauded shareholders by concealing corruption tied to bribes allegedly paid by officials of its Mexican unit.
U.S. District Judge Susan Hickey in Fayetteville rejected Wal-Mart’s bid to throw out the Michigan-based fund’s lawsuit accusing it of making misleading statements to regulators about claims it paid bribes to facilitate Mexican real-estate deals.
The world’s largest retailer has said it’s spent $439 million since 2012 in connection with investigations into allegations that employees paid bribes in Mexico, China, India and Brazil. Both U.S. and Mexican prosecutors have said they are probing whether executives of Wal-Mart’s Mexican unit were paying off local officials to clear the way for construction of new stores and warehouses.
The fund properly alleged that a
2011 filing with the U.S. Securities and Exchange Commission about Wal-Mart’s probe of the Mexico bribery claims may have been “materially misleading to a reasonable investor,” Hickey said in her Sept. 26 ruling. Hickey adopted a magistrate’s recommendation that the case proceed.
“We are disappointed in the court’s ruling,” Brooke Buchanan, a spokeswoman for Bentonville, Arkansas-based Wal-Mart, said yesterday in an e-mailed statement. She said the lawsuit was “based solely on unproven allegations.” The fund must now “come forward with actual evidence to prove its case, and we don’t believe it will be able to do so,” she said.

‘Suspect Payments’

The New York Times (NYT) has reported at least $24 million in “suspect payments” were made as part of the Mexican scheme, stretching back to 2005. Wal-Mart de Mexico SAB is the country’s largest private employer, with more than 209,000 employees.
Internal documents showed the unit used a state governor in Mexico to facilitate $156,000 in bribes, Bloomberg News reported last year. The files were released by Democratic representatives Henry Waxman of California and Elijah Cummings of Maryland, who are also investigating the matter.
In July, the Delaware Supreme Court ordered the retailer to hand over to investors internal documents about what directors and executives knew of the alleged Mexican bribes. An Indiana pension fund is suing Wal-Mart’s board over its handling of the corruption allegations.

Comprehensive Probe

The funds contend former Wal-Mart Chief Executive Officer Michael Duke and other board members were alerted about the Mexican bribery allegations in 2005 and failed to thoroughly investigate the claims. It was only after the New York Times reported on the corruption allegations in 2012 that the retailer started a comprehensive probe, according to the suits.
The City of Pontiac General Employees Retirement System contends Wal-Mart’s 2011 SEC filing about the bribery investigation failed to acknowledge the company “learned of suspected corruption in 2005 and launched an internal investigation in 2006,” Hickey said in her ruling.
The fund properly raised questions about whether Wal-Mart “omitted a material fact” from the SEC statement and left investors with the impression the retailer only learned about the corruption claims six years later, Hickey said.
The case is City of Pontiac General Employees Retirement System v. Wal-Mart Stores Inc., 12-cv-05162, U.S. District Court, Western District of Arkansas (Fayetteville).