Judge: Walmart Should Face Lawsuit Over Mexico Operations

Walmart in Juarez Mexico The economic boom experienced by border towns like Juarez has come to a halt
AlamyA sign above a Walmart store in Juarez, Mexico.
By Jonathan Stempel

Walmart Stores (WMT) should face a U.S. lawsuit accusing it of defrauding shareholders by concealing suspected corruption at its Mexico operations, even after learning that a damaging media report detailing alleged bribery was being prepared, a federal judge said.

U.S. Magistrate Judge Erin Setser in Fayetteville, Arkansas, on Thursday recommended denying Walmart's request to dismiss the lawsuit led by a Michigan-based pension fund against the world's largest retailer and former Chief Executive Officer Mike Duke.

A Walmart spokesman said the company disagrees with Setser's recommendation, which is subject to review by U.S. District Judge Susan Hickey. District judges aren't bound by magistrate judges' recommendations but often follow them.

Walmart's share price, which isn't 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 Walmart officials knew as early 2005 that the retailer's Walmart de Mexico unit might have been bribing local officials to open stores faster, but didn't probe the matter adequately in 2005 and 2006.

They said Walmart should have "come clean" in a quarterly report filed on Dec. 8, 2011, soon after it had learned of the Times' investigation.

Instead, they said the report, known as a 10-Q, was a "phony demonstration of vigilance and virtue" that made it appear that Walmart learned of suspected corruption in 2011, addressed it appropriately, and reported its findings to the U.S. Department of Justice and Securities and Exchange Commission.

Setser said reasonable investors would have viewed the 2005 and 2006 events as significant in light of subsequent events.

They included an Oct. 15, 2005 email to Duke, who then led Walmart's international operations, from Walmart'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.

Walmart 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.

Randy Hargrove, a Walmart spokesman, 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."

Jason Forge, a Robbins Geller Rudman & Dowd partner who represents the lead plaintiff, didn't immediately respond to requests for comment. The lawsuit seeks class-action status for the Dec. 8, 2011 to Apr. 20, 2012 time period.

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.

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As haarley says, this is how it is done in Mexico. Might not be up to our standards and/or scandals, but in Mexico you pay to play.

May 11 2014 at 10:56 AM Report abuse rate up rate down Reply

normal way to do bussiness in mexico, everyone in that country takes and expects bribes

May 11 2014 at 9:32 AM Report abuse rate up rate down Reply

Time for Huffington to bash Wal-Mart again.

May 09 2014 at 4:45 PM Report abuse -1 rate up rate down Reply