investors’ rights in remedying esg violations and ... · the case. the court held that plaintiff...
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New York California Illinois Louisiana
Investors’ Rights in Remedying ESG Violations and Promoting Investment-Manager DiversityJai ChandrasekharBernstein Litowitz Berger & Grossmann LLP
APAFS 18th Pacific Region Investment ConferenceNovember 29, 2018
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UN Sustainable Development Goals identify areas for ESG investing.
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ESG investing is a legitimate strategy fiduciaries may pursue.
Picture source: CFAInstitute.com
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Potential Remedies for ESG Violations Investors may possess claims to recover investment losses
or take action to seek corporate changes. Companies and their executives may have made false
statements about: The true drivers of reported earnings and revenue growth; Compliance with laws and regulations; and Other known risks concerning their business.
To prove fraud, investors must show these statements were made with a culpable intent to deceive, and that their losses were in fact caused by the alleged fraud.
To force Board action, investors must satisfy a demand requirement—typically by showing demand would be futile.
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Source: Road & Travel Magazine, 2009
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U.S. Volkswagen ADR Class Action
The Court appointed the Arkansas State Highway Employees Retirement System as Lead Plaintiff and Bernstein Litowitz Berger & Grossmann LLP as lead Counsel in January 2016.
Basis: claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 against Volkswagen and certain of its most senior officers.
Class Period: 19 November 2010 through 4 January 2016 Scope: All Purchasers of Volkswagen AG American Depositary
Receipts (Ordinary and Preference shares)
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In May 2016, BLB&G filed a complaint detailing Volkswagen’s wrongdoing and alleging violations of the US securities laws.
Volkswagen responded by filing a motion to dismiss in August 2016.
BLB&G filed an opposition to the motion to dismiss in October 2016. Volkswagen filed a reply in November 2016.
U.S. Volkswagen ADR Class Action
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January 2017: Judge Breyer substantially denied Volkswagen’s motion to dismiss.
We conducted the U.S. discovery process, including requests for internal Volkswagen documents and emails.
In July 2018, Volkswagen agreed to pay the Class $48 million to settle the case. Court approval of the settlement is pending.
U.S. Volkswagen ADR Class Action
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Litigation against Volkswagen in Germany
Multiple groups of investors are suing Volkswagen for damages relating to the failure to disclose to investors information regarding the diesel engines, cheat devices.
This litigation includes a KapMuG proceeding (a sort of German class action). The Court appointed Deka Investment GmbH as model plaintiff.
The KapMuG proceeding is expected to take several years.
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Ramirez v. Exxon Mobil Corp.
The Court appointed the Greater Pennsylvania Carpenters Pension Fund as Lead Plaintiff.
This case alleges that Exxon Mobil and several of its current and former senior executives made false statements about the impact of climate change and related laws on its business.
Exxon Mobil publicly claimed that it used a “proxy cost” of carbon in calculating the projected financial outlook of each of its investments to reflect the cost of increasing regulation.
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Ramirez v. Exxon Mobil Corp.
But Exxon Mobil allegedly used a significantly lower cost or no cost for its internal calculations.
This allowed Exxon to invest in increasingly risky fossil-fuel projects and to delay de-booking them when lower oil and gas prices and increasing regulation made them uneconomical.
In August 2018, the Court denied Defendants’ motion to dismiss the case.
The Court held that Plaintiff adequately alleged that Exxon Mobil made false statements about its purported use of carbon proxy costs and the value of its oil and gas reserves.
Earlier this month, the Court denied Defendants’ motion to reconsider its denial of the motion to dismiss.
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Ramirez v. Exxon Mobil Corp.
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Ramirez v. Exxon Mobil Corp.
GHG Emissions Planning Basis
June 2014 Internal Presentation
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2010 Deepwater Horizon Oil Spill
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In re B.P. p.l.c. Securities Litigation
April 20, 2010: Deepwater Horizon offshore oil rig in the Gulf of Mexico explodes.
Eleven crewmen are killed. Tens of thousands of barrels of oil spill and
catch fire. B.P. reassures public that the spill is under
control. In fact, the spill remains uncontrolled. Five million barrels of oil spill into the Gulf of
Mexico during the next three months.
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In re B.P. p.l.c. Securities Litigation May 2010: Federal securities class action complaints are filed
against B.P. December 2010: District Court appoints New York and Ohio
public pension funds as Lead Plaintiffs in securities-fraud class action on behalf of purchasers of B.P. securities both before and after the Deepwater Horizon disaster.
February 2012: District Court denies Defendants’ motion to dismiss complaint in part and grants it in part; Plaintiffs then amend complaint.
February 2013: District Court denies Defendants’ motion to dismiss amended complaint in part and grants it in part.
December 2013: District Court denies Plaintiffs’ motion to certify class of purchasers of B.P. securities both before and after the Deepwater Horizon disaster.
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In re B.P. p.l.c. Securities Litigation
May 2014: District Court grants Plaintiffs’ motion to certify class of purchasers of B.P. securities after the Deepwater Horizon disaster but denies motion to certify class of purchasers before the disaster.
September 2015: Court of Appeals affirms District Court’s decision on class certification.
May 2016: District Court denies Plaintiffs’ motion for summary judgment, grants’ Defendants’ motion for summary judgment in part, and denies Defendants’ motion in part.
November 2016: B.P. agrees to settle remaining claims of the post-explosion class for $175 million.
February 2017: District Court approves the settlement.
| www.blbglaw.com19Source: Aljazeera.com
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In re Vale S.A. Securities Litigation Securities fraud class action on behalf of investors who purchased
Vale’s common and preferred ADRs between November 2013 and November 2015.
This case arises out of one of the worst environmental disasters in Brazil’s history.
Based in Brazil, Vale is the world’s largest producer of iron ore and nickel.
In November 2015, the massive Fundão mining dam in of Minas Gerais collapsed, killing at least 17 people, destroying an entire city, polluting numerous rivers, and leaving hundreds of thousands of people homeless or without potable drinking water.
Vale owns 50% of Samarco Minerção, S.A., which operates the Fundão dam and two other dams to store wastes (known as “tailings”) from its mining operations.
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Before the dam collapsed, Vale repeatedly promised investors that it had “health, safety and environmental standards and risk management programs and procedures . . . to mitigate” risks.
In fact, Vale ignored a written report questioning the safety of the dam. Instruments used to monitor the dam’s stability had indicated “emergency” levels of pressure and stress before its collapse.
Yet Vale continued depositing waste in the dam until it collapsed.
In re Vale S.A. Securities Litigation
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News of the bursting caused Vale’s ADRs to drop by almost 6%.
A week later, Vale admitted that tests of the Rio Doce had revealed levels of arsenic, lead, aluminum, chromium, nickel, and cadmium many times higher than the legal limits.
That admission caused the prices of Vale’s ADRs to drop even further.
In re Vale S.A. Securities Litigation
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In March 2016, the Court appointed the Alameda County Employees’ Retirement Association and Orange County Employees Retirement System as Lead Plaintiffs and approved their selection of BLB&G as Lead Counsel.
Lead Plaintiffs filed an amended complaint in April 2016. Defendants moved to dismiss the complaint in July
2016. In March 2017, the Court largely denied Defendants’
motion to dismiss. Lead Plaintiffs’ motion for class certification is fully
briefed.
In re Vale S.A. Securities Litigation
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One of the largest specialty retailers of hardwood flooring in the United States.
From February 2012 through February 2015, Lumber Liquidators reported record gross margins that were significantly higher than its major competitors.
Defendants misrepresented that these high margins came from legitimate “sourcing initiatives” by the Company in China to reduce the cost of goods.
These misrepresentations artificially inflated Lumber Liquidators’ stock price during the Class Period.
In re Lumber Liquidators Holdings, Inc. Securities Litigation
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June 2013: report revealed that Lumber Liquidators’ wood flooring products (imported from China and sold in California) had formaldehyde emissions over 3.5 times the maximum legal limit.
On this news, the Company’s stock price dropped.
In September 2013, U.S. federal agents raided the Company’s offices for information about the Company’s importation of allegedly illegally harvested wood products from forests in far eastern Russia.
On news of the search warrants, the Company’s stock price declined.
Finally, in March 2015, 60 Minutes reported that Lumber Liquidators’ laminate wood products violated California formaldehyde standards.
The day following the broadcast, Lumber Liquidators’ stock price dropped.
In re Lumber Liquidators Holdings, Inc. Securities Litigation
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In March 2015, the Court appointed several investors as Lead Plaintiffs and Bernstein Litowitz Berger & Grossmann as Co-Lead Counsel.
In April 2015, Lead Plaintiffs filed a Consolidated Amended Complaint.
In June 2015, Defendants filed a motion to dismiss the Complaint. Plaintiffs opposed the motion.
In December 2015, the Court denied Defendants’ motion in its entirety.
In April 2016, the parties announced a settlement in the action for $26 million in cash and 1 million shares of Lumber Liquidators common stock.
The Court approved the settlement in November 2016.
In re Lumber Liquidators Holdings, Inc. Securities Litigation
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The Public Learns of Shocking Misconduct at Fox News
Gretchen Carlson filed a public sexual harassment suit against Roger Ailes.
The suit signaled a deeper cultural problem.
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Investigation Shows Systemic Problems
O’Reilly Other top executives Widespread culture of
abuse and retaliation
Misconduct not limited to Ailes:
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The Murdochs allowed Ailes to run a fiefdom.
Fox culture of fear and intimidation ensured that no employee would question Ailes’s authority.
Ailes used Fox’s IT department to monitor employee emails and set up video surveillance of offices and studios.
Ailes set up a formal surveillance department called “The Black Room” to attack people he targeted.
Ailes exercised unfettered control and retaliation against his perceived enemies.
Top management conducted no oversight and completely deferred to Ailes.
Misconduct enabled by top management:
Investigation Shows Systemic Problems
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Shareholders Achieve Historic Governance Reforms at Fox $90 million cash payment. Creation of Workplace Professionalism and Inclusion
Council. Majority-independent Committee, advised by three of
the most notable leaders on harassment and discrimination.
Council includes two new heads of Fox HR. Public reports to the Board, including minority reports. Ensures that change will not be superficial and
minimizes the risk of regression.
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Companies Confronting the Same Problems CBS, Wynn, NBC and Nike, to
name a few…. CBS: Charlie Rose and CEO Les
Moonves accused of harassment, and CBS is now the subject of a federal securities class action.
Wynn: CEO Steve Wynn accused of mistreating women for decades, and shareholder derivative claims are now being pursued.
Nike: Numerous senior executives have resigned or have been forced out after reports of harassment.
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Institutional Investors May Consider Investment-Manager Diversity, Consistent with Their Fiduciary Duties.
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Leader of Black Mayors Group Urges Changes in How Cities Select Diverse Asset Managers - December 23, 2017
Source: BlackEnterprise.com
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New York California Illinois Louisiana
Investors’ Rights in Remedying ESG Violations and Promoting Investment-Manager DiversityJai ChandrasekharBernstein Litowitz Berger & Grossmann LLP
APAFS 18th Pacific Region Investment ConferenceNovember 29, 2018