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Wednesday, March 27, 2024 | Back issues
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Eighth Circuit Crushes Wal-Mex Bribery Case

(CN) — Wal-Mart shareholders have no proof the company board knew about allegations of bribery at Wal-Mart's Mexican subsidiary prior to a New York Times expose in 2012, the Eighth Circuit ruled.

Shareholders slapped the retail giant with 15 lawsuits in two jurisdictions on the heels of an April 2012 expose by The New York Times that said Wal-Mart "had given millions of dollars in bribes to Mexican officials to facilitate Wal-Mart's growth in Mexico."

On June 1 of that year, Wal-Mart conceded that it was cooperating with federal government investigations into potential violations of the Foreign Corrupt Practices Act, or FCPA. Wal-Mart's Mexican chain is known as Wal-Mex.

Shareholders who filed suit in Arkansas claim that Wal-Mart directors breached their fiduciary duties by allowing Wal-Mex's bribery, covering it up, and watering down an internal investigation to allow the culprits to get off scot free.

But a federal judge dismissed the action, finding that shareholders failed to show that a demand on the board would have been futile.

The Eighth Circuit affirmed the decision on appeal Friday, dismissing a consolidated case based on numerous derivative lawsuits.

The then-chair of Wal-Mart's audit committee, Roland Hernandez, allegedly received key information about bribery allegations at Wal-Mex in 2005.

But "conspicuously absent here are specific factual allegations establishing Hernandez 'did in fact report to specific directors,'" Judge William Jay Riley said, writing for a three-judge panel. (Emphasis in original.)

Just because the audit committee regularly reported to Wal-Mart's board of directors does not mean that it informed the board about the results of the company's in-house investigation of bribery at Wal-Mex.

"The shareholders' position thus boils down to the same logic Delaware courts have consistently rejected, namely the inference that directors must have known about a problem because someone was supposed to tell them about it," Riley wrote.

And even if alleged bribery at Wal-Mex was egregious, that does not establish legal proof that the board must have known about it, the Eighth Circuit ruled.

"The reason the shareholders' theories fail is not that we think they are unbelievable or do not make sense, but because the shareholders have not pled the sort of concrete facts Delaware law requires to substantiate enough of the details," Riley wrote.

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