WILMINGTON, Del. (CN) - The New York State pension fund sued Qualcomm, claiming the corporation refuses to release information that will show shareholders whether the company is using political contributions to push its political goals rather than enhance shareholder value.
The New York State Common Retirement Fund, the third-largest public institutional investor in the United States, demands Qualcomm's books and records, in Chancery Court.
It wants to see if the San Diego-based tech giant has spent "shareholder funds in connection with political activities."
The pension fund manages $150 billion in assets, and owns $378 million worth of Qualcomm stock.
The lawsuit cites Citizens United v. Federal Election Commission, the 2010 Supreme Court ruling that removed statutory restraints on nonprofit and for-profit organizations' political spending.
As a significant shareholder of Qualcomm, the pension fund says, it is concerned about hidden corporate political expenditures because "academic studies have shown a negative correlation of corporate spending levels with corporate value levels."
The complaint adds: "Citizens United's elimination of longstanding prohibitions against corporate political expenditures and the consequent increase in such expenditures have heightened the risk that corporate managers and fiduciaries could use corporate funds to achieve objectives which may be antithetical to the best interest of the corporation and its shareholders."
Transparency, the pension fund says, is a "principal premise of the Citizens United decision to nullify statutory restraints on corporate political expenditures." It cites Justice Anthony Kennedy, writing for the majority in Citizens United.
In Citizens United, Kennedy "recognized the risk of unbridled corporate political spending, but justified overturning longstanding restrictions on corporate political speech by stating that shareholders can keep their fiduciaries in check as long as companies provide transparency into corporate political expenditures," the complaint states.
But despite a formal shareholder request to disclose political expenditures, Qualcomm isn't coming clean, the pension fund claims.
"Without disclosure it is not possible for shareholders to assess the level of risk to their investments in a given company," the complaint states.
And, "risk is further heightened when a company's senior management has a history of making significant political expenditures with their personal funds," it states.
The pension fund claims that corporate political contributions channeled through intermediaries such as trade associations and nonprofits, especially those formed under IRS Code 501(c)(4), are the least transparent types of political giving and are often criticized as "dark money."
Such intermediaries have no obligation to disclose who their corporate donors are or how much they give. Most of their money is "spent on lobbying and other political activity," the complaint states.
And, the pension fund claims, the boards of such intermediaries, such as the American Petroleum Institute, are more often than not comprised of "active corporate executives."
"(T)here is a concern that these executives may be using corporate funds to obtain and maintain their status as intermediary board members," the complaint states.
The pension fund says it wants to see if "corporate managers and fiduciaries are using corporate funds to pursue their personal and/or political objectives or otherwise investing shareholder funds in political ventures that do not create shareholder value.'
More often than not, the pension fund claims, such political contributions do a corporation more harm than good.
"(C)orporate political donations are not positively correlated with more favorable treatment from politicians," the complaint states, citing an academic report known as the Aggarwal Study, which concluded: "We do not find evidence of hypothesized positive association between donations and returns."
The pension fund adds: "political spending without public disclosure is an area rife with the risk of self-interested conduct or other abuse."
It cites Target Corp. as an example of harmful political giving.
Target donated $150,000 to a political group that supported a gubernatorial candidate who opposed gay marriage. Target employees and some of its customers didn't like that, and protested, including boycotting the big-box retailer, damaging its reputation, according to the complaint.
"Plaintiff has a proper concern about Qualcomm's involvement in the political arena," the complaint states.
The pension fund says it has a proper need for books and records action, and depending on what those materials reveal, it may pursue remedies against Qualcomm, such as "judicial relief for misconduct or waste of corporate assets."
The pension fund is represented by Joel Friedlander, with Bouchard Margules & Friedlander, of Wilmington, and Bernstein Litowitz Berger & Grossmann, in New York City.