New York City files suit against Wal-Mart over bribery scandal

The city’s pension funds claim Wal-Mart’s officers breached their fiduciary duty by covering up the scandal

Months after the New York Times broke the story that Wal-Mart Stores Inc. may have covered up rampant violations to the Foreign Corrupt Practices Act (FCPA) within its Mexican subsidiary, the retail giant is still dealing with the mess.

Yesterday, news surfaced that New York City Pension Funds have filed a derivative lawsuit in Delaware Chancery Court against the world’s largest retailer accusing its officers and board of directors of breaching their fiduciary duty to both the company and its shareholders by not properly handling the issue and possibly trying to cover up the bribes.

"Wal-Mart's board has repeatedly rebuffed our office and the New York City Pension Funds when we have raised concerns over the company's failure to comply with legal and ethical standards," New York City Comptroller John Liu said in a statement. "Rooting out the directors and executives responsible for the current crisis would be a first step, but Wal-Mart also needs corporate governance reforms and an independent board that will protect outside shareholders and safeguard against another breakdown of internal controls."

The lawsuit seeks to recover corporate assets lost as the result of Wal-Mart’s alleged wrongful acts, tighten legal and regulatory compliance structures and institute improved governance oversight, added Inga Van Eysden, chief of the New York City Law Department's pension division.

The Times’ article, “Vast Mexico Bribery Case Hushed Up by Wal-Mart After Top-Level Struggle,” reported that a senior Wal-Mart lawyer received an email in 2005 from a former Wal-Mart de Mexico executive, claiming the company engaged in FCPA violations in an effort to win market dominance. The investigation, which immediately followed the allegations, uncovered a long trail of potentially illegal payments totaling more than $24 million.

Despite recommendations from the lead investigator to broaden the investigation, Wal-Mart did the opposite. The Times said Wal-Mart failed to notify American or Mexican law enforcement officials, didn’t reprimand any of the executives involved in the potentially illegal activity and went on to promote one executive who was named as the driving force behind the corruption to vice chair several years later.

In the days following the Times’ publication of the story, Wal-Mart shares dropped about 8 percent. New York City Pension Funds held about 5.6 million Wal-Mart shares as of March 31, and collectively have more than $121 billion in assets, the lawsuit states.

Shortly after the Times broke the story, Wal-Mart announced that it had appointed a global officer to oversee its compliance with U.S. law that makes paying bribes to foreign officials illegal.

Separate derivative cases against Wal-Mart also are pending in Delaware Chancery Court and the U.S. District Court in Arkansas.

For more on the New York City Pension Funds’ lawsuit, read CNBC.

And for more from InsideCounsel on the Wal-Mart bribery scandal, read:

Wal-Mart scrambles to address FCPA violation accusation

Wal-Mart may have covered up bribery in Mexico

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