On October 26, Walmart announced a $160 million settlement with a class of shareholders who sued the company for disclosing too little too late about possible FCPA violations.
In its December 8, 2011 10-Q filing, Walmart publicly disclosed to investors that the company had conducted a review of its anti-corruption policies and procedures over the course of the prior year. The review sparked an internal investigation into potential violations of the foreign bribery statute. Walmart disclosed that it went so far as to self-report the investigation to the SEC and DOJ.
Five months later, in April 2012, the New York Times published a story describing in great detail how Walmart had bribed foreign officials in Mexico to fast-track the opening of stores. The story also reported that (1) Walmart had learned of potential violations as early as 2005, (2) that senior management had been aware of the potential violations, and (3) that the company conducted an internal investigation in 2006, but shut it down. These details were omitted from the neatly framed December 2011 10-Q. Shareholders complained in their lawsuit that the failure to disclose these issues dating back to 2005-2006 misrepresented the seriousness of the issue. A federal court preliminarily agreed with that argument in 2014, denying Walmart’s motion to dismiss.
The $160 million settlement figure represents roughly one-third of the $470 million in claims plaintiffs originally sought. Walmart has racked up approximately $900 million in investigation costs and compliance expenses over the seven years since the disclosure, and it has separately set aside hundreds of millions of dollars more for potential settlements with the SEC and DOJ. When possible corruption is discovered among a company’s ranks, exposure from enforcement agencies and mounting legal fees are naturally top-of-mind. However, this case stands as a reminder that companies face financial risk from a number of other sources, including their own shareholders. Determining how and when to disclose an investigation to shareholders, and the precise language of that disclosure, are difficult decisions that carry significant consequences. Even for this titan of discount prices, less is not always more.