A YUM! Brands shareholder has brought a derivative action on behalf of the company against its officers and directors in a federal court in Kentucky, alleging they inflated the company’s growth predictions and failed to promptly inform shareholders that the company purchased chicken with allegedly excessive levels of antibiotics and toxic chemicals for sale in KFC establishments in China; according to the complaint, once the information became public, business in China and the company’s share price plummeted, while the defendants “profited handsomely” from “dumping more than $64.6 million of personally held common stock during the Relevant Period.” Zona v. Novak, No. 13-506 (U.S. Dist. Ct., W.D. Ky., filed May 21, 2013).
Alleging breach of fiduciary duty, insider selling and misappropriation of information, and unjust enrichment, the plaintiff seeks damages, injunctive relief, disgorgement, attorney’s fees, costs, and expenses. She claims that management knew as early as 2009 that the chicken purchased in China was tainted and had pinpointed the supplier by 2010, but continued to purchase from this supplier until “at least August 2012.” The plaintiff also alleges that the defendants filed false financial disclosures with the Securities and Exchange Commission by, among other matters, failing to “correct materially false and misleading statements concerning the Company’s current and future business and financial condition.” According to the complaint, falsely optimistic growth projections inflated the share price by 12.7 percent, while news about the purportedly tainted chicken caused a 16.6 percent fall; the defendants’ conduct also allegedly exposed the company to civil and criminal penalties.