Reuters reports that U.S. Magistrate Judge Erin Setser on Thursday denied Wal-Mart (WMT)’s request to dismiss a U.S. shareholder lawsuit accusing it of defrauding shareholders by hiding suspected corruption at its Mexico operations, even after discovering that a damaging NY Times report detailing alleged bribery was being readied for publication.
Plaintiffs, led by the City of Pontiac General Employees’ Retirement System against the world’s largest retailer and its former CEO Mike Duke, allege in their lawsuit that Duke and other Wal-Mart executives knew as early as 2005 that Walmart’s Mexico unit in its rush to build stores used bribes to win market dominance, but did not probe the matter adequately in 2005 and 2006 as they focused more on damage control than on rooting out wrongdoing.
Twenty percent of Wal-Mart’s more than 10,000 stores worldwide are in Mexico, according to Bloomberg.
The lawsuit also claims Wal-Mart should have “come clean” in its 10-Q report filed with the SEC on Dec. 8, 2011, soon after it had learned of the Times’ investigation.
Instead, they said the quarterly report was a “phony demonstration of vigilance and virtue” since it implied that Wal-Mart learned of suspected corruption only in 2011.
The lawsuit seeks class-action status for the December 8, 2011, to April 20, 2012, period.
A Wal-Mart spokesman said the company respectfully disagrees with Judge Setser’s recommendation, but “continue[s] to believe that the complaint does not meet the standard necessary to move the case forward.”
Shares of Wal-Mart, which are fractionally higher year-to-date, closed at $79 and change on Friday.
