RiskOctober 14, 2019

Boston Pension Fund Sues Chemours Over Environmental Liabilities

Lawsuit claims firm misled investors about ‘massive’ liabilities as stock lost half its value.

Reported by Michael Katz

The Electrical Workers Pension Fund Local 103 of Boston has filed a class-action lawsuit against the Chemours Company and certain of its senior executives, alleging they misled investors regarding the company’s environmental liabilities after a series of disclosures led to the stock losing half of its value.

The lawsuit is on behalf of all purchasers of Chemours common stock between Feb. 16, 2017 and Aug. 1, 2019. Chemours spun out of industrial conglomerate E.I. du Pont de Nemours and Company in 2015.

According to court documents the spin-off was completed pursuant to a separation agreement that required Chemours to indemnify DuPont for historic environmental liabilities.

The complaint alleges that Chemours’ misled investors by representing that it had appropriately accounted and accrued reserves for its environmental liabilities, when in reality Chemours’ “misrepresentations concealed the true extent of the massive environmental liabilities” the company incurred from decades of producing and releasing chemicals that have been linked to cancer and other serious health consequences.

When Chemours was spun off it inherited all environmental and other liabilities associated with DuPont’s performance chemicals business including perfluoroalkyl and polyfluoroalkyl substances (PFAS), which are toxic chemicals.

“Defendants have long known about the extent of environmental liabilities that have only recently been disclosed to investors,” the complaint said.

Company scientists began documenting the health effects of PFAS as far back as the 1950s and by the 1970s they knew that PFAS was building up in the blood of humans and staying there for long periods of time. By the 1980s, DuPont became concerned about liver damage and birth defects among its own PFAS exposed workers.

By 2010, DuPont’s Fayetteville Works plant in North Carolina “had been discharging PFAS for 30 years or more into the Cape Fear River, which serves as a source of drinking water for tens of thousands of people – a problem that DuPont internally acknowledged represented a tremendous liability.”

That year, DuPont internally convened a blue ribbon panel of company managers, scientists, and engineers to identify solutions to the problem. The panel suggested a $60 million investment in technology to end the discharges.

“Rather than adopt the panel’s recommendations, however,” the complaint said,“DuPont installed a $2.3 million gas permeator system to deal with one wastestream (out of many) responsible for certain fluorinated compounds, and terminated the rest of project in late 2013.”

The lawsuit cited Chemours reassurances to investors that its “policies, standards and procedures are properly designed to prevent unreasonable risk of harm to people and the environment,” and that its handling, manufacture, use, and disposal of hazardous substances are in accordance with applicable environmental laws and regulations.

As a result of these misrepresentations, Chemours shares traded at artificially inflated prices.

The lawsuit claims that a series of disclosures beginning on May 6, culminating on Aug. 1 revealed that Chemours’ liabilities were far greater than the company had represented. The disclosures included the unsealing of a complaint Chemours had filed against DuPont in which Chemours made detailed allegations that its spin-off was part a deliberate plan by DuPont to rid itself of significant exposures incurred through decades of PFAS discharge and to dump that responsibility onto Chemours.

According to the complaint, the disclosures triggered sharp declines in the price of Chemours stock, which lost half its value to close at $14.69 per share on Aug. from $34.18 per share on May 3.