Books and Records Demand – Page 5

Oklahoma Firefighters Pension & Retirement System v. Citigroup Inc., C.A. No. 9587-ML (Sept. 30, 2014) (LeGrow, A., M.C.)

Oct 07 2014

This final report stems from plaintiff-shareholder Oklahoma Firefighters Pension & Retirement System’s (“Oklahoma Firefighters” or “Plaintiff”) demand under 8 Del. C. §220 for access to defendant Citigroup Inc.’s (“Citigroup” or “Defendant”) books and records in connection with alleged fraud and money laundering at two Citigroup subsidiaries. Following a paper record trial in June 2014, the court concluded in its draft report that Plaintiff had a proper purpose in seeking access to the books and records, but the court narrowed the scope of Plaintiff’s initial request. At the present phase of the case, Citigroup objects to the conclusions reached in the draft report, arguing that the incidents at the subsidiaries do not give Plaintiff a credible basis from which to infer wrongdoing or mismanagement on the part of the Citigroup Board of Directors. Moreover, Citigroup contends that even if Plaintiff’s purpose were proper, the scope of the documents requested is still too broad.

The demand arises from incidents at Banco Nacional de Mexico, S.A. (“Banamex”) and Banamex USA, which together account for 10% of the global profits of Citigroup. At Banamex, a fraudulent accounts receivables finance arrangement was discovered, which caused Citigroup to adjust downward its 2013 fourth quarter and full year financials by $235 million. Investigations into the fraud indicated that Citigroup may not have had the proper internal controls in place to prevent fraud, and Moody’s subsequently downgraded Banamex’s debt and deposit ratings due to the allegations surrounding the bank. Another smaller fraud of $30 million was also uncovered at Banamex. At Banamex USA, grand jury subpoenas were issued by the United States District Attorney for the District of Massachusetts regarding compliance with Bank Secrecy Act (“BSA”) and Anti-Money Laundering (“AML”) regulations. The grand jury subpoenas were issued subsequent to a number of consent orders between Citigroup and various financial regulatory agencies regarding insufficient BSA and AML controls, risk management, the flow of drug cartel-related funds, and general oversight. In response to the BSA and AML concerns, the Citigroup Board of Directors charged the Board’s Audit Committee with responsibility for legal compliance oversight.

Wolst v. Monster Beverage Corporation, C.A. No. 9154-VCP (Del. Ch. October 3, 2014) (Noble, V.C.)

Oct 07 2014

By David Bernstein and Meredith Laitner

On October 3, 2014, the Delaware Chancery Court issued its ruling in Wolst v. Monster Beverage Corporation, C.A. No. 9154-VCP (Del. Ch. October 3, 2014) (Noble, V.C.), rejecting the plaintiff’s request to inspect Monster Beverage Corporation’s books and records pursuant to Section 220 of the Delaware General Corporation Law.

The plaintiff’s stated purpose for her request to inspect Monster’s books was to determine whether there was a basis for her to bring a derivative suit against Monster based on insider trading that occurred seven years ago. A class action regarding the insider trading had been settled for $16.25 million and a prior derivative suit, in which the plaintiff had been a participant, had been dismissed for failure to make a demand on the Board. Subsequently a demand on the Board had been made and rejected.

The Court held that the possible new derivative suit that was the reason for the plaintiff’s Section 220 demand was time-barred by laches. Further, Vice Chancellor Noble refused to extend to derivative claims the general rule that a class action tolls the statute of limitations for the members of the class pursuing individual direct claims.

WolstvMonsterBeverage

Ravenswood Inv. Co., L.P. v. Winmill & Co. Inc., C.A. No. 7048-VCN (Del. Ch. May 30, 2014)

Jun 02 2014

By David Bernstein and Elise Gabriel

In Ravenswood Investment Co., Vice Chancellor Noble of the Delaware Chancery Court considered the novel issue of whether, under Delaware law, a corporation may condition a stockholder’s right to inspect the corporation’s books and records on an agreement not to trade in the corporation’s stock for a period of time. Here, the defendant Winmill & Co. Incorporated (“Winmill”), a Delaware holding company, had refused to allow plaintiff stockholder Ravenswood Investment Company, L.P. (“Ravenswood”) to inspect its nonpublic financial statements absent Ravenswood’s agreement not to trade in Winmill’s stock for up to a year. Winmill was apparently concerned that Ravenswood would use the material, non-public information to trade in Winmill’s stock, thus threatening “tipper” liability under federal securities law.

Vice Chancellor Noble concluded that a trading restriction imposed on a stockholder’s right to inspection under Delaware General Corporation Law § 220 is contrary to Delaware law. He found that Ravenswood had requested inspection for the proper purpose of valuing its stock, and any purported secondary purpose or ulterior motive was irrelevant. Vice Chancellor Noble was unwilling to incorporate an “inequitable” notion into Delaware’s § 220 jurisprudence that would frustrate a stockholder’s fundamental right to value its stock. In a footnote, he further stated that the Court did not address whether the requested financial statements should be deemed confidential, but if the parties could not agree on a confidentiality agreement, the Court would be available to address that issue. Vice Chancellor Noble refused, however, to require Winmill to pay Ravenswood’s attorneys’ fees, finding that Ravenswood had not produced requisite evidence of Winmill’s bad faith.

Ravenswood v. Winmill

Catagory:Books and Records Demand