Chipotle lawsuit accuses executives of insider trading, misleading investors

Chipotle lawsuit accuses executives of insider trading, misleading investors

Shareholders make litany of charges against the fast-casual chain

Chipotle Mexican Grill executives sold hundreds of millions of dollars in stock last year before a series of outbreaks led to a steep decline in its value, according to a lawsuit filed in Colorado in April.

The shareholder lawsuit, first reported by Colorado Public Radio, makes a litany of charges against Chipotle executives, accusing them of overpaying themselves and of misleading investors regarding the safety of its food. 

It is among a number of shareholder suits that have been filed against the Denver-based burrito chain as its share value has plunged. The company’s stock price was at $750 per share last year, and has since fallen to lower than $400. The stock closed yesterday at $393.55 — down 48 percent since last summer.

The Colorado lawsuit, filed in a district court in Denver, was filed against the company’s executives and board members on behalf of the company and shareholders. Such lawsuits are common following steep stock price declines or major events.

A Chipotle spokesman said the company does not comment on pending legal actions.

The lawsuit claims that the executives “dealt themselves excessive compensation worth hundreds of millions of dollars through a corrupt stock incentive plan” between 2011 and 2015. That plan made awards of Chipotle shares as part of annual compensation “without any meaningful limit on the number of shares granted.”

The lawsuit says that the company had represented that it adhered to industry standards for food safety, but those “misrepresentations began to unravel” with an outbreak of norovirus at a restaurant in Simi Valley, Calif., last August. Other outbreaks followed. “Eventually, the company was forced to admit that its food safety programs were not as effective as represented,” the lawsuit says.

The lawsuit also takes a shot at the company’s share repurchase program. Chipotle, in response to the decline in its share price, started buying back shares — a common strategy among publicly traded companies. But the lawsuit says that the company was required to buy up to $1.9 billion of stock even though Chipotle would need cash because of falling sales.

And the complaint says that many executives and directors sold company stock when it was “artificially inflated” early last year, and before the decline. The executives and directors — including Co-CEOs Steve Ells and Monty Moran — sold $224.6 million in stock last year “while the price of the company stock was artificially inflated,” the lawsuit says.

Contact Jonathan Maze at jonathan.maze@penton.com
Follow him on Twitter: @jonathanmaze

TAGS: Finance News
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