Wal-Mart CEO to be deposed in Mexican bribery lawsuit, but case may not go to trial

That Wal-Mart CEO Doug McMillon may soon be deposed in a shareholder lawsuit has certainly made for headline news,  but it’s not likely to have an impact on the global retailer, according to a lawyer with experience in such matters.

The shareholder lawsuit against Wal-Mart Stores being now in the U.S. District Court in Fayetteville seeks to depose McMillon about alleged bribery claims in Mexico and potential violations of the Federal Corrupt Practices Act (FCPA).

McMillion was CEO of Sam’s Club at the time of the alleged violations in Mexico, but when the news broke in 2012, he was the CEO of Walmart International and thus U.S. District Judge Susan Hickey said he likely has “direct and personal involvement” in the matters of the pending lawsuit. Wal-Mart counsel has said that is not the case, but their motion to prevent McMillon’s deposition was denied by Hickey on May 11.

FCPA lawyer and professor Mike Koehler told Talk Business & Politics the lawsuit is not a big concern. He has said Wal-Mart has acted proactively since 2011 to be open with their knowledge and disclosures in the FCPA investigation.

“It is virtually unheard of for securities fraud claims against publicly traded companies to go to trial and this case is highly unlikely to go to trial. I suppose this recent discovery-related decision does increase slightly the plaintiff’s negotiating position,” Koehler said.

Koehler, who tracks the FCPA investigation of dozens of other companies at any given time, said two-thirds of the public companies provide less transparency than Wal-Mart regarding FCPA expenditures. Wal-Mart was told by the U.S. Securities and Exchange Commission in 2012 to disclose FCPA-related spending to investors each quarter. The company has complied with that request.

In Thursday’s earnings announcement, Wal-Mart said it spent $13 million with ongoing FCPA inquiries and investigations in the first quarter, down compared to $21 million in the same period a year ago. Another $3 million was spent on enhancements to its internal global compliance protocol, compared to $4 million a year ago.

Wal-Mart said it expects FCPA and compliance expenses to range between $65 million and $85 million this fiscal year. But some experts like Koehler believe Wal-Mart is close to settling with the federal government after more than six years of inquiry. Bloomberg recently reported the retailer is preparing to pay roughly $300 million to settle.

Wal-Mart declined to comment on the reported settlement. But the spending on FCPA-related matters continue to decrease, a possible indication that the cases are likely wrapping up. In the past three years spending each quarter has fluctuated as follows:
FY 2018
Q1: $13 million

FY 2017
Q4: $17 million
Q3: $29 million
Q2: $28 million
Q1: $25 million

FY 2016
Q4: $33 million
Q3: $30 million
Q2: $30 million
Q1: $33 million

FY 2015
Q4: $36 million
Q3: $41 million
Q2: $43 million
Q1: $53 million

Koehler said it can take up to a year for a settlement to be negotiated once the investigations conclude. He believes Wal-Mart is nearing the end of that pipeline. He expects the settlement will be reached in the next 90 days. He also said the $300 million estimated settlement is far less than the $850 million spent on pre-enforcement action and professional fees and expenses.

While the total pre-enforcement spend looks eye popping, Koehler said the ratio between these professionals fees and expenses and the potential settlement amount (about a 2.5 ratio) is very common.