Judge: Walmart Should Face Lawsuit Over Mexico Operations

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AlamyA sign above a Walmart store in Juarez, Mexico.
By Jonathan Stempel

Walmart Stores (WMT) should face a U.S. lawsuit accusing it of defrauding shareholders by concealing suspected corruption at its Mexico operations, even after learning that a damaging media report detailing alleged bribery was being prepared, a federal judge said.

U.S. Magistrate Judge Erin Setser in Fayetteville, Arkansas, on Thursday recommended denying Walmart's request to dismiss the lawsuit led by a Michigan-based pension fund against the world's largest retailer and former Chief Executive Officer Mike Duke.

A Walmart spokesman said the company disagrees with Setser's recommendation, which is subject to review by U.S. District Judge Susan Hickey. District judges aren't bound by magistrate judges' recommendations but often follow them.

Walmart's share price, which isn't known as particularly volatile, fell 8.2 percent in the three days after The New York Times reported on its investigation into the alleged bribery on April 22, 2012. That decline wiped out roughly $17 billion of market value. The Times' coverage later won a Pulitzer Prize.

Plaintiffs, led by the City of Pontiac General Employees' Retirement System, alleged that Duke and other Walmart officials knew as early 2005 that the retailer's Walmart de Mexico unit might have been bribing local officials to open stores faster, but didn't probe the matter adequately in 2005 and 2006.

%VIRTUAL-article-sponsoredlinks%They said Walmart should have "come clean" in a quarterly report filed on Dec. 8, 2011, soon after it had learned of the Times' investigation.

Instead, they said the report, known as a 10-Q, was a "phony demonstration of vigilance and virtue" that made it appear that Walmart learned of suspected corruption in 2011, addressed it appropriately, and reported its findings to the U.S. Department of Justice and Securities and Exchange Commission.

Setser said reasonable investors would have viewed the 2005 and 2006 events as significant in light of subsequent events.

They included an Oct. 15, 2005 email to Duke, who then led Walmart's international operations, from Walmart's general counsel summarizing the alleged corruption.

"Plaintiff has sufficiently alleged that defendants knew the omission in the December 2011 Form 10-Q of the 2005 revelation of the suspected corruption and defendants' 2005 and 2006 investigation was materially misleading," Setser wrote.

Walmart faces probes by U.S. and Mexican investigators into the alleged bribery, including whether the Bentonville, Arkansas-based company violated the U.S. Foreign Corrupt Practices Act. The U.S. Congress also investigated the matter.

Randy Hargrove, a Walmart spokesman, said: "We respectfully disagree with the magistrate judge's opinion, and continue to believe that the complaint does not meet the standard necessary to move the case forward."

Jason Forge, a Robbins Geller Rudman & Dowd partner who represents the lead plaintiff, didn't immediately respond to requests for comment. The lawsuit seeks class-action status for the Dec. 8, 2011 to Apr. 20, 2012 time period.

The case is City of Pontiac General Employees' Retirement System v. Walmart Stores Inc. et al., U.S. District Court, Western District of Arkansas, No. 12-05162.

17 Tricks Stores Use to Make You Spend More Money
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Judge: Walmart Should Face Lawsuit Over Mexico Operations

A big, bold "SALE" sign helps get people in the store, where they are likely to buy non-sale items.

Once you enter, there's the shopping cart. This invention was designed in the late 1930s to help customers make larger purchases more easily.


In supermarkets, high margin departments like floral and fresh baked goods are placed near the front door, so you encounter them when your cart is empty and your spirits are high.    
Flowers and baked goods also sit near the front of stores because their appealing smell activates your salivary glands, making you more likely to purchase on impulse.

Supermarkets like to hide dairy products and other essentials on the back wall, forcing you to go through the whole store to reach them.



Once customers start walking through a store's maze of aisles, they are conditioned to walk up and down each one without deviating.

Most stores move customers from right to left. This, combined with the fact that America drives on the right, makes people more likely to purchase items on the right-hand side of the aisle.

Anything a store really wants customers to buy is placed at eye level. Particularly favored items are highlighted at the ends of aisles.

There's also kid eye level. This is where stores place toys, games, sugary cereal, candy, and other items a kid will see and beg his parents to buy.
Sample stations and other displays slow you down while exposing you to new products.
Stores also want items to be in easy reach. Research shows that touching items increases the chance of a purchase.

Color affects shoppers, too. People are drawn into stores by warm hues like reds, oranges, and yellows, but once inside cool colors like blues and greens encourage them to spend more.

Hear that music? Studies show that slow music makes people shop leisurely and spend more. Loud music hurries them through the store and doesn't affect sales. Classical music encourages more expensive purchases.
Store size matters, too. In crowded places, people spend less time shopping, make fewer purchases (planned and impulsive), and feel less comfortable
Stores not only entice you with sales, they also use limited-time offers to increase your sense of urgency in making a purchase.
The most profitable area of the store is the checkout line. Stores bank on customers succumbing to the candy and magazine racks while they wait.
Finally, there is the ubiquitous "valued shopper" card. This card gives you an occasional deal in exchange for your customer loyalty and valuable personal data.
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