Chipotle executives accused of dumping stocks before the E. coli outbreak

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Chipotle down 44% since E. coli outbreaks in 2015

Back in January, during the throes of the E. coli panic, angry shareholders slapped Chipotle with a lawsuit claiming executives had obscured the fact that quality protocols weren't up to snuff. It argued that withholding that vital little nugget ensured that nobody could abandon the company before stocks crumbled to their lowest levels in years. That suit's still pending, and now shareholders have filed another serious lawsuit with an even crazier charge: Practically the entire C-suite of executives, it says, "abused their control of the Company, and dealt themselves excessive compensation worth hundreds of millions of dollars through a corrupt stock incentive plan."

Co-CEOs Steve Ells and Montgomery Moran, CFO Jack Hartung, and other senior execs are all named in this plot:

The Company's public statements were materially false and misleading at all
relevant times, and caused an artificial inflation of Chipotle's stock price. During the period
when the price of Chipotle stock was artificially inflated, a majority of the board of directors
(and a supermajority of the Individual Defendants) engaged in lucrative insider sales, reaping
millions of dollars in net proceeds.

Chipotle closings due to the outbreak

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Chipotle closings because of E.coli
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Chipotle closings because of E.coli
Passers-by walk near a closed Chipotle restaurant on Monday, Dec. 7, 2015, in the Cleveland Circle neighborhood of Boston. Chipotle said late Monday that it closed the restaurant after several students at Boston College, including members of the menâs basketball team, reported âgastrointestinal symptomsâ after eating at the chain. The school said it was working with local health officials to determine the cause of the illness. (AP Photo/Steven Senne)
A sign is posted on the door to a Chipotle restaurant, Monday, Dec. 7, 2015, in the Cleveland Circle neighborhood of Boston. Chipotle said late Monday that it closed the restaurant after several students at Boston College, including members of the menâs basketball team, reported âgastrointestinal symptomsâ after eating at the chain. The school said it was working with local health officials to determine the cause of the illness. (AP Photo/Steven Senne)
A customer leaves a Chipotle restaurant in Seattle as the company started to reopen the outlets closed because of an E. coli outbreak in the Pacific Northwest, Wednesday, Nov. 11, 2015. (AP Photo/Donna Blankinship)
Customers leave a Chipotle restaurant with food in Portland, Ore., Wednesday, Nov. 11, 2015. Chipotle started reopening its restaurants in the Pacific Northwest on Wednesday after an E. coli outbreak sickened about 45 people, a high-profile example of foodborne illnesses that are more common than the public realizes, health experts say. Forty-three outposts of the Mexican food chain in Washington state and the Portland, Oregon, area were closed at the end of October because of the outbreak that hospitalized more than a dozen people. The first restaurants opened for lunch Wednesday. (AP Photo/Don Ryan)
A customer enjoys lunch at a Chipotle restaurant in Portland, Ore., Wednesday, Nov. 11, 2015. Chipotle started reopening its restaurants in the Pacific Northwest on Wednesday after an E. coli outbreak sickened about 45 people, a high-profile example of foodborne illnesses that are more common than the public realizes, health experts say. Forty-three outposts of the Mexican food chain in Washington state and the Portland, Oregon, area were closed at the end of October because of the outbreak that hospitalized more than a dozen people. The first restaurants opened for lunch Wednesday. (AP Photo/Don Ryan)
Rosanna Fleming enters a Chipotle restaurant for lunch as another customer enters a second door in the background in Portland, Ore., Wednesday, Nov. 11, 2015. Chipotle started reopening its restaurants in the Pacific Northwest on Wednesday after an E. coli outbreak sickened about 45 people, a high-profile example of foodborne illnesses that are more common than the public realizes, health experts say. Forty-three outposts of the Mexican food chain in Washington state and the Portland, Oregon, area were closed at the end of October because of the outbreak that hospitalized more than a dozen people. The first restaurants opened for lunch Wednesday. (AP Photo/Don Ryan)
Workers clean inside a still-closed Chipotle restaurant Monday, Nov. 9, 2015, in Seattle. Health officials in Washington and Oregon have said that more than three dozen people have gotten sick with E. coli in an outbreak linked to Chipotle restaurants in the two states. More than 40 Chipotle restaurants remain closed in Washington state and the Portland area while authorities search for the cause. (AP Photo/Elaine Thompson)
FILE - In this Nov. 9, 2015, file photo, pedestrians walk past a still-closed Chipotle restaurant in Seattle. An outbreak of E. coli that originated in the Pacific Northwest has spread south and east and has now infected people in six states. New cases have been reported in California, New York and Ohio, the Centers for Disease Control and Prevention said Friday, Nov. 20, 2015. (AP Photo/Elaine Thompson, File)
A worker sits at a counter inside a still-closed Chipotle restaurant Monday, Nov. 9, 2015, in Seattle. Health officials in Washington and Oregon have said that more than three dozen people have gotten sick with E. coli in an outbreak linked to Chipotle restaurants in the two states. More than 40 Chipotle restaurants remain closed in Washington state and the Portland area while authorities search for the cause. (AP Photo/Elaine Thompson)
Workers clean inside a still-closed Chipotle restaurant Monday, Nov. 9, 2015, in Seattle. Health officials in Washington and Oregon have said that more than three dozen people have gotten sick with E. coli in an outbreak linked to Chipotle restaurants in the two states. More than 40 Chipotle restaurants remain closed in Washington state and the Portland area while authorities search for the cause. (AP Photo/Elaine Thompson)
A closed Chipotle restaurant is shown, Tuesday, Nov. 3, 2015, in Federal Way, Wash. Chipotle closed 43 of its Pacific Northwest locations after the chain's third foodborne illness this year sickened about two dozen people. (AP Photo/Ted S. Warren)
A pedestrian, right, walks past a closed Chipotle restaurant Monday, Nov. 2, 2015, in Seattle. An E. coli outbreak linked to Chipotle restaurants in Washington state and Oregon has sickened nearly two dozen people in the third outbreak of foodborne illness at the popular chain this year. Cases of the bacterial illness were traced to six of the fast-casual Mexican food restaurants, but the company voluntarily closed down 43 of its locations in the two states as a precaution. (AP Photo/Elaine Thompson)
A sign posted on the door of a Chipotle restaurant in Portland, Ore. reads that the location is "temporarily closed due to a supply chain issue," on Monday, Nov. 2, 2015. An E. coli outbreak linked to Chipotle restaurants in Washington state and Oregon has sickened nearly two dozen people in the third outbreak of food borne illness at the popular chain this year. (AP Photo/Don Ryan)
FILE - In this Nov. 2, 2015, file photo, a pedestrian walks past a closed Chipotle restaurant in Seattle. Washington state health officials say they have found no source for the E. coli outbreak related to Chipotle and the chain's Pacific Northwest restaurants could reopen later this week. Washington state epidemiologist Dr. Scott Lindquist says all the tests of food from Chipotle stores in Washington and Oregon came back negative for E. coli. (AP Photo/Elaine Thompson, File)
A woman talks on the phone as she stands in the kitchen area of a closed Chipotle restaurant, Monday, Nov. 2, 2015, in Seattle. An E. coli outbreak linked to Chipotle restaurants in Washington state and Oregon has sickened nearly two dozen people in the third outbreak of foodborne illness at the popular chain this year. Cases of the bacterial illness were traced to six of the fast-casual Mexican food restaurants, but the company voluntarily closed down 43 of its locations in the two states as a precaution. (AP Photo/Elaine Thompson)
Signage hangs from a closed Chipotle restaurant in Portland, Ore., Monday, Nov. 2, 2015. Chipotle voluntarily closed down 43 of its locations in Washington and the Portland area as a precaution after an E. coli outbreak linked to six of its restaurants in the two states has sickened nearly two dozen people. (AP Photo/Don Ryan)
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Basically, shareholders claim in the suit that executives used insider knowledge of the lackluster food-safety protocols for huge, and hugely illegal, financial gain. The suit cites SEC filings showing Ells, Moran, and the rest of the gang felt moved to sell literally hundreds of thousands of stocks in the first half of 2015, right before the health scare tanked things financially. Ells allegedly banked $78 million selling 119,057 shares "while the stock price was artificially inflated and before the fraud was exposed." Moran, meanwhile, made some $107 million, and Hartung nabbed about $28 million. The suit more or less runs through the entire corporate-executive ladder, noting even small-fry "member of the Audit Committee" John Charlesworth made $1.5 million on stock sales during this questionable period.

Shareholders argue it's not solely about execs illicitly making a few hundred million, either — the company's decision not to inform anybody of the "subpar food safety standards adhered to at various Chipotle restaurants" also was kind of a middle finger to customers. Now Chipotle's image "may never revive," and meanwhile, investors are left hanging on to all of these crummy shares that just this week plummeted to a brand-new low. For its part, Chipotle isn't admitting any wrongdoing, saying it intends to defend itself "vigorously."

[Colorado Public Radio]

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