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
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."
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