A UK public pension fund has been given the green light to file a lawsuit in the US against a Chilean mining company accused of bribery.
The £6.4bn (€7.6bn) Tyne and Wear Pension Fund (TWPF) – which provides pensions for local government employees in the north-east region of the UK – is lead plaintiff in an investor action against Sociedad Química y Minera de Chile (SQM) and individual executives. SQM is one of the world’s largest producers and distributors of speciality fertilisers and industrial chemicals.
The case alleges that SQM made materially false and misleading statements and failed to disclose that it made secret, illegal payments – primarily through its then CEO, Patricio Contesse – to electoral campaigns for Chilean politicians and political parties, as far back as 2009.
SQM is also accused of filing millions of dollars worth of fictitious tax receipts with Chilean authorities in order to conceal the payment of bribes, and producing financial statements which were materially false and misleading at all relevant times.
It is also alleged that, as a result of SQM’s bribery scheme and defendant’s false statements, the price of SQM American Depositary Shares (ADSs) was artificially inflated between 30 June, 2010 and 18 June, 2015, peaking at more than $66 (€60) a share in July 2011.
TWPF claims it suffered losses of more than $4.4m on its shares during the period as a result of SQM’s securities violations.
SQM had applied to have the lawsuit dismissed on the grounds of failure to state a claim, and “forum non conveniens” (the power allowing courts to dismiss a case where another court or forum is much better suited to hear it).
But Judge Edgardo Ramos, of the district court for the Southern District of New York, held that the plaintiff had adequately alleged that SQM made materially false and misleading statements in its Securities and Exchange Commission (SEC) filings regarding its compliance with applicable law, effectiveness of internal controls, and financial reporting.
Judge Ramos also rejected assertions that the claims should be addressed in Chile, because the documents were filed with the SEC in the US, and relied upon by investors to purchase ADSs on the New York Stock Exchange.
He said: “The US has a strong interest in upholding its federal securities laws… The defendant claims that the court will have to interpret a novel issue of Chilean law, because a Chilean court has not determined whether [the] actions constitute a criminal tax violation. However, plaintiff alleges strictly federal securities violations – to which SQM has already admitted.”
Last January, SQM paid a total of $30m to settle cases brought against it by both the US Department of Justice and the SEC.
Patrick Daniels, partner at Robbins Geller Rudman & Dowd, the lawyers acting for TWPF, said: “There are no class actions in Chile and as an emerging market, there are very significant concerns as to the independence and fairness of the judicial system. European – or any other – investors would not have much recourse if the US case was not available to pursue.”
Daniels added: “The US case is only for the US-listed ADSs, but is large enough to have a significant impact on SQM going forward. There will be enough leverage on the case in the US to influence the board’s and executives’ behaviour, and ‘fix’ some of the major problems that led to the breakdown of governance and internal audits.”