A Polish vodka investment that stumbled badly has now pulled the Fresno County employees’ pension program into federal court, far from California.
Along with other angry parties convened in a Camden, N.J. courtroom, the Fresno County Employees’ Retirement Association is suing a leading liquor producer whose plunging stock price cost a lot of people money. The Fresno pension plan alone lost nearly $400,000 because officials with the company, the Central European Distribution Corp., misled investors, attorneys charge.
Nor is the case in Camden the only class action lawsuit being pursued by the Fresno County association, which oversees a portfolio currently valued at about $2.7 billion. Prompted by stock losses they believe to be unwarranted, officials are similarly suing the likes of Facebook, Toyota Motors and Countrywide Financial Corp., among others.
“We have so many of them,” Becky Van Wyk, assistant administrator of the Fresno association, said in a telephone interview. “We just file (a lawsuit) whenever there’s an opportunity for us to recover any of our losses.”
These class action lawsuits are more complicated than a standard us-against-them courtroom conflict. Before the attorneys take on the defendant, they first take on each other.
In two nearly identical lawsuits filed last year, which have since been consolidated, several different groups of investors complained about alleged Central European Distribution Corp. misstatements between Aug. 5, 2010 and Feb. 28, 2011. The alleged misstatements artificially inflated the company’s stock price, according to the complaints, which the company denies.
Fresno’s pension program and the Arkansas Public Employees Retirement System joined in one lawsuit. The other was filed by investors called the Prosperity Group. Both groups of investors wanted to be named lead plaintiff, which would mean more say in how a case proceeds, although it won’t bring any more money if the plaintiffs win.
“It allows us to be in on the negotiations,” Van Wyk said.
Following a legal tussle on Wednesday, U.S. District Judge Jerome Simandle sided with the Fresno and Arkansas groups and named them lead plaintiffs. Now the real action can begin, though it could unwind over the course of several years.
“The company intends to mount a vigorous defense to the claims asserted,” Central European stated in its most recent annual report.
Formal responses have not yet been filed in court, and company attorneys could not be reached Friday.
About 200 class action lawsuits are filed annually challenging corporations over alleged securities fraud, according to attorney Steven Toll, whose firm, Cohen Milstein Sellers & Toll, represents the Fresno association. About one-third of these class-actions suits get dismissed, he estimated; the remainder often gets settled and most don’t go to trial.
In 2008, Van Wyk noted as an example, the Fresno County association joined in an investors’ lawsuit against PNC Bank. The suit ended up with a $247,000 settlement for the Fresno group, Van Wyk said.
As frequently happens, Toll and Van Wyk said it was the attorneys who brought to the Fresno investors’ attention the possible legal problems with the Central European Distribution Corp. investment.
It’s a big company, billed as one of the world’s largest vodka producers as well as a major importer of wine and spirits for Central and Eastern Europe.
“We are also the largest vodka producer in Russia, the world’s largest vodka market,” the company states in Securities and Exchange Commission filings. It further notes that “our Green Mark brand is the top-selling mainstream vodka in Russia and the second largest vodka brand by volume in the world.”
The company’s stock was selling for $23.18 a share on Dec. 29, 2011. That day, the Fresno pension program bought 1,500 shares. Over the next two months, with the Central European stock price fluctuating only slightly, the Fresno pension program bought 35,100 shares, paying a total of $808,808.
The company’s stock price then plummeted more than 37 percent on March 1, 2011, after the firm released unexpectedly sober results for the prior year. Reversing some previous sunnier projections, the company reported a net loss for the year of $92.9 million, compared to net profit of $72.7 million in the prior year. It was only then, angry investors say, that company officials acknowledged problems that should have been made public earlier.
“The company was experiencing significant declines in its vodka portfolio,” investors’ attorneys noted in one legal filing, adding that “the company (was) losing market share in Poland as discounters were taking market share.”
The company explained belatedly that a tax-related “production issue” in Russia had halted liquor production for two crucial weeks in November.
The company stock is now selling for about $2.80 a share.