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Massey CEO Don Blankenship, whose company was just fined more than $3 million
dollars for the biggest slurry spills in history along the Kentucky-West Virginia border,
is now the object of a class-action suit filed by Massey shareholders.
Massey was also ordered last week to pay $50 million from a lawsuit in which the
giant corporation was accused of bankrupting a smaller coal concern.
The company ignored warnings a few weeks ago after which a Logan County
impoundment broke loose causing extensive damage. The list of violations and
charges against the company is lengthy.
Blankenship has threatened to pull the company out of West Virginia, whose major
holdings are in the state.
The suit says Blankenship and the company's officers have failed to follow
environmental, labor and securities laws and accuses him and others of posting false
financial results and insider trading. The suit claims Blankenship earned $1 million
himself by an early sell-off of stock.
Blankenship reportedly makes between $10-$15 million annually as CEO.
INSIDER TRADING AT MASSEY IS ALLEGED - Company President Sold 100,000
Shares Two Months Before Price Collapse
By Ken Ward, Jr. Staff Writer
The Charleston Gazette
Tuesday August 6, 2002
In March 2001, Massey Energy Co.
President Don L. Blankenship sold more
than 100,000 shares of company stock.
At the time, Massey stock cost nearly $22 a
share. Blankenship sold about $2.4 million
worth.
Two months later, Massey reported a huge
drop in profits, geologic problems in one
underground mine, flooding in another mine
and a variety of other financial troubles.
By August 2001, the company's stock price
had plummeted by $10 per share. By
selling when he did, Blankenship saved
himself more than $1 million.
On Monday, lawyers for Massey
shareholders alleged that when he sold that
stock, Blankenship illegally traded on insider corporate
information.
The stock sale is among a long list of alleged wrongdoing outlined
in a 53-page complaint Monday morning in Boone Circuit Court.
The suit, filed on behalf of Massey shareholder Phillip R. Arlia,
was assigned to Judge E. Lee Schlaegel Jr.
Besides Blankenship,
10 other current or
former company
officers and Massey
Energy Co. itself
were named as
defendants.
The suit alleges that Massey officials have cost shareholders
millions of dollars by repeatedly violating environmental laws,
fighting to bust or block unionization of its mines, and using
insider corporate information to sell stocks before prices dropped.
Twice last year, the suit says, company management "caused
Massey to report false financial results and/or projections which
caused Massey's stock price to be artificially inflated."
"While Massey's stock price was artificially inflated, company
insiders, including CEO Blankenship, took advantage of this
adverse nonpublic information to obtain over $3 million in insider
trading proceeds," the suit says.
In January 2002, Massey stock was selling for about $22 per
share. Today, it sells for less than $7 per share â a loss of more
than $1.1 billion in value for shareholders, or about 68 percent of
total capitalization, the suit says.
Massey Energy spokeswoman Katharine Kenny said company
officials had not seen the suit and therefore would not comment.
The legal complaint against Massey is called a shareholder
derivative lawsuit. In such cases, shareholders in publicly owned
companies attempt to halt misconduct by corporate officers. The
name comes from the fact that the shareholders derive their right
to sue from management's failure to resolve the wrongdoing
themselves.
The suit was filed by the law firm Milberg Weiss, which has won
settlements or judgments of roughly $20 billion in cases against
companies including Apple Computer, Boeing, Chase Manhattan
Corp. and Aetna.
The suit against Massey asks that corporate officers make
restitution and that Blankenship be fired.
Massey is the fifth-largest coal producer in the United States, and
the largest in central Appalachia.
Until recently, Massey operated on a financial year that ended on
Oct. 31. Starting in 2002, the company announced, it would use a
financial year that ends on Dec. 31. The company said it would
report financial results for the last two months of 2001 as a "stub
period."
"This change was a manipulation designed to allow Massey to
record significant losses in a single, two-month stub period that
defendants hoped the market would not fully process and calculate
into Massey's regular annual results, treating them instead as a
one-time loss," the suit says.
On Nov. 29, 2001, Massey released fourth-quarter and financial
year 2001 results that indicated a loss of $1.1 million, compared to
a profit of $78.8 million in 1999.
During a conference call with analysts, investors and the media,
Blankenship "tried to ensure investors about upcoming demand
for Massey coal," the lawsuit states.
Twelve days later, on Dec. 10, Blankenship predicted that the
company would have a "really good year" in 2002, with earnings
of more than $400 million, the suit says.
"On these false statements, Massey's stock, which had dipped
down to the $16 [per share] range, began climbing again and
reached the $20 mark by late December 2001," the suit says.
After the markets closed on Jan. 7 of this year, Massey made "a
belated disclosure of its true financial condition," the lawsuit says.
The company announced that the losses for its "stub period" â
November and December 2001 â would be 350 percent to 600
percent greater than Massey had told analysts to expect.
During that period, Massey said, it would record a $7 million loss
from exposure to the Enron bankruptcy, $7 million for unpaid
workers' compensation premiums, and $2.5 million for a jury
verdict in favor of a former Massey employee-turned-safety
whistleblower.
"On this news, Massey's stock dropped and Massey's market
capitalization fell precipitously to $1.1 billion on Jan. 30, 32
percent less than it had been just 23 days earlier," the lawsuit
states.
At the same time, in 2001, Blankenship and three other Massey
executives "usurped adverse internal Massey data to dispose of
significant amounts of stock at suspicious times and in suspicious
amounts," the lawsuit alleges.
The other three executives named are Madeleine Curle, a vice
president of human resources; Jeffrey Jarosinski, vice president of
finance and chief financial officer; and Bennett Hatfield, former
executive vice president and chief operating officer.
The first of two stock sales took place in March 2001, before an
adverse financial report was published, the suit states. The second
sale was made just before the poor stub-period results were made
public, it says.
In the suit, lawyers detail Massey's nearly 20-year effort to block
unionization of its mines.
During a United Mine Workers strike in 1984-85, Blankenship
"ordered that the mines go back into operation, and stationed
hundreds of company guards around the mines, antagonizing
workers and leading to extreme amounts of violence, including
fatalities.
"Blankenship's guards purposely harassed and intimidated striking
workers, provoked violence and then filmed the ensuing reaction
to characterize the miners as violent."
The lawsuit says that Blankenship's continuing anti-union efforts
cause Massey to violate worker safety laws, causing miners to be
hurt or killed.
At the same time, the company admitted last year that Massey's
22 percent increase in cost of sales was caused by "the direct cost
of labor and the decreases in productivity resulting from a greater
percentage of inexperienced miners."
On Monday afternoon, UMW President Cecil Roberts praised the
lawsuit against Massey.
"These are issues we have been highlighting for years to citizens
and activists throughout Appalachia as part of the UMWA's
campaign to expose Massey Energy as a bad corporate neighbor,"
Roberts said. "The allegation of insider trading just adds to this
company's severely tarnished reputation."
As for environmental compliance, the lawsuit noted that in the last
12 months, the state Department of Environmental Protection has
"repeatedly cited Massey subsidiaries for blackwater spills,
improper maintenance of waste ponds, fish kills and other
problems."
"Despite having already caused Massey to pay millions in fines
and penalties, civil judgments and cleanup costs, defendants
continue to refuse to require Massey to comply with
environmental laws," the suit says.
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