Chipotle Shareholders Sue Company, Allege Recklessness And Insider Trading

Image courtesy of Mike Mozart

Did the executives and the board of fast-casual Mexican chain Chipotle enrich themselves by inflating the company’s stock price, overpay themselves with shares of that over-valued stock, and let the chain’s potential food-safety problems slide? That’s what some shareholders claim in a lawsuit, saying that the company also misled its investors about food-safety practices that would eventually contribute to multiple outbreaks.

The shareholders are suing on behalf of the company in what’s called a shareholder derivative suit: that’s to say, they’re claiming that the board and executives acted for their own good, and not that of Chipotle. The most serious allegation is that co-CEO Marty Moran sold $107.7 million worth of company stock at the inflated price, based on inside information that the price would soon fall.

The lawsuit also alleges that the company’s founder and co-CEO, Steve Ells, sold shares worth $78.3 million in increments during calendar year 2015, ending in July. The first in a series of foodborne illness incidents that would continue into January 2016 happened in California in August of 2015.

Then there’s the allegation that executives knew that the company’s food-safety standards were poor, but did nothing about it to keep the stock price high. “Beginning on February 4, 2015 and continuing through the date of the filing of this Complaint,” the investors’ initial complaint says, “the investing public was under a false impression of the Company’s commitment to and control of food safety at Chipotle restaurants, compliance with [health] authority regulations.”

This is not to be confused with a previous lawsuit filed by shareholders, which makes similar allegations about the company’s food-safety practices.

Shareholders Sue Chipotle Executives Over Lavish Compensation, Mismanagement [Colorado Public Radio]

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