Whole Foods’ misleading product labeling drew the ire of the New York City Department of Consumer Affairs and illuminated a scandal that “irreparably damaged” the company’s image, according to a shareholder’s claim in court.
Bryan O’Malley, a Whole Foods shareholder, sued the company’s top executives for breach of fiduciary duty and unjust enrichment pertaining to the grocer’s deceptive labeling of pre-packaged food items. O’Malley, in his suit, claims that the debacle has ruined public confidence in the company.
“For at least the foreseeable future, Whole Foods will suffer from the ‘liar’s discount,’ a term applied to the stocks of companies who have been implicated in illegal behavior and have misled the investing public,” the complaint states.
The scandal came to light when the New York Department of Consumer Affairs issued a press release regarding its investigation of the grocer. The department alleged that a set of food packages that it had tested from the grocer’s New York City stores displayed incorrect weights, misleading consumers.
For example, because of the erroneous weight labels, customers who purchased Whole Foods chicken tender packs at $9.99-a-pound were being overcharged more than $4 per package on average, the department found. Similarly, customers who purchased a $20 vegetable platter from Whole Foods were being overcharged $2.50, the department said.
According to O’Malley’s complaint, the price of Whole Foods stock plummeted 11 percent in the following trading session. The share price has tumbled 44 percent from its high during the relevant period, the pleading states.
O’Malley is seeking restitution and disgorgement of executive compensation from Whole Foods co-CEOs John Mackey and Walter Robb, as well as boardmembers John Elstrott, Gabrielle Greene-Sulzberger, Shahid Hassan, Stephanie Kugelman, Jonathan Seiffer, Morris Siegel, Jonathan Sokoloff, Ralph Sorenson and William Tindell.
O’Malley also wants a court order directing Whole Foods to take “all necessary actions to reform and improve its corporate governance and internal procedures to comply with applicable laws, and to protect Whole Foods and its shareholders from a repeat of the damaging events described herein,” the complaint states.
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