New York - The fat is in the fire, or so said the AFL-CIO as it asked the Securities and Exchange Commission to investigate pork and processed meats company Smithfield Foods for an alleged failure to disclose the reasons for two directors' resignations.
While the Food and Service Trades Department (FAST) of the AFL-CIO owns only 10 shares of Smithfield Foods, it was squealing mad that the directors resigned in May 1998 after selling the company $484.4 million in live hogs at a time when the price of hogs began to fall.
The two directors, Wendell Murphy and Gordon Maxwell could not be immediately reached for comment. Smithfield Foods declined to comment on the matter Thursday.
The FAST complaint focuses on whether the hog sales put the directors' own financial interests up against their responsibility to shareholders.
“In May 1998, the price of live hogs had begun to drop sharply. Subsequently, the price has dropped to its lowest point in 30 years,” FAST President Jeffrey Fiedler wrote in the Feb. 11 letter to the SEC. “The huge amount of business the two directors did with the company is clearly material and the real reasons for the resignations should have been disclosed to shareholders.”
The complaint from the AFL-CIO, the umbrella group for U.S. labor unions, also questions whether the two directors' resignations were made after a “disagreement” with the Smithfield Chairman Joseph Luter.
Such a disagreement could, under certain circumstances, trigger SEC rules that require the reasons for the resignations be disclosed to shareholders in an 8-K filing.
The SEC declined to comment on the matter. “The commission neither confirms nor denies the existence or nonexistence of an investigation,” agency spokesman Duncan King said.
The SEC in some cases requires companies to disclose why directors resigned. For instance, the director must have furnished the company with a letter describing the disagreement, and request the matter be disclosed.
FAST's Fiedler said in a telephone interview that he had asked Luter during a stockholder's meeting why the directors had resigned, and according to Fiedler, Luter had made reference to a “disagreement.”
“Based on further comments Mr. Luter made, we believe that the disagreement that then existed concerned the contractual price for live hogs,” Fiedler wrote.
Fiedler's letter said Murphy, Maxwell and two other directors sold nearly $1 billion in live hogs to Smithfield in 1998. “We don't know of a corporation in America that does anywhere this amount of business with its directors. This is another reason why full disclosure is so important,” he said.
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