Chemours Co.’s directors were accused in a lawsuit of duping shareholders about its financial health and the extent of its legal liability at the time it was spun off from a predecessor of DuPont de Nemours Inc.
When the former E.I. DuPont & Co. officials spun Chemours off in 2015, they saddled the ex-unit with more than $2.5 billion liability over environmental harm and health risks from a class of chemicals known as PFAS, an amount that left the firm insolvent at its inception, Robert Pinto, a Chemours investor, said in a Delaware Chancery Court suit unsealed Thursday.
Chemours directors covered up the company’s financial woes over a four-year period by approving dividends and making stock repurchases as part of an effort to persuade the market that the firm reshaped itself into a viable entity, Pinto said.
The directors didn’t acknowledge until May 2019 the company hadn’t “transformed itself from being on the brink of insolvency,” and its liabilities were crushing, according to the 111-page complaint. “Any stockholder with candid reporting from the board would have rushed to sell his or her shares rather than continue sitting on a financial time bomb.”
A Chemours spokesman, Thom Sueta, said in a statement the lawsuit was “without merit.”
Chemours is being targeted after agreeing in January to a $4 billion settlement with DuPont and Corteva Inc. to cover liabilities tied to PFAS, a chemical used in making DuPont products such as Teflon. Under the agreement, DuPont and Corteva will split “certain qualified expenses” 50-50 with Chemours, the companies said. They specified expenses incurred over 20 years or totaling $4 billion at most.
PFAS are widespread in the environment and human blood after decades of use to make things slippery, nonstick or waterproof. Their bonds are so stable they’re known as “forever chemicals.” Employed to make items like carpets, fabrics and firefighting foams, they’ve been found at high levels in some areas, particularly around airports and U.S. Air Force bases, prompting drinking-water concerns.
Studies have linked them to diseases including cancer, liver and kidney problems.
Chemours sued another DuPont predecessor in 2019, arguing it hadn’t signed up to cover “unlimited” liabilities. A judge ruled last year that Chemours must arbitrate the dispute and the companies later settled. As part of that case, Chemours officials argued DuPont’s decision to saddle the spin off with more than $2.5 billion in environmental liabilities crippled it from the start.
Evidence generated by the Chemours-DuPont litigation shows Chemours’ directors “necessarily knew about the scope of indemnification (and resulting insolvency) that DuPont had consistently asserted it imposed on Chemours,” Pinto said in the suit.
“As such, it was bad faith, and at least negligent, for the board to have approved nearly $1.74 billion in repurchases and dividends since the spinoff” while withholding the truth about the company’s financial health from investors, according to the suit.
Sueta, the Chemours spokesman, said the new lawsuit “misreads and misinterprets” the 2019 case.
The case is Pinto v. Vergnano, 2021-0152, Delaware Chancery Court (Wilmington).
Topics Lawsuits
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