Several law firms in recent weeks have been soliciting plaintiffs for class action suits against Compass Minerals International. Specifically, they are seeking investors who purchased Compass shares between Oct. 31, 2017, and Nov. 18, 2018.
The reason for the suits is explained by a Sept. 23 announcement by the US SEC, which said it settled charges against Compass for misleading investors about a technology upgrade that the company claimed would reduce costs at its Goderich salt mine in Ontario, but in reality, had increased costs, and for failing to properly assess whether to disclose the financial risks created by the company’s excessive discharge of mercury from former facilities near the Botafogo River in Pernambuco, Brazil. Compass was ordered to pay $12 million to settle the charges.
One class action suit has already been filed by Local 295 IBT Employer Group Welfare Fund against Compass, former CEO Francis Malecha, former CFO James Standen, and former Senior Vice President Anthony Sepich in the US District Court in Kansas. The plaintiff believes there are at least hundreds or thousands of members in the proposed class, with millions of shares of Compass stock publicly trading during the period on the New York Stock Exchange.
The suit said that on Oct. 23, 2018, Compass pre-announced third-quarter 2018 financial results that were significantly below expectations and lowered its outlook for the remainder of the year (GM Oct. 26, 2018, Nov. 2, 2018). After this announcement, Compass stock declined by more than 30% over the following two days. The suit said that before the market opened on Nov. 19, 2018, Compass announced the abrupt termination of Malecha.
“We believe this change speaks to the severity of the issues at Goderich,” a BMO Capital Markets analyst was quoted in the suit referring to Malecha’s departure. The suit said Compass shares lost another 8% over the next three days. At the time, Compass reported that Malecha and its Board of Directors had mutually agreed that Malecha would step down (GM Nov. 21, 2018).
The suit documents in detail Compass announcements between Oct. 31, 2017, and Nov. 18, 2018, in which the company lauded the financial benefits it would receive from the company’s new continuous mining and continuous haulage (CMCH) system at the mine. Compass had alleged that the CMCH would save the company approximately $30 million annually beginning in 2018.
Salt represented approximately 60% of the company’s consolidated revenues during the class period. The suit said that the fact that the defendants knew or recklessly disregarded that their statements were false was not known until the SEC’s Sept. 23 announcement.
Compass has not returned inquiries regarding the class action.