U.S. District Judge Donetta Ambrose
PITTSBURGH – Management at Alcoa World Alumina LLC, a majority-owned and controlled global alumina sales
company of Alcoa Inc., recently reached a settlement deal in a shareholder derivative lawsuit that alleged it breached its fiduciary obligations by exposing the company to a federal investigation and millions of dollars in potential liabilities.
The settlement reached with plaintiff Catherine Rubery, who sued on behalf of the company and its shareholders, includes compliance reforms and $3.75 million in attorneys fees.
The stockholders who own more than 1.18 billion shares in the publicly traded company had until Jan. 6 to file any objections to the settlement.
With no response from traders, federal Judge Donetta Ambrose accepted the agreement and closed the case with prejudice.
Rubery filed the original action in 2012 in response to a federal investigation that had been launched against Alcoa with accusations that the company had violated sections of the Foreign Corrupt Practices Act (FCPA) and Racketeer Influenced and Corrupt Organizations Act (RICO) by using illegal business practices to profit from a contractual relationship with Alba, a holding company for the government of Bahrain.
When news of an active federal investigation made headlines in May 2008, the company saw its stock price drop significantly, from $40.59 on May 30 to $8.44 in November. The rate has hovered between $5.73 and $16.03 since then.
Executives with the company agreed last January to plead guilty and pay $223 million in criminal fines and forfeiture to resolve charges that it paid millions of dollars in bribes through an international middleman in London to officials of the Kingdom of Bahrain, in violation of the FCPA.
The alleged middleman, Victor Dahdaleh, was found not guilty for his actions after the case against him fell apart in December 2013 when witnesses changed their stories or refused to testify, according to media reports.
Alcoa World Alumina pleaded guilty in the Western District of Pennsylvania to one count of violating the anti-bribery provisions of the FCPA in connection with a 2004 corrupt transaction and agreed to pay a criminal fine of $209 million and forfeit $14 million.
In a parallel action, Alcoa settled with the U.S. Securities and Exchange Commission (SEC) and paid an additional $161 million in disgorgement, bringing the total amount of U.S. criminal and regulatory penalties to be paid by Alcoa and Alcoa World Alumina to $384 million.
According to the court filings, Alcoa of Australia, another Alcoa-controlled entity, originally secured a long-term alumina supply agreement with Aluminium Bahrain B.S.C. (Alba), an aluminium smelter controlled by the government of Bahrain.
At the request of certain members of Bahrain’s Royal Family who controlled the tender process, Alcoa of Australia inserted Dahdaleh, who has close ties to certain royal family members as a sham sales agent and agreed to pay him a corrupt commission intended to conceal bribe payments, according to court papers.
Over time, Alcoa of Australia expanded the relationship with Dahdaleh to begin invoicing increasingly larger volumes of alumina sales through his shell companies, which permitted the consultant to make larger bribe payments to certain government officials, it was alleged.
In 2004, Alcoa World Alumina secured a long-term alumina supply agreement with Alba by agreeing to sell more than 1.5 million metric tons of alumina to Alba through offshore shell companies owned by the consultant.
The sham distributorship permitted the mark-up for the price of alumina by approximately $188 million from 2005 to 2009, the duration of the corrupt supply agreement, it was alleged.
According to court documents, the consultant used the mark-up to pay tens of millions in corrupt kickbacks to Bahraini government officials, including senior members of Bahrain’s Royal Family.
To conceal the illicit payments, the parties used various offshore bank accounts, including accounts held under aliases, at several major financial institutions around the world, including in Guernsey, Luxembourg, Liechtenstein and Switzerland, it was alleged.