July 23, 2019

By Christina D. Saler

Cohen Milstein is leading shareholder litigation against two iconic U.S. companies whose improper conduct has shaken the confidence of investors and caused significant economic harm.

In re Alphabet, Inc. Shareholder Derivative Litigation

The first case, a derivative lawsuit involving Google parent Alphabet  Inc., accuses the company’s board of breaching its fiduciary duty by failing to tell investors about market-moving news involving workplace sexual harassment and a massive  data breach.

Five months ago, Cohen Milstein filed one of several derivative complaints against certain Alphabet officers  and directors on behalf of investors including Northern California Pipe Trades Pension Plan and Teamsters Local 272 Labor Management Pension Fund (“Northern California Plaintiffs’ Group”). In May, Santa Clara County Superior Court Judge Brian C. Walsh appointed the Northern California Plaintiffs’ Group to serve as lead plaintiff and Cohen Milstein to serve as co-lead counsel in the demand futility cases under the consolidated caption of In re Alphabet, Inc. Shareholder Derivative Litigation. In appointing Cohen Milstein, Judge Walsh noted that the firm has “expertise in the legal issues surrounding sexual harassment and employment litigation.”

The litigation arises out of a “culture of concealment” fostered by defendants, who allegedly breached their fiduciary duties to Alphabet by participating in or acquiescing in the cover-up of  a longstanding pattern of sexual harassment and discrimination by high-powered male executives and their overall failure to respond to or address other forms of sex discrimination and sexual harassment at Alphabet.

The lawsuit also alleges that defendants failed to disclose a data privacy breach that exposed the personal data of a half a million users of Google+, a social networking website operated by the company, potentially in violation of a consent decree the company entered into with the Federal Trade Commission in 2011.

Cohen Milstein continues its investigation into these matters, which includes reviewing internal Alphabet documents that were produced pursuant to a statutory demand for books and records. On behalf of the Northern California Plaintiffs’ Group, the firm will file a consolidated amended complaint later this summer.

In re General Electric Securities Litigation

On June 21, Cohen Milstein, representing its client Teachers’ Retirement System of Oklahoma (“TRS”), filed an amended complaint against General Electric (“GE”) and certain of its officers for federal securities fraud. The filing came two months after U.S. District Court Judge Denise Cote of the Southern District of New York appointed TRS as Lead Plaintiff and Cohen Milstein as Lead Counsel.

TRS is pursuing the action on behalf of purchasers of GE securities between December 4, 2017 and December 6, 2018 (“Class Period”), who relied on GE’s false and misleading statements and omissions regarding two initiatives in GE’s power segment that were intended to revive GE’s flailing power business: the launch of GE’s flagship H-class gas turbine and the November 2015 acquisition of French power company Alstom S.A., for which GE recognized over $17 billion in goodwill. GE’s alleged deception about the H-class gas turbine and Alstom acquisition came to light at the end of the Class Period, causing GE’s stock price to crash, its credit rating to be cut to just above investment grade, and civil and criminal investigations by the U.S. Department of Justice.

In the complaint, Cohen Milstein lays out the case that GE defendants purposefully or recklessly failed to inform investors that a systemic oxidation problem plaguing its  H-class gas turbine engines since 2015 was causing them to fail at alarming rates and that the $13.5 billion Alstom acquisition had been doomed from the start.

As alleged, despite defendants telling investors that the H-class gas turbine was the “most efficient and technologically advanced” gas turbine in the market because it could operate for 25,000 hours, the H-class gas turbine was unable to hit its performance guarantees due to oxidation that was forming on the blades that caused them to break and damage other component parts. To prevent oxidation-related damage and manage the problem, power plants utilizing the H-class gas turbines would shut down the turbine after only 7,000 hours, drastically reducing power production and continuous operation. By the fall of 2018, field failures were becoming more prevalent and H-class gas turbine sales were cratering, but GE told investors it was due to “soft” market conditions. After months of negative reporting on the H-class gas turbine and reactive stock drops, the complaint alleges, the full extent of the oxidation problem was revealed on December 7, 2018 when Reuters published an exclusive report that 18 power plants utilizing GE H-class gas turbines “from Taiwan to France” were shut down for repairs and that GE was setting aside $480 million for repairs of its H-class and 9FB gas turbines.

The catastrophic failure of the H-class gas turbines and an utter lack of predicted “synergies” that the Alstom acquisition was supposed to create revealed that GE had materially inflated goodwill figures for the power segment on its balance sheet in each of its financial statements for the quarters ending on December 31, 2017, March 31, 2018 and June 30, 2018. By October 2018, GE had a change in leadership and Larry Culp, GE’s new Chief Executive Officer, quickly took one of the largest impairments of goodwill in corporate history—writing off $22 billion dollars of goodwill and cutting the dividend to a single penny. 

As the complaint details, these events and the actions taken by Defendants support the claims that Defendants violated Sections 10(b) and 20(a) of the Exchange Act of 1934. Defendants will seek to dismiss the complaint with a filing due on August 2, 2019.