Boeing sued by investors over 737 Max. College Retirement Equities, et. al. v. Boeing

On October 29, 2018, the world shook for Boeing. The aviation giant’s 737 Max, one of its new state-of-the-art mega plane crashed into the Java Sea 13 minutes after taking off from Indonesia, all 189 people on board the flight died. 

While a fatal one off crash is always cause for concern, determining the cause is much easier said than done. That was until March 10, 2019, when a flight from Ethiopian Airlines crashed 6 minutes after takeoff, killing all 157 people on board. After the March 2019 crash until 2020, all Boeing 737 Max planes were grounded in America and elsewhere. 

Early this morning, a Complaint was filed in the North District of Illinois against Boeing, as well as its current and former chief executive, for providing false and misleading statements to the SEC pertaining to its compliance with FAA regulations. Plaintiffs in the suit include numerous investment funds, which allege that these materially false statements resulted in “significant losses” as the stock price dramatically as a result of the 737 Max issues. 

The 166 page Complaint goes into extensive detail about a wide variety of factors, including Boeing’s long-standing history of and perception of top-tier safety, Boeing’s gradual release of information publicity regarding issues, and Congressional investigations into Boeing. Plaintiffs’ section on Boeing’s false and misleading statements span from page 92 through 135 of the Complaint and included a fact-intensive study of disclosures, as well as other materials released to the public. 

An interesting additional layer to the claims is that Boeing does not just face liability for its alleged knowledge of FAA compliance. The extensive Complaint includes facts such as when senior executives publicly made claims that the company was ramping up production of the 737 Max, based upon continued demand, even during the height of public controversy. This turned out to be false, yet there are about a dozen instances where the claim was repeated by executives. If false, these issues surely may amount to material misrepresentations, the numerous funds who claim to have been damages very likely may have legitimate beef with Boeing over its messaging of handling of so many aspects of this issue. 

Beyond public statements made to ease shareholder concern, the Complaint also includes numerous alleged mislreading statements in boilerplate dislcosures. For example, there are certifications in which Boeing that's its internal disclosures and procedures were effective. While a different issue in type than the public statements about ramping up production, Plaintiffs allege that this too, amounts to a false and misleading misstatement. 

Despite the extensive fact-analysis, the specific causes of action are far less numerous, there are just two. The First Cause of Action is based upon a theory of "Violations of Section 10(b) of the Exchange Act and Rule 10b-5 Against All Defendants." The Second Cause of Action is for "Violations of Section 20(a) of the Exchange Act Against Defendants Muhlenberg and Smith. 

The elements, as outlined in the Complaint, for the first cause of action is as follows: Use interstate commerce in the United States to make the materially false and material misstatements to: 1.) Deceive the investing public; 2.) Make untrue statements of material fact and/or omit to state material facts to make the statements not misleading; and 3.) Engaged in acts, practices, and course of business that operated on fraud and deceit. 

The second cause of action requires that: Muilenberg and Smith were controlling persons of Boeing; they had substantial knowledge and/or participation for Boeing's operations and/or knowledge or reckless disregarding of materially false or misleading statements which were both provided for in SEC disclosures and made publicly available for investors; and that they culpably participated in the actions involved with the first cause of action. 

If it turns out to be true that even a small fraction of the alleged false or misleading statements, do turn out to be false and misleading, and turn out to be material, Boeing may be in a world of hurt in terms of liability. Plaintiffs’ prayer for relief requests compensatory damages, punitive damages, and awarding of attorney’s fees and costs.

Read the entire Complaint here.  

Jake A. Leahy