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KFC's China Supplier Leads To USA Lawsuits

February 25, 2013 | By Supply Chain Editor | Print Print | Email This Page Email This Page

Lawsuits have been filed against KFC's parent company Yum! Brands Inc. by multiple entities in the U.S. over alleged breaches of fiduciary duties, insider selling, misrepresentations, and lack of disclosure related to claims that certain KFC chicken suppliers in China had injected chickens with illegal chemicals.

The Shareholders Foundation Inc. announced last week that an investor in shares of Yum filed a lawsuit against certain directors and officers over alleged breaches of fiduciary duties and insider selling. The plaintiff alleges that as far back as 2009 Yum conducted internal food safety tests on chicken purchased from farmers for consumption in China and found excessive antibiotics, and that Yum allegedly knew that these antibiotics levels violated Chinese food health and safety standards. Yum pinpointed the farms from which these tainted chickens were purchased, but continued purchasing chickens from this supplier until at least August 2012, according to the lawsuit.

The plaintiff in this case claims that while outside shareholders were damaged, many of the defendants profited by selling between October 9, 2012, to February 4, 2013, over USD64 million of personally-held common stock.

In a seemingly separate action, the Law Offices of Todd M. Garber announced that a class action lawsuit has been filed in the United States District Court for the Central District of California on behalf of a class comprising all purchasers of the securities of Yum! Brands Inc. between October 9, 2012, and January 7, 2013, inclusive.

This second lawsuit alleges that throughout the period the defendants misrepresented or failed to disclose that defendants knew but concealed that the company's own food safety inspections had already discovered high levels of antibiotics and other illegal drugs or chemicals in chickens purchased from a Chinese supplier named Shandong Liuhe Group. Yum allegedly continued to buy products from Shandong Liuhe Group until as late as August 2012.

On January 7, 2013, in a filing with the SEC, the company lowered its China division's full-year 2012 guidance for same-store sales, due to publicity surrounding the Chinese government's review of Yum's poultry supply. As a result of these disclosures, on January 8, 2013 Yum shares dropped 5%, from USD67.89 per share to as low as USD64.40 per share.

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