<p>On Thursday July 17th, 2008 a shareholder of wholesale club company Costco Wholesale Corp. (NASDAQ: COST) has filed a lawsuit in King County Superior Court against former and current officers and directors claiming they breached their fiduciary duties, wasted corporate assests and unjust enriched themselves that have cuased substaintial losses to Costco Wholesale Corp. and other damages, such as to its reputation and goodwill.</p> <p> </p>
<p>According to the complaint the defendants were involved in a scheme that goes back to 1997 to illegally backdate stock options. The shareholder accuses Costco Wholesale Corp. insiders of illegally backdating stock options to “secretly maximize” personal profits.<br /> The lawsuit accuses using a statistical analysis to provide evidence that the odds of picking the lowest price of a particular month for an option award are one in 694.44 and that “several option grants were consistently dated at the monthly lows.” The plaintiff argues this “makes it highly unlikely that the misdated option grants were unintentional”.<br /> According to the complaint on March 16th, 2007, the company announced that it was subject to a grand jury investigation by the United States Attorney’s Office in the Western District of Washington and the investigation remained ongoing. The lawsuit alleges that “Costco’s business reputation has been severely damaged by defendants’ selfish actions, which portray a company compromised by a systemic lack of managerial integrity”. The plaintiff seeks among other things, damages and corporate governance reforms, and it proposes removing senior managers and board members involved.<br /> Reportedly Issaquah-based Costco Wholesale Corp. representatives declined to comment, saying they do not discuss pending litigation. Chief Executive Jim Sinegal said in 2006: “I take full responsibility for the fact that the administration of our stock option program did not live up to the high standards we follow in other aspects of our business,” and he believed “that the steps we have taken should put this issue behind us both from a financial statement and a controls standpoint.” Reportedly on March 26, 2007, Chief Executive Jim Sinegal voluntarily paid $200,000 to Costco, “to avoid any question about whether he personally benefited from the original measurement date”.</p>