From the AP via BusinessWeek:
Rhode Island's state treasurer has asked federal regulators to investigate whether Wal-Mart Stores Inc. violated securities laws by not disclosing that the son of the retailer's chief executive works for a company that does business with Wal-Mart.Wal-Mart said there is no requirement under the law for a disclosure and no conflict of interest. Mona Williams, Wal-Mart's vice president of corporate communications, said the question is a "non-issue."
In a letter made public Thursday, Rhode Island General Treasurer Frank T. Caprio asked the U.S. Securities and Exchange Commission to investigate Wal-Mart. Rhode Island's state employee pension fund has substantial holdings in Wal-Mart shares through index funds that group large corporations, he said.
Caprio said Eric S. Scott, son of Wal-Mart Chief Executive Lee Scott, works for Jacobs Trading Co., which buys unsold furniture from big retailers like Wal-Mart and resells it to smaller discount stores. Caprio said Eric Scott "staffs" the Jacobs Trading office in Bentonville, Ark., where Wal-Mart is based.
Caprio argued that SEC rules require publicly traded companies to tell investors if an immediate family member of an executive has a "material interest" in another business's dealings with that company.
Wal-Mart has not made that disclosure, Caprio alleged.
Williams said the term "material interest" is narrowly defined under the law and might apply, for example, if Eric Scott was an executive or officer of Jacobs Trading. "But he is not," she said."There are rules for what you should disclose and we follow all of them. This does not fall into any of those categories," Williams said.
Wal-Mart's attorneys have looked at the matter and found no basis for disclosure, she added.
Jacobs Trading told The Associated Press that Eric Scott works for the company but is not an employee.
"He does some work for us. I can't say more than that," said Dave Engel, chief financial officer of Plymouth, Minn.-based Jacobs Trading.
Williams said Eric Scott does not influence Jacobs Trading's business with Wal-Mart or deal with Wal-Mart for Jacobs.
"This particular question came up a couple of years ago and a thorough review by our audit department found there was absolutely no conflict with our ethics policy. This was also shared at that time with the chair of our board audit committee," Williams said.
According to Caprio's letter, Jacobs Trading has contracted as recently as last year to resell Wal-Mart's unsold furniture.
Engel declined to comment on Jacobs' business.
Williams confirmed that Jacobs is a Wal-Mart vendor but said the fact that the CEO's son works for a vendor is not a violation of the company's code of ethics.
The ethics code bars Wal-Mart employees from soliciting jobs for immediate family members from suppliers. It does not bar family members of Wal-Mart employees from working for vendors, Williams said.
"If you live in northwest Arkansas, almost everything you do touches Wal-Mart or its suppliers in some way. If they (family members) couldn't work for suppliers, there'd be no place they could work. The key is that they cannot be involved in the Wal-Mart business (of that supplier)," Williams said.
Posted by Laura - May 25, 2007 08:18 AM - In The News