Tuesday, May 13, 2014

Class action suit targets KCS

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Kansas City Southern appears to have become the target of shareholder class action, including from a law firm claiming the Class I railroad "and certain of its executive officers made a series of false and misleading statements in violation of the Securities Exchange Act of 1934," pertaining to the company's Mexican operations.

Law firm Kessler Topaz Meltzer & Check, LLP announced the suit on May 10, 2014. The firm had not posted a copy of the complaint on its website as of Tuesday, May 13, 2014.

Railway Age on May 13 initially reported the prospect of several suits being filed. In response, KCS on Wednesday, May 14, 2014, said in a statement, "Only one putative securities class action lawsuit has been filed and it was not filed by Kessler Topaz. As is often the case after a putative securities class action is filed, multiple plaintiffs’ firms will issue notices of the lawsuit in an attempt to find a plaintiff on whose behalf it can then participate in the litigation.  Although it has issued its notice to the media, notably Kessler Topaz has not filed a complaint or appeared in the litigation."

 "Instead, the Kessler Topaz press release simply attempted to describe the allegations made in what remains the only filed complaint against KCS.  That lawsuit has no merit and KCS will vigorously defend itself against the allegations in the lawsuit," KCS said. It did not identify the law firm responsible for the class action lawsuit.     

Other law firms have threatened action against KCS during the past month, including a May 6 filing by New York-based Levi & Korsinsky in the United States District Court for the Western District of Missouri, "on behalf of investors who purchased Kansas City Southern ("KCS" or the "Company") common stock between October 18, 2013 and February 18, 2014." Another, filed by New York-based Gainey McKenna & Egleston, also was filed in the U.S. States District Court for the Western District of Missouri, on April 15.

KCS filed its fourth-quarter 2013 financial results on Jan. 24, 2014, which the Kessler Topaz suit notes "missed analyst expectations, and provided an earnings growth outlook for fiscal 2014 that was also below expectations. On this news, shares of the company's stock declined $17.79 per share, or over 15%, to close on January 24, 2014 at $99.49 per share."

On Feb. 18, the complaint continues, "the market discovered that the lower house of the Mexican legislature had approved a new bill to increase rail competition in Mexico by giving third-party companies access to KCS's exclusive freight and passenger rail networks"—or, in other words, open access. "On this news, shares of the Company's stock declined an additional $4.29 per share, or almost 4.5%, to close on February 18, 2014 at $91.67 per share."

According to Radnor, Pa.-based Kessler Topaz, that means "KCS and its executive officers lacked a reasonable basis for making statements during the Class Period regarding the company's business, operations, and earnings." The law firm goes on to list six examples of flawed rationale executed by the company.