According to the complaint for this class action, United States Steel Corporation’s Carnegie Way, a “transformational process” named after founder Andrew Carnegie, was a sham that took cost-cutting to the point where it cost the company money. Hiding this got the company through a successful secondary public offering, but the complaint alleges that the company violated both the Securities Act of 1933 and the Securities Exchange Act of 1934.
The class for this action is all persons who acquired United States Steel Corporation securities (a) between January 27, 2016 and April 25, 2017, or (b) pursuant or traceable to the August 15, 2016 secondary public offering (SPO).
US Steel makes flat-rolled and tubular products in North America and Europe, with customers around the world. After some bad years, in 2014, CEO Mario Longhi launched the Carnegie Way program, which the company said would be “improving all our core business processes, including commercial, manufacturing, supply chain, procurement, innovation, and functional support.”
The program purportedly had three elements: (1) Employee Engagement, to get personnel interested in the program, (2) Reliability Centered Maintenance, to improve manufacturing operations and facilities, and (3) Operational Excellence, to improve processes in ways that could save the company money.
According to the complaint, however, the only element that was seriously implemented was cost-cutting, to the point where plant managers were required to “jury rig” machines to keep them working rather than buying parts and making real repairs. Also, the complaint says, massive layoffs left plants with inexperienced employees who did not know how to maintain equipment. The result was an increase in downtime, so that safety decreased and production fell by 20%.
Meanwhile, the complaint says, the company claimed its program was seeing results: “We continue to implement our reliability centered maintenance process across all of our facilities. We are starting to see the benefits as we have experienced fewer unplanned outages and lower maintenance costs…”
On August 15, 2016, the company held its secondary offering of 21.7 million shares, from which it raised $482 million.
Only on November 1, 2016 did the company admit to some “unplanned outages” that were negatively impacting its operations. However, it did not reveal the full extent of the problems.
Between November 2016 and February 2017, CEO Longhi and CFO David Burritt sold more than half of their shares of US Steel.
Steel markets improved in 2017, but on April 25, the company announced first-quarter results that included a “surprise” net loss of $180 million. At the news, the stock lost over 27% of its value, and analysts reacted negatively at the company’s inability to profit in good times.
For more information, see the 175-page amended complaint below, which quotes eleven confidential witnesses and provides supporting details and figures.