Two years ago I wrote that the real victims in the Boeing 737 MAX crashes weren’t the passengers or crew, they were the investors. Not really, but that seemed to be what was going to happen in the courts with the strongest legal claims and greatest compensation coming from shareholder lawsuits for securities fraud.
- Boeing made false claims about safety
- Investors were misled
- And they lost money when the stock fell
A class action has now been certified. Seeks v. The Boeing Company, No. 1:19-cv-02394 (N.D. Ill.) was filed on April 9, 2019. It became the main consolidated 737 MAX securities case (In re The Boeing Company Aircraft Securities Litigation). Mississippi’s public employees retirement system was appointed lead plaintiff, and the consolidated complaint was filed on February 14, 2020.
The theory is Boeing allegedly misled the market about the 737 MAX’s safety, pilot procedures and training, dealings with the FAA, and return-to-service timeline. This allegedly kept Boeing’s stock price artificially inflated until the truth came out. This is consistent with the Justice Department’s claim that Boeing employees deceived the FAA about MCAS and pilot-training.
- Boeing knew after Lion Air that MCAS was a serious problem.
- Boeing also knew it had previously minimized or concealed MCAS’s scope and training implications to avoid simulator training requirements and preserve the MAX’s sales pitch.
- Instead of telling investors the plane had a serious certification and training problem, Boeing publicly said the MAX was safe, existing pilot procedures were adequate, the FAA process had no real problem, and recertification was on track.
- The market price stayed too high because of those statements.
- Ultimately as these claims proved wrong, investors lost money.
Statements like “safety is a core value” and “we’re confident” aren’t really actionable. They’re puffery. And even if the FAA was misled, some certification-side FAA officials knew more, so their claims were technically true or at least not totally false. Proving that Boeing engineers misled regulators is easierto prove than that their CEO made investor-facing statements with fraudulent intent.
Furthermore, the stock fell because two planes crashed, fleets were grounded, production got disrupted, regulators worldwide reacted, and the business deteriorated. That’s different than the stock dropping because the market learned Boeing wasn’t telling the truth about how bad the MAX situation was. But since the case is still progressing after Boeing’s attempt to knock it out, they probably settle is my guess.
More broadly, though, it’s at least a littlke odd that “the victims” here are shareholders rather than passengers and their families. And are shareholders even the ones made better off by the suit? Lawyers get fees, but when Boeing pays $1, the firm’s value falls $1 (net of insurance and tax effects). Shareholders are paying for a transfer to shreholders. That’s somewhat circular.
Not literally because these are different investors! The lawsuit covers people who allegedly bought at fraud-inflated prices and may have sold long ago. The cost is borne by whoever owns the company today. Those overlap but they aren’t the same. Plus, not everyone getting paid is actually an owner since the suit covers call-option buyers and put writers in addition to shareholders.
The real victims were the passengers. The lawsuit’s claimed victims are market participants who say they overpaid because Boeing lied. And any payouts from the suit are partly circular, making the company’s shareholders pay shareholders for misconduct.
Stock prices indicate value not gain or loss. You must trade the stock to realize one or the other. If someone buys high and sells low, that’s their loss. I did quite well with Boeing by buying low and selling high, so although there may in fact be misleading or illegal comments presented by senior management, it’s what YOU choose to do with that information that matters most in the balance sheet!