Greif board members accused of insider trading
Whistleblower says shares sold before Journal Sentinel story
Late last year, executives at Greif Inc., a $3.3 billion industrial packaging company, learned that a safety consultant working for one of its subsidiaries was going public about unsafe conditions he saw in its chain of barrel reconditioning plants.
The whistleblower, Will Kramer, had more than firsthand accounts of the dangers; he had secretly made recordings of the company’s own safety officials expressing alarm at the conditions.
In December, Kramer revealed to company officials that he had shared the recordings with the Milwaukee Journal Sentinel. A reporter soon called Greif with questions about its operations, including ones in Milwaukee.
A couple weeks later, two members of Greif’s board did something they had not done since 2014: They sold shares of stock in the company.
Board chairman and former CEO Michael Gasser sold 20,000 shares, or 10% of his holdings, for just over $1 million, U.S. Securities and Exchange Commission records show. Board member Daniel Gunsett sold 3,800 shares — 15% of his holdings for $206,000.
The Journal Sentinel investigation, published in February, uncovered a host of problems that endangered workers and residents living near the facilities, which are operated by Container Life Cycle Management (CLCM), a joint venture majority owned by Greif.
Following publication, federal and state regulators launched a broad investigation into safety at the plants. The probe has now expanded to 13 facilities in nine states.
Kramer, the whistleblower, has filed a complaint with the SEC that accuses Gasser and Gunsett of insider trading, saying the pair sold the shares based on inside information that the Journal Sentinel investigation was coming and concern it could affect the company’s share price.
Federal law prohibits company officials from making trades based on inside information that is “material” and not known to the public.
Kramer has also filed a complaint with the SEC, accusing Greif of misleading investors by failing to disclose the extent of the company’s environmental risks.
U.S. Sen. Tammy Baldwin (D-Wis.) is calling on the SEC to investigate those complaints. Baldwin, along with U.S. Rep. Gwen Moore (D-Wis.) earlier demanded that the agency investigate Kramer’s complaint.
“Both of these allegations would be violations of federal securities laws and regulations and deserve your immediate attention,” Baldwin wrote in a letter sent late last month. “As the scope (of the investigation) has widened a picture has emerged of a company that views regulations as unnecessary limits on profits.”
A SEC spokesman declined to comment on the complaints or Baldwin’s letter.
Debbie Crow, a spokeswoman for Greif, said she could not comment on the SEC complaints as the company has not seen them.
“However, any suggestion that Greif did not provide fair and accurate financial statements as required by the SEC is absolutely untrue and absurd,” she said.
Not clear-cut case
Experts in securities law were divided on the strength of the insider trading case being alleged against the two Greif board members.
Bill Singer, a New York securities lawyer, said Kramer’s complaints might not rise to the level of the kind of information that the law deems “material,” but more like a person’s opinion.
“We have to be careful we’re not punishing people for using their brain,” he said. “There is a difference between knowing the FBI is outside knocking at your door and having the belief that if we don’t do something in the next week, the FBI could be knocking at our door.”
Jeffrey Cramer, a former federal prosecutor in New York and Chicago, said selling shares after learning that a news investigation was coming is trading on inside information. The information was not known by the public and it had the potential to affect the share price, he said.
But Cramer, who is now a managing director at Berkeley Research Group, said a prosecution appears unlikely to him. After the Journal Sentinel investigation was published, Greif’s share price remained at about $58. The stock dropped about 9% in early March but later rebounded.
The fact that the pair did not avoid a big loss might deter a prosecution, Cramer said.
“It’s not a defense, but it is definitely part of the calculation about whether to bring a case,” Cramer said, but added a case still may come in the right circumstances. “It could be a shot across the bow for a federal prosecutor.”
In 2015, Kramer was on a team from Iowa-based Safety Management Services doing safety audits at the CLCM plants.
They identified concerns at the CLCM plants in four states: Wisconsin facilities in St. Francis, Milwaukee and Oak Creek, as well as operations in Arkansas, Indiana and Tennessee.
The plants refurbish 55-gallon steel drums and large plastic chemical containers, cleaning them for reuse or recycling. The three Milwaukee-area plants operate as Mid-America Steel Drum. Greif entered the reconditioning business seven years ago.
During the visits, safety officials started expressing concerns and did not think they would be fixed. Kramer identified issues as well and began secretly recording the company officials.
In one of the conversations, safety manager Steele Johns says, “When you look at the hazard potential here, they could blow up and kill eight people in a heartbeat.”
Ultimately, Kramer turned over 16 hours of recordings to the Journal Sentinel. The tapes, along with extensive interviews and other documents, found danger for workers and people living nearby.
Workers at the plants said chemicals were routinely mixed together, triggering dangerous reactions that resulted in chemical and heat-related burns, injuries from exploding barrels, breathing difficulties and other health problems. Fires have erupted at the plants, fouling the air and posing a danger to nearby homes, the investigation found.
Residents living near one of the plants said they have endured strong odors and heavy, particle-filled smoke for years.
Broad investigation launched
Federal and state regulators launched investigations into the plants shortly after the Journal Sentinel series published.
During their inspection of the MidAmerica plants in the Milwaukee area, officials said they didn’t get to see regular activities as required by law. Instead, it appeared the company was staging operations to make it look like regulations were being followed.
They took the unusual step of asking a federal magistrate judge to approve search warrants authorizing surprise inspections to collect samples. In documents, officials noted that two U.S. Environmental Protection Agency investigators became ill while interviewing people living around the St. Francis plant.
The Wisconsin Department of Natural Resources found 19 environmental violations at the plants. The U.S. Department of Transportation found 16 violations and has expanded its investigation to 13 plants in nine states.
The Occupational Safety and Health Administration found 15 violations at the Milwaukee facility and issued a $108,000 fine. OSHA and EPA continue to investigate but have not reported findings.
Company mum on probe
Greif has disclosed little in its SEC filings about the investigations.
In March, the company filed with the SEC a press release issued in the wake of the Journal Sentinel investigation. It said the company is committed to safety and protecting the environment and had made improvements at its plants.
Several experts said they would have expected Greif to report the government enforcement, if for no other reason than to cover itself against shareholder lawsuits.
One former SEC lawyer who asked not to be named said the violations are significant. “I would want to know if I was a shareholder,” the lawyer said.
But Cramer, the former prosecutor, said the press release was enough. The company is not required to report each development from regulators, he said.
Crow, the Greif spokeswoman, said the company believes its disclosures “fully comply with the disclosure requirements of the SEC.”
“Our advisers, who are aware of the facts regarding these facilities and understand the company’s overall financial condition and performance, have concurred with our conclusions,” she said.