Lumen Duped Investors Over Its Ownership of Lead Cables, Says Shareholder Suit

Nearly two dozen current and former Lumen Technologies executives and board members breached their fiduciary duties to shareholders and the company by covering up Lumen's ownership of toxic lead cables, alleged a shareholder derivative complaint Tuesday (docket 3:24-cv-00798) in U.S. District Court for Western Louisiana.

Defendants include CEO Kate Johnson; former CEOs Jeffrey Storey and Glen Post, Chief Financial Officer Chris Stansbury, former Controller Eric Mortensen, and current and former directors Quincy Allen, Martha Bejar, Virginia Boulet, Peter Brown, Kevin Chilton, Terry Clontz, Indraneel Dev, Jim Fowler, Michael Glenn, Bruce Hanks, Hal Jones, Diankha Linear, Laurie Siegel, Mary Landrieu, Harvey Perry and Michael Roberts.

In SEC filings and other disclosures, Lumen “repeatedly touted its miles of ‘copper’ cable network and its commitment to environmental, social and governance (ESG),” said shareholder Michael Brown's complaint. During all relevant times, Lumen touted its commitment to the environment and workplace safety, it said.

Unbeknownst to investors, Lumen has been operating “at least 35,000 miles of cable networks” using lead-encased wires “that are toxic to the environment,” alleged the complaint. The lead-sheathed cables are buried underground or hung above ground and over time "have deteriorated, causing water, soil and air pollution by the release of toxins into the environment,” it said.

The defendant concealed the use of the lead casings and the “ensuing seepage of lead toxins, which present a grave danger to Lumen’s workers as well as surrounding communities and the public at large,” the complaint alleged. Though Lumen was aware of the state of the cables, “it continued to mislead investors by touting its commitment to the environment and safety and purporting to adhere to highest ESG standards in its various disclosures,” it said.

The stock market learned of Lumen’s nondisclosures about the cables via a series of Wall Street Journal articles last year that revealed telecom companies have been operating “decades-old lead sheathed cables" that have eroded over time, causing lead to seep into water and soil," said the complaint. The result has been contamination of soil and groundwater that poses a "significant health and environmental hazard,” said the complaint. The articles detailed the impact of the lead-clad copper wires on health, including that of workers exposed over time, plus the “significant efforts and costs (in billions of dollars) it would require to remediate, locate and remove the lead-encased cables," the complaint said.

Investors learned of Lumen’s widespread use of lead cables, its dangerous impact on human health and the environment, and the threat of litigation through the WSJ's coverage, with the stock falling “significantly” each time a WSJ lead cables article appeared, alleged the complaint. After publication of the first WSJ article on July 9, 2023, the stock price fell nearly 6%, to close at $2.06 per share the next day, it said. On July 11, 2023, the WSJ published another article, which caused Lumen’s stock price to fall 1.4%, to close at $2.04 on July 12, it said. News outlets attributed the stock drop to the previously undisclosed lead cable news, it said.

On an Aug. 1, 2023, earnings call, defendant Stansbury revealed for the first time that 5% of Lumen’s 700,000-mile copper network contains lead, the complaint said. The company had been on notice about the cables since 2013, when a technician experienced medical problems that were determined to have resulted from lead exposure, it said. That led to a five-month investigation by the Minnesota Occupational Safety and Health Administration (OSHA), which slapped Lumen with nine citations. OSHA and Lumen entered into a settlement under which the defendant agreed to a lead abatement program, said the complaint.

The newspaper articles published years later showed the Lumen board “did not do enough to fully remedy the issue of Lumen’s use of lead encased cables and did not ensure that Lumen fulfilled the requirements of the lead abatement program imposed by Minnesota OSHA,” said the complaint. The defendants' “continuous inaction” exposed the company to “regulatory fines, probes by state and federal regulators, and significant liabilities, as well as large costs in connection with responding to and defending private lawsuits filed against it,” it alleged.

Brown asserts claims of breach of fiduciary duties, unjust enrichment, gross mismanagement, waste of corporate assets and Securities Exchange Act violations. He seeks an order requesting the individual defendants to account to Lumen for all damages sustained by their wrongdoing; an order directing the company to take all necessary actions to change its corporate governance and internal procedures to comply with applicable laws and protect against a recurrence of the events described; and attorneys’ fees and costs. Lumen didn't comment Wednesday.