Many of you may have read the recent series of Wall Street Journal articles raising the alarm about the sprawling U.S. network of lead telephone cables. The articles suggest not only that the lead cables represent a health hazard to workers and to nearby residents, but that the telephone companies (including AT&T) allegedly have known about these hazards but have failed to take corrective measures. The revelations in the Journal series have led to governmental investigations. And now a plaintiff shareholder has filed a securities class action lawsuit against AT&T alleging that the company misled investors about the allegedly known but undisclosed risks the companies faced as a result of the lead telephone cable hazards. This new event-driven lawsuit shows that dangers that unacknowledged environmental and health hazards may represent for reporting companies. A copy of the July 27, 2023, complaint can be found here.
On July 9, 2023, the Wall Street Journal published the first in a series of articles about the continued existence of lead telephone cables throughout the U.S. The article, which is entitled “America is Wrapped in Miles of Toxic Lead Cables,” opens by saying that AT&T, Verizon and other “telecom giants” have “left behind a sprawling network of cables covered in toxic lead that stretches across the U.S., under the water, in the soil and on poles overhead.” As the lead degrades, “it is ending up in places where Americans live, work and play.”
The article, and several successive articles the Journal subsequently published about the lead telephone cables, detailed the health hazards that the cables represent for the telephone companies’ workers and for residents who live nearby to the cables. In responses to the Journal’s inquiries, AT&T and other telecom companies, according to the Journal, “said they don’t believe cables in their ownership are a public health hazard or a major contributor to environmental lead, considering the existence of other sources of lead closer to people’s homes. They said they follow regulatory safety guidelines for workers dealing with lead.”
The lead cables are a legacy of the pre-break-up American Telephone & Telegraph company, which built out the network as telephone services were expanded nationally. The cables were left in place as newer technologies (such as fiber optic cables) replaced the older technologies. The initial Journal article quotes retired telecom executives as saying that the cables were left in place in the belief that leaving them was safter than trying to remove them. The Journal series includes reports of lead level testing the Journal conducted around the country showing high levels of lead in areas near the cables.
In a later article in the series entitled “What AT&T and Verizon Knew About the Toxic Lead Cables” (here), the Journal reported that “for decades, telecom companies have known that lead in their networks posed risks to their workers and could leach into the environment.” Yet, the article reports, “the companies haven’t meaningfully acted on potential health risks to the surrounding communities or made efforts to monitor the cables, according to historical data, documents and interviews with former executives, safety managers and workers who handled lead.” Among other things, the Journal detailed litigation AT&T has been involved in with respect to lead levels at Lake Tahoe.
On July 28, 2023, a plaintiff shareholder filed a securities class action lawsuit in the District of New Jersey against AT&T and certain of its directors and officers. The complaint purports to be filed on behalf of a class of investors who purchased the company’s securities between March 1, 2020, and July 26, 2023.
The factual allegations in the complaint basically consist of two sets of allegations. The first set consists of lengthy quotations in various AT&T filings and disclosure documents about the company’s environmental, safety, and health policies and practices. The second set of allegations consists of lengthy block quotations from the various articles in the Journal’s series about lead telephone cables. The complaint alleges that the company’s share price declined in response to the publication of the Journal articles.
The complaint alleges that the company’s various disclosures about its environmental, safety, and health policies and practices failed to disclose that: “(1) AT&T owns cables around the country that are highly toxic due to their being wrapped in lead, and which harm Company employees and non-employees alike; (2) it faces potentially significant litigation risk, regulatory risk, and reputational harm as a result of its ownership of these lead-covered cables and the health risks stemming from their presence around the United States; (3) it was warned about the damage and risks presented by these cables but did not disclose them as a potential threat to employee safety or to everyday people and communities; and (4) as a result, Defendants’ statements about its business, operations, and prospects, were materially false and misleading and/or lacked a reasonable basis at all relevant times.”
The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks to recover damages on behalf of the class.
This new lawsuit demonstrates how long-standing legacy environmental issues not only may represent a operating risk for companies, but also shows how these risks can translate into securities litigation. It is of course nothing new to observe that environmental concerns can translate into D&O claims. However, this case does highlight both how environmental risks can affect companies and how they can lead to securities litigation.
Not only is this case an example of how environmental issues can translate into securities claims, but it is also an example of event-driven litigation. Traditionally, class action securities lawsuits tended to be about accounting disclosures or financial representations. This case does not involve financial reporting issues as such. Rather, it is about the share price decline the company sustained after the Journal published its exposé series about the lead telephone cable network.
Once again, I am reminded how difficult it is for D&O underwriters to try to underwrite against the risk of an event-driven claim. The fact is that the usual underwriting tools are not particularly effective in trying to underwrite these risks of an event-driven claim. The only real way underwriters can protect themselves against these kinds of possibilities is through pricing – that is, through pricing sufficient to protect against unanticipated risks of event driven claims.
If the various allegations in the Journal articles are true, the practices of the telecom companies with respect to the lead telephone cables present significant health and safety risks for AT&T’s workers and for the communities in which the cables exist. Many people potentially have been and may continue to be harmed. There are many victims. There undoubtedly will be much litigation in the future over these issues. But this new securities complaint does seem to imply that the real victims here are the shareholders.