Mechel OAO

Class Period: Oct 3, 2007 to Jul 25, 2008

Lead Plaintiff Deadline: Jun 8, 2009 + Deadline passed

Summary of Case:

A securities class action has been filed against Mechel OAO (Ticker: MTL) and certain of its officers and directors ("Mechel" "defendants" or the "Company"), on behalf of all securities purchasers from October 3, 2007 through July 25, 2008 (Class Period) in the United States District Court for the Southern District of New York.

The complaint alleges that Mechel violated the Securities Exchange Act of 1934. Mechel is a vertically integrated mining and metals company. More specifically, the Complaint alleges that the Company failed to disclose and misrepresented the following material adverse facts which were known to defendants or recklessly disregarded by them: (1) that the Company had engaged in anticompetitive conduct by employing a discriminatory pricing policy for raw material sales between domestic and foreign steel firms; (2) that the Company had engaged in monopolistic conduct by fixing and maintaining coking coal prices at artificially high levels and unreasonably refusing contracts; (3) that as the Company's anticompetitive and monopolistic practices were discovered, the Company would incur a significant level of fines, and would be forced to enter into long term coking coal supply contracts below market prices; (4) that a portion of the Company's revenue was derived from anticompetitive and monopolistic conduct, and when such behavior was discovered, the Company's revenue would significantly decline in future periods; (5) that the Company had used a sophisticated sales and distribution scheme involving wholly owned offshore trading companies to evade paying taxes on a portion of its revenue; (6) that the Company lacked adequate internal and financial controls; (7) that the Company's financial statements were not prepared in accordance with United States Generally Accepted Accounting Principles ("U.S. GAAP"); and (8) that, as a result of the foregoing, the Company's financial statements were materially false and misleading at all relevant times.  

On July 24, 2008, Russian Prime Minister Vladimir Putin called for antitrust authorities to investigate Mechel's raw material pricing policy, and in particular its coking coal sales, as the Company had sold raw materials to customers in Russia at twice that it had sold raw materials to non-Russian customers. Prime Minister Putin also recommended that Mechel's profit margins needed to be examined by the antitrust authorities, and "if need be," by the special committee of the General Prosecutor. On this news, the Company's shares fell $13.77 per share, or over 37.6 percent, to close on July 24, 2008 at $22.84 per share, on unusually heavy trading volume. The following day, Mechel announced that it was "ready for cooperation with federal authorities." Significantly, Mechel did not protest Prime Minister Putin's allegations about the Company's pricing policies when it announced its intention to cooperate in the investigation.  

Then on July 28, 2008, Prime Minister Putin revealed that Mechel had also used offshore traders to minimize tax payments. According to the Prime Minister, Mechel sold coal to a Swiss trading unit at a quarter of domestic prices, contributing to a coal shortage and higher steel prices in Russia. The Associated Press quoted Prime Minister Putin as stating that "it's a reduction of the tax base within the country, it's tax evasion. It's creating a shortage on the domestic market and leads to an increase in the price of metallurgical products." The head of the Federal Antimonopoly Service ("FAS") also stated that "the Company must be punished," as the FAS had opened a case following an investigation into whether Mechel had fixed coking coal prices, and "had enough evidence" to fine Mechel for its violations. On this news, the Company's shares fell $6.70 per share, or over 25.5 percent, to close on July 28, 2008 at $19.50 per share, on unusually heavy trading volume.  

On August 14, 2008, Mechel was found guilty by the FAS of breaking competition laws and faced a stiff fine from regulators as a result of its conduct. The FAS stated that Mechel discriminated against Russian consumers, "unreasonably refused contracts,'' and maintained a monopoly in the coal market. Significantly, Bloomberg reported that the FAS started its investigation into Mechel after receiving complaints from numerous steelmakers about the Company.

On August 19, 2008, the Associated Press reported that the FAS had ordered Mechel to cut tariffs on its coking coal by 15 percent, to pay a fine of $32 million for price-fixing, and to cut prices on coking coal by 15 percent. Finally, on September 1, 2008, Reuters reported that Mechel was ordered by regulators to cut prices and sign long-term supply deals for coking coal with its main local clients. As a result of Mechel's conduct, the FAS required the Company to sign long-term deals with three major steel companies for 2009 - 2013, and to provide prices under those long term deals "at a discount to global coking coal prices."

If you purchased this company's shares during the Class Period and suffered a loss or for further information about the case, please review the links below.