Investor Class Action Against Alphabet, Execs Alleges ‘Culture of Concealment’ has Cost Stockholders Hundreds of Millions

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Two pension funds have filed a proposed class action lawsuit against Alphabet, Inc. and its board of directors over an alleged “culture of concealment” at Google’s parent company that’s covered up “a long-standing pattern of sexual harassment and discrimination by high-powered male executives.” The defendants’ alleged conduct, particularly with regard to handling alleged discrimination and harassment and an undisclosed Google+ data breach, the plaintiffs argue, has damaged stockholders in a number of ways, including by falsely bolstering Alphabet stock prices while the truth of internal scandals remained undisclosed.

Filed in California state court, the stockholder derivative action alleges the pattern of concealment at Alphabet dates back to at least 2014. In the years since, the case says, Alphabet executives have breached their fiduciary duties to shareholders—and cost the company untold millions of dollars—by participating in or acquiescing to illegal conduct the individual defendants knew full well would draw “regulatory scrutiny, lawsuits, and public criticism.” All told, the lawsuit argues that the defendants are largely responsible for not only a loss of user trust and goodwill, notwithstanding, of course, the financial implications of users’ mistrust of a data-driver company, but for the creation of a work environment that's harmed Alphabet’s ability to hire and retain top talent. Put simply, the suit indicates the defendants have left Alphabet vulnerable and kicked off a trend that threatens the company's bottom line.

“Defendants’ conduct has already cost the Company hundreds of millions of dollars in generous exit packages to wrongdoers and exposed it to further litigation and a loss of federal contracts over its hostile and discriminatory workplace,” the case reads.

Front and center in the lawsuit are reports from the Guardian, the New York Times, and the Associated Press that detail Alphabet’s reportedly sexually discriminatory workplace and the company’s “cultural complacency” with regard to handling high-profile executives accused of sexual misconduct. From there, the case sticks on the defendants’ failure to disclose the Google+ data breach, as reported by the Wall Street Journal, and an AP report that revealed Google had provided misleading information regarding how mobile device users could turn off location tracking and what Alphabet did with that information.

What all this speaks to, the plaintiffs stress, is the defendants’ prioritization of their own interests, and those of “powerful male executives,” over their obligations to shareholders. For proof, the complaint says, all one needs to look at are Alphabet’s stock prices, employee outrage, and the swell of government suspicion in the wake of the aforementioned media reports. From the case:

“Revelations of the Defendants’ misconduct led the Company’s stock price to immediately drop approximately 6% in response to the WSJ article followed by another immediate 7% decline in response to the Times article; prompted lawmaker scrutiny, regulatory investigations, and shareholder, consumer, and employee lawsuits; and has drawn massive outrage from the Company’s valuable employees. The Board’s misconduct will continue to result in the loss of business and goodwill, both as a result of the negative publicity around these incidents, and the increasing loss of trust in the Google brand.”