Chemours Faces Fraud Suit, Stock Dives Over 31%

Key Takeaway

• Chemours faces a class action lawsuit for securities fraud after admitting to financial misconduct, including manipulating Free Cash Flow.
• Stock price dropped over 12% after announcing a delay in 2023 financial results, and plummeted more than 31% following investigation revelations.
• CEO, CFO, and principal accounting officer placed on administrative leave amid findings of deliberate actions to meet incentive compensation metrics.

Financial Misconduct Allegations

The Chemours Company, a prominent chemical company, is currently under scrutiny for alleged misconduct related to its financial reporting. The company had previously reported strong Free Cash Flow for both the fourth quarter of 2022 and the full year of 2022, with its CEO and CFO certifying the accuracy of these figures. Chemours also based its executive compensation criteria on meeting certain financial targets, including those related to Free Cash Flow, which would entitle senior executive officers to additional cash and stock-based compensation.

Delay in Financial Reporting

On February 13, 2024, Chemours announced a delay in releasing its financial results for the fourth quarter and full year of 2023, citing the need for additional time to complete its reporting process and to evaluate its internal control over financial reporting. This announcement led to a significant drop in Chemours' stock price by over 12%. Subsequently, on February 29, 2024, the company disclosed that its CEO, CFO, and principal accounting officer were placed on administrative leave amid an ongoing investigation into the company's financial practices.

Investigation Findings and Legal Action

The investigation, conducted by the audit committee, revealed that senior management had engaged in practices such as delaying payments to vendors and accelerating the collection of receivables to meet Free Cash Flow targets and incentive compensation metrics. These actions were found to have been taken deliberately, partly to meet publicly communicated Free Cash Flow targets that were also key metrics for determining executive officers' incentive compensation. Following these revelations, the stock price of Chemours plummeted by more than 31%. Kessler Topaz Meltzer & Check, LLP has filed a class action lawsuit against The Chemours Company, accusing senior management of securities fraud based on these admissions.

Management Quotes

• CEO and CFO of Chemours:

  "Chemours reported its Free Cash Flow figures and its CEO and CFO certified the accuracy of the numbers."