A New York law firm has filed a class-action shareholder lawsuit against several Northwest Airlines top executives and board members, alleging they sold shares or otherwise profited because they had inside knowledge of the airline's bankruptcy plans.
Northwest filed for bankruptcy on Sept. 14.
Named as defendants are board chairman Gary Wilson, former director Alfred Checchi, CEO Doug Steenland, and former CFO Bernard Han.
Northwest is not named as a defendant because it is under Chapter 11 bankruptcy protection, said the law firm ofMilberg Weiss Bershad & Schulman.
The Northwest suit covers buyers of the airline's stock between April 21, 2005, and Sept. 14, 2005.
The complaint charges that in the months before the bankruptcy, insiders sold their Northwest shares to unwitting investors for proceeds in excess of $30 million.
Between them, Checchi and Wilson sold some 5.3 million shares for about $29.8 million, according to the lawsuit. That works out to an average of $5.65 a share.
Just before its bankruptcy filing, Northwest shares were trading for $1.87. After the bankruptcy, the stock was delisted. It was at 52 cents a share on Tuesday.
The insider stock sales came "under highly suspicious circumstances" that suggest the defendants knew that the company planned to imminently file for bankruptcy, the lawsuit says.
As early as April 2005, Northwest's leaders viewed bankruptcy reorganization as the only way to escape billions of dollars in pension obligations and to wrest big wage and other concessions from employees, the lawsuit charges.
Yet, the lawsuit alleges, the defendants just maintained that a bankruptcy was "a possibility" if certain conditions were not met.
Wilson sold some 340,000 Northwest shares in late August but did not report the sale until after Northwest filed for bankruptcy, violating securities laws, the suit says.
The suit asks that the defendants' proceeds from stock sales, bonuses and incentive pay go to a fund to compensate shareholders.
Eagan-based Northwest did not have much to say about the litigation. But it took umbrage at the assertion that the airline filed for Chapter 11 protection to dump its pension plans.
"That simply is not true,'' said spokesman Bill Mellon. "Northwest has been a leader in working with Congress to protect its employees pensions."
The airline says it will make good on its pension obligations if Congress gives it more time to make payments to its underfunded pension plans.
Martin J. Moylan can be reached at [email protected] or 651-228-5479.
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