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Federal Judge Dismisses Shareholder Class Action Lawsuit Against MBTA General Manager04:02
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Luis Ramírez, on his first day at work as general manager of the MBTA (Robin Lubbock/WBUR)MoreCloseclosemore
Luis Ramírez, on his first day at work as general manager of the MBTA (Robin Lubbock/WBUR)

A Texas federal judge has dismissed a class action lawsuit against MBTA General Manager Luis Ramirez. The lawsuit, filed by shareholders of Global Power Equipment Group in May 2017, alleged that Ramirez violated federal securities laws while he was CEO of the Dallas-based company.

In a decision filed Wednesday, Chief District Judge Barbara M.G. Lynn of the Northern District of Texas, found that the plaintiffs failed to establish that Ramirez and other former Global Power executives had knowingly acted “with intent to deceive, manipulate, or defraud.”

Ramirez and the MBTA both declined to comment on the ruling.

Ramirez served as Global Power’s CEO from July 2012 to March 2015. It was his last job leading a large organization prior to his appointment to head the MBTA. The Baker administration celebrated Ramirez as the “turnaround” specialist the MBTA needed, pointing to his record at Global Power and as a former executive at GE.

But Ramirez’s tenure at Global Power was marred with controversy. The company filed erroneous financial statements to the Securities and Exchange Commission under his leadership. Immediately following Ramirez’s resignation in March 2015, the company had to announce that it would refile several years of SEC statements.

That announcement triggered a massive drop in Global Power’s share price and put the company at risk of bankruptcy. Investors sued.

Jeffrey Block, the Boston attorney who represents the shareholders, told WBUR in August that "we allege Mr. Ramirez didn't take proper steps to report errors. And in fact, the company reported those financials with errors in place."

Plaintiffs also alleged that Ramirez attempted to hide the company’s financial problems.

Judge Lynn disagreed. “These allegations do not support the contention that ... Ramirez knew that financial reports, at the time they were published, were false,” she wrote in her dismissal ruling.

Global Power investors also alleged that Ramirez misrepresented the company’s severe accounting troubles because his compensation was tied to Global Power’s financial performance. Lynn cut down that argument, citing previous federal securities cases.

“Incentive compensation ‘can hardly be the basis for which an allegation of fraud is predicated’ because if the Court were to hold otherwise, ‘the executives of virtually every corporation in the United States would be subject to fraud allegations,'" she wrote in the ruling.

The majority of federal securities class action lawsuits are dismissed, according to NERA, an economics consulting firm. The group’s recent analysis found that between 2000 to 2016, more than 70 percent of shareholder class action suits were dismissed by federal judges.

Lawyers for Global Power’s shareholders declined to comment to WBUR about the dismissal, saying they are reviewing the judge’s decision.

The ruling, however, did leave open the possibility for further litigation. Glynn wrote that plaintiffs have the opportunity to address questions she raised in her ruling and file an amended complaint by January 15.

The SEC is also investigating the company's financial reporting. The SEC does not comment on ongoing inquiries. The status of the Global Power investigation is unknown.

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Meghna Chakrabarti Twitter Host, On Point
Meghna Chakrabarti is the host of On Point.

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