A shareholder lawsuit alleges that Safeway Inc. Chief Executive Steven A. Burd and other insiders mismanaged assets, concealed problems at the supermarket chain and illegally enriched themselves, all while driving down Safeway's market value by nearly $15 billion.
The suit was filed Thursday in San Mateo County Superior Court by the Pinellas Park, Fla., General Employees' Pension Fund, a Safeway investor whose lawyers are partners of veteran shareholder litigation firm Milberg Weiss in San Diego.
The lawsuit alleges that in recent years, the chain's executives made ill-fated purchases of smaller grocery chains, such as Dominick's Supermarkets Inc. in the Chicago area, and kept the public in the dark about problems that resulted.
At the same time, the law- suit says, Safeway's leadership caused the company to spend $1.9 billion of its cash to buy back nearly 50 million of its common shares, allegedly to "prop up" the company's stock price. That, in turn, enabled Burd and others to sell more than $38 million of their own Safeway shares "at prices inflated by the buyback program," the suit alleges.
Safeway, which owns the Vons and Pavilions chains, denied the allegations. "There is no merit to the lawsuits," said Safeway spokesman Brian Dowling.
He also said the allegations are similar to complaints made by the United Food and Commercial Workers union, whose members went on strike Oct. 11 against Vons and Pavilions. Safeway bargains jointly with Kroger Co.'s Ralphs and Albertsons Inc., which have locked out their workers in support of Safeway.
"We believe it's part of their campaign to discredit Safeway in connection with the labor dispute," Dowling said of the suit.
But Darren Robbins, a partner at Milberg Weiss, said the suit had nothing to do with the union or the strike, noting it was filed by a Florida investor.
A California legislator, meanwhile, said Friday that he would seek subpoenas for the chief executives of the three supermarket chains to compel them to give testimony at a Dec. 2 hearing on possible overcharges made when items are scanned during the checkout process at supermarkets.
State Sen. Dean Florez (D-Shafter), who chairs the Senate Committee on Banking, Commerce and International Trade, said he wanted the CEOs to tell what steps were being taken to prevent such errors because clerks who are trained to catch them are on strike.
The three executives had declined to appear at a hearing on the matter that was to be held this week in Los Angeles.
"We want to get clear answers as to what is going on in the stores," Florez said.
In September, a San Diego judge ordered Albertsons to pay $1.85 million to settle charges that its scanners routinely overcharged shoppers statewide.
Representatives of Vons and Albertsons say temporary workers have been trained to handle the scanning functions at their stores. Ralphs could not be reached for comment.