Shares of Formosa Plastics Corp (台塑), the nation’s largest maker of polyvinyl chloride (PVC), dipped 2.63 percent yesterday after local media reported that it and its US subsidiary could face up to US$1 billion in damages in lawsuits filed by multiple US states and city governments.
The shares closed at NT$85.2 on the Taiwan Stock Exchange, despite the company issuing a statement early in the morning saying that the media reports were “misleading” and that it could not estimate the lawsuits’ impact on its finances yet.
Formosa Plastics said it and its US subsidiary were no longer involved in the lawsuits filed last year, which alleged that its US arm and the US-based JM Eagle had committed a massive fraud by selling substandard water and sewer pipes across the US for more than 10 years.
Formosa Plastics currently holds a 22.59 percent stake in its US subsidiary, but the firms “don’t hold any stake in JM Eagle,” the world’s largest plastics pipe maker, the statement said.
The statement added that the US unit held a stake in the pipe maker between 1984 and 2005, but then disposed of the stake.
During that period, “JM Eagle remained an independent entity and Formosa Plastics was not involved in the former’s management and had no knowledge of JM Eagle’s production quality inspections and customer complaints,” the statement read.
JM Eagle is the world’s largest plastics pipe maker and has about a 30 percent share of the US plastic pipe market.
Formosa Plastics said that several federal district courts in the US had dropped cases against its US subsidiary in a ruling on Oct. 24.
However, lawsuits in four states — California, Massachusetts, Tennessee and Nevada — are ongoing and the company is negotiating with those states to withdraw their litigation.
It said the case was being handled by the US federal court in California and a hearing was scheduled for July 10 next year, so it could not comment further before the verdict.
The scandal resurfaced earlier this week when the Chinese-language Business Weekly reported the involvement of Formosa Plastics in alleged fraudulent acts by JM Eagle.
The magazine said in its cover story that JM Eagle and Formosa Plastics could face claims of at least US$1 billion in damages.
The allegations were originally made last year by John Hendrix, a former engineer who worked in the company’s Livingstone office in New Jersey.
Hendrix said he was fired less than two weeks after he wrote a memo to JM Eagle’s management expressing concern that the tensile strength of the PVC pipe was below minimum requirements and that it would not last.
Before the clarification by Formosa Plastics, its share price fell as much as 4.8 percent in early trading yesterday before recovering some of its losses.
“The impact [on the firm’s bottomline] could be short-lived after the clarification,” MasterLink Securities (元富證券) analyst Tom Tang (湯忠謙) said. “However, what really bothers investors is the weakening economic fundamentals that have dragged down demand.”
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