In its race to catch Amazon.com Inc. in online retailing, Walmart Inc. is alleged to have issued misleading e-commerce results and fired an executive who complained the company was breaking the law, according to a whistle-blower lawsuit.
Tri Huynh, a former director of business development at Walmart, claims he was terminated “under false pretenses” after repeatedly raising concerns about the company’s “overly aggressive push to show meteoric growth in its e-commerce business by any means possible -- even, illegitimate ones.”
Under Chief Executive Officer Doug McMillon, Walmart has invested billions of dollars to catch up with Amazon in e-commerce over the past few years, and last year enjoyed quarterly online sales growth rates surpassing 50 percent, well above peers that include Target Corp. and Best Buy Co.
Huynh claims Walmart mislabeled products so that some third-party vendors received lower commissions, failed to process customer returns, and allowed offensive items onto the site. Huynh’s dismissal in January 2017 -- just a day after a retail-industry publication singled him out as one of the sector’s rising stars -- was in retaliation for warning senior executives about the misdeeds, he said in the lawsuit, filed Thursday by employment litigation attorney David M. deRubertis in San Francisco federal court.
Integrity And Honesty
“Wal-Mart sacrificed and betrayed its founder’s key principles of integrity and honesty, pushing those core values aside in its rush to win the e-commerce war at all costs,” Huynh said in the 70-page complaint, referring to founder Sam Walton. “In doing this, it realized it must silence any whistle-blower who spoke up against its ‘win at all costs’ approach.”
Walmart shares fell as much as 2 percent on the news, although they later recovered to close the day down 0.2 percent.
The claims come from “a disgruntled former associate,” who was let go as part of a broader workforce restructuring, said Greg Hitt, a Walmart spokesman.
“We take allegations like this seriously and looked into them when they were brought to our attention,” Hitt said. “The investigation found nothing to suggest that the company acted improperly.”
Along with the 2016 acquisition of Jet.com, the rollout of two-day free delivery and the recruitment of sought-after web engineers, Walmart’s strategy also includes building up its marketplace site, where third-party vendors sell their wares and pay the retailer a fee, usually around 15 percent. The number of products available on Walmart’s site has soared, from 7 million in 2015 to about 75 million as of February.
Internal Controls
Walmart overlooked basic internal controls in its quest for growth, according to the lawsuit. For example, Walmart’s systems sometimes failed to label marketplace items in the right product category, resulting in some vendors paying higher commissions than they should have. The company also failed to process customer returns on items totaling more than $7 million, which resulted in reporting inflated sales, Huynh said.
Huynh, a native of Vietnam, joined Walmart in 2014 from Amazon. He claims he warned his superiors and the company’s ethics department that if “Walmart did not properly address these issues, its failure to do so could have serious long-term implications for its critically important e-commerce business.”
He said he was told to stop raising such concerns, and when he eventually brought them to U.S. e-commerce chief Marc Lore in early 2017, he was “abruptly terminated.” The broader workforce reduction took place later that month, he said.
Huynh sued accusing Walmart of whistle-blower retaliation in violation of the Sarbanes-Oxley Act, retaliation in violation of California labor code, failure to prevent discrimination, and wrongful termination. He seeks unspecified damages for lost wages and economic losses, special damages and punitive damages.
The case is Huynh vs. Wal-Mart Stores Inc., 18-cv-01631, U.S. District Court, Northern District of California (San Francisco).
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