BR&B Files Class Action and Derivative Lawsuit Challenging Cheniere Energy's Compensation Awards and Proposed Share Reserve Increase

5/29/2014 - Barrack, Rodos & Bacine announces that it has filed a class and derivative lawsuit in the Court of Chancery of the State of Delaware on behalf of the public stockholders of Cheniere Energy, Inc. against the company’s CEO, certain of its executives, and the members of its board of directors.  The complaint alleges that Cheniere’s management team and board breached the terms of the company’s bylaws as well as their fiduciary duties to the company and its shareholders.  The complaint also alleges that the defendants were unjustly enriched by the hundreds of millions of dollars of stock awarded to them in 2013 by the board.  The lawsuit also seeks to enjoin an upcoming shareholder vote on a board proposal for a 30 million share increase for future stock awards until defendants have made full and fair disclosure about both previous stock awards and the current share reserve increase proposal.

According to the complaint, the Cheniere board failed to properly count abstentions in a February 2013 shareholder vote as “no” votes, as was then required by the company’s bylaws and by the Delaware “default rule” relating to shareholder votes.  The complaint alleges that, as a result of the board’s misconduct, more than 17 million shares were wrongfully awarded under Cheniere’s stock incentive plan to the company’s CEO, to certain of its executives, and to board members themselves, and 600,000 shares of restricted stock were wrongfully awarded to the CEO’s brother, a company consultant.  Based on these awards, Cheniere’s CEO, Charif Souki, received compensation of over $141 million in 2013, in addition to the $57 million he received in 2012, totaling over $198 million in two years.  In addition, five other members of the company’s senior management collectively received total compensation exceeding $130 million in the past two years.   The complaint also alleges that in April 2014, the board amended the by-laws for an improper purpose, in an effort to have abstentions not count as “no” votes in upcoming shareholder votes.  The complaint seeks to enjoin the application of the new by-law to the upcoming June 12, 2014, shareholder vote on the board's proposal to place an additional 30 million shares in the share reserve for future stock awards under the company’s stock incentive plan. 

As a Wall Street Journal article published on May 30, 2014 noted, the 30 million additional shares that the board is seeking to have available to grant as stock awards to the CEO, executives, board members, other company employees and consultants would be valued based on the stock’s market price today at $1.9 billion, more than all the revenue Cheniere has generated since 2008.  The article further noted, among other things, that a well-known proxy advisory firm, Glass Lewis & Co., has concluded that the proposed compensation plan could be excessive and dilute existing shareholders’ stake by 12%.  The article also notes that another advisory firm, Egan-Jones Proxy Services, recommends that shareholders reject the board’s proposal.

A copy of the complaint is available here.  For additional information about this class action, please contact Barrack Rodos & Bacine at (215) 963-0600, or via e-mail to Michael Toomey at mtoomey@barrack.com or Julie Palley at jpalley@barrack.com