Walmart cheated on e-commerce results amid Amazon pressure, says Whistleblower

The world largest retailer's shares closed down 16 cents, or 0.2%, at $87.51, after earlier falling as much as 2%.

Photo: Reuters

Walmart Inc was sued on Thursday by a former executive who accused the world's largest retailer of issuing misleading e-commerce results, amid growing pressure from Amazon.com Inc, and firing him for complaining about it.

Tri Huynh, a former director of business development, accused Walmart of having betrayed the principles of integrity and honesty espoused by founder Sam Walton in its push to show "meteoric growth" in e-commerce.

The complaint alleges various wrongdoing, including the mislabelling of products, enabling Walmart to charge excessive sales commissions, and failure to properly process customer returns, enabling it to boost results.

"Wal-Mart cut corners and cheated in a race to expand and gain market-share," having been "desperate to gain the ground it had long lost to Amazon," Huynh said in his complaint filed in U.S. District Court in San Francisco.

Walmart spokesman Randy Hargrove said the litigation is based on allegations by a disgruntled former employee, who was let go when the business was restructured.

"We take allegations like this seriously and looked into them when they were brought to our attention," he said. "The investigation found nothing to suggest that the company acted improperly." Walmart will vigorously defend itself against the claims, Hargrove added.

The retailer's shares closed down 16 cents, or 0.2 percent, at $87.51, after earlier falling as much as 2 percent.

The Bentonville, Arkansas-based retailer has spent billions of dollars in recent years to compete with Amazon, including through its 2016 purchase of Jet.com, and last month said quarterly online sales, including the December holidays, had risen 23 percent.

But Amazon`s sales in North America grew 40 percent in the same quarter, and analysts have said its price war has weighed on Walmart's margins.

Huynh accused Walmart of charging higher sales commissions from sellers on its online marketplace, where third-party sellers list and sell products, with commissions rising as high as 15 percent compared with the normal 6 percent to 8 percent. Walmart's internal controls allegedly failed to detect the problem, causing the retailer to overstate revenue. 

Huynh also said Walmart failed to process more than $7 million of customer returns, inflating the total value of merchandise sold from September 2015 to March 2016.

The plaintiff, who was born in Vietnam and lives in Washington state, said Walmart abruptly fired him in January 2017 in retaliation for his repeated complaints about its e-commerce reporting and internal controls.

Huynh said he was fired not long after raising concerns with U.S. e-commerce chief Marc Lore, and was dismissed under the "false pretences" of a broader workforce reduction and alleged performance issues.

He said he had told human resources the prior May of his efforts to deal with attention deficit hyperactivity disorder. "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 doing this, it realized it must silence any whistleblower who spoke up."

The lawsuit, which accuses Walmart of violating the federal Sarbanes-Oxley whistleblower law and various California state laws, seeks punitive and other damages.

The case is Huynh v Wal-Mart Stores Inc et al, U.S. District Court, Northern District of California, No. 18-01631.