Kobe Steel Products – Shanghai Issues Metal Products Safety Warning

On December 28, 2017, Reuters reported (“Shanghai cautions on products from scandal-hit Kobe Steel, tightens checks”) that

Shanghai has issued a warning on the safety of metal products manufactured by scandal-hit Japanese firm Kobe Steel Ltd . . . and strengthened scrutiny measures, state-owned Xinhua News Agency reported, citing the city’s inspection body.

Japan’s No.3 steelmaker, which supplies the makers of cars, planes and trains across the world, said in October that about 500 of its customers had received products with falsified specifications. The producer’s quality certifications at some domestic plants have already been suspended.

According to the Xinhua report, Kobe [Steel] shipped in 451,000 tonnes of metal products to China through its Shanghai units over September 2016 to August 2017. Of that, data on 1,420 tonnes of aluminium sheet and 116 tonnes of copper sheet had been tampered, it added, citing the Shanghai Entry-Exit Inspection and Quarantine Bureau.

While Kobe’s Shanghai units have been in touch with their customers to check on safety of the products, the inspection bureau has said it will continue supervising the units to protect interests of Chinese consumers, Xinhua reported.

The bureau will conduct checks on all products made in Japan by Kobe Steel and set up a special technical investigation team to check its products that are involved with data falsification and release results on a routine basis, the report added.

The bureau will also conduct regular checks on Japan-made metal products imported through the Shanghai port and has already made a full retrospective investigation on related operations by Kobe Steel’s units in the city.

Kobe Steel Products – Europe Warns Aviation Industry to Suspend Use of Kobe Steel Metal Products

In October 2017, CNN Money reported (“Europe to planemakers: Stop buying Kobe Steel products”) that “Europe has issued a warning to the aviation industry: Stop using metal from scandal-plagued Kobe Steel.” The CNN Money article reported that

[t]he European Aviation Safety Agency (EASA) advised manufacturers in a statement Wednesday to suspend their use of Kobe Steel . . . products after the Japanese firm admitted to falsifying data.

The regulator recommended that aircraft makers find alternative suppliers and conduct a “thorough review of their supply chain.”

It’s the first such advisory to be issued by a major regulator since Kobe Steel came clean . . . over faking strength and durability data on thousands of tons of aluminum and copper parts.

The revelation left plane, train and automakers across the world scrambling to gauge their exposure to the suspect parts.

Further, the CNN Money article reported that

Kobe Steel has warned that the practice of falsifying quality data, including on its steel products, could spread back 10 years or more. The company has apologized.

Around 500 customers are thought to be impacted, according to a Kobe Steel spokesperson.

Kobe Steel Products – European Aviation Safety Agency (“EASA”) Issues Safety Advisory

In October 2017, Nikkei Asian Review reported (“EU aviation regulator issues advice on Kobe Steel parts”) that

The European Aviation Safety Agency issued a safety advisory notice . . . to airlines operating in the region, recommending them not to use parts made by Japan’s Kobe Steel, which has admitted to falsifying quality data on its aluminum and other products.

The safety information bulletin, also issued to aircraft maintenance and relevant companies in the region, does not restrict air travel in the region.

The EASA is responsible for setting safety rules and approving aircraft parts as well as maintenance procedures, among other things.

In the notice, the EASA recommended relevant parties to first check any product made by Kobe Steel that is currently being used; review their supply chains for maintenance parts; report to relevant regulatory authorities if Kobe Steel products are used; and, if possible, use alternative suppliers until the safety of Kobe Steel products is confirmed.

Kobe Steel Products – EASA “Safety Information Bulletin”

The subject of the European Aviation Safety Agency’s Safety Information Bulletin, dated October 17, 2017, was titled “Kobe Steel Ltd. Material – Falsified Inspection Data.”  According to the Safety Information Bulletin:

As reported in recent media articles, Kobe Steel Ltd., a Japanese metals producer, found that their workers have, possibly over a period of many years, fabricated the inspection data on certain parts and shipped those parts, possibly not meeting the customer’s specification, to a wide range of companies manufacturing a wide range of products, parts and appliances, and components thereof. 

The EASA’s Safety Information Bulletin included the following recommendations:

All [organizations] that may have specified or used Kobe Steel products should do a thorough review of their supply chains in order to identify if, and when, Kobe Steel products have been used in their product designs and fabrications. 

In addition to informing their customers, production and repair approval holders are advised to inform their competent authority of the use of such materials, if not already known by the competent authority. 

Design approval holders are advised to establish the scope of use of affected parts in its products, paying particular attention to identifying such material usage in more critical applications, e.g. Primary Structure, Principal Structural Elements, Critical Parts and Systems. Where alternative suppliers are available, it is recommended to suspend use of Kobe Steel products until the legitimacy of the affected parts can be determined. [Emphasis added]

Kobe Steel Scandal: Profits & Demanding Corporate Culture

In November 2017, The Telegraph, among other things, reported (“Kobe Steel quality scandal driven by pursuit of profits and demanding corporate culture”) that “Scandal-hit Kobe Steel’s troubles were driven by a relentless focus on profits and the company’s regimented corporate culture, which led to more than decade of faked quality guarantees on its products.”

Kobe Steel Investors Who Purchased, or Otherwise Acquired, Kobe Steel American Depositary Receipts (“ADRs”)

Kehoe Law Firm recently reported about its securities investigation related to improper conduct concerning aluminum and copper products manufactured by Kobe Steel and the recently filed securities class action filed against Kobe Steel (OTCMKTS:KBSTY) and certain officers and/or directors, on behalf of all persons who purchased, or otherwise acquired, Kobe Steel ADRs between May 29, 2013 and October 12, 2017, inclusive (“Class Period”), for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.

Kobe Steel Class Action Lawsuit

The Kobe Steel class action lawsuit complaint alleges that throughout the Class Period, Kobe Steel Defendants made materially false and misleading statements regarding Kobe Steel’s business, operational and compliance policies and/or failed to disclose that 1) Kobe Steel falsified data on many of its aluminum, copper and steel products sold to customers; 2) Kobe Steel sold products that in reality failed quality control tests in violation of laws and regulations; 3) Kobe Steel’s financial performance relied on selling products that did not meet quality standards in violation of laws and regulations; 4) Kobe Steel would incur significant costs and lose customers if customers became aware of the substandard quality of products they purchased; and 5) Kobe Steel’s compliance initiatives, corporate governance and risk management activities were ineffective and inadequate at preventing product data manipulation, fraud and other related misconduct.

The complaint also alleges that Kobe Steel’s internal reporting systems failed to foster employee participation and adequately address employee concerns, and there was an excessive propensity by senior management, including the individual Kobe Steel Defendants, to hyper-emphasize profitability at all costs, that promoted a pervasive culture of corner-cutting, and looking the other way in the face of compliance violations, as long as profits were achieved, which deterred employees from making claims over product quality for fear of retribution and/or management failing to properly investigate claims.

As a result of the foregoing, Kobe Steel’s ADRs traded at artificially inflated prices during the Class Period and class members suffered significant losses and damages.

Investors who purchased, or otherwise acquired, Kobe Steel American Depositary Receipts and wish to speak privately with a securities attorney about potential legal claims can complete the form above on the right; e-mail [email protected]; or contact John Kehoe, Esq., (215) 792-6676, Ext. 801, [email protected].

Kehoe Law Firm, P.C.