Norfolk Southern and three of the railroad’s top executives are being sued by some of their own stockholders claiming federal securities laws were violated by alleged false statements issued before and after the toxic derailment, fire, and chemical spill in East Palestine.

The class action suit was filed last week in U.S. District Court in Columbus by the Bucks County Employees Retirement System against the railroad, CEO and President Alan Shaw, former Board Chairman and CEO James Squires, as well as Executive Vice President and Chief Financial Officer Mark George.

The Bucks County Retirement System offers pension, retirement plans, and various other benefits hundreds of retirees and full-time public employees who worked in the Pennsylvania county just outside Philadelphia.

The retirement system owns shares of Norfolk Southern, the value of which fell below $203 per share, a drop of 19% since the East Palestine Derailment, according to the lawsuit.

The complaint alleges that in recent years Norfolk Southern and its executives boasted to its shareholders that the use of longer, heavier trains with fewer employees to run tighter schedules has increase profits.

In addition, the lawsuit says Norfolk Southern tied executive compensation to the so-called “Precision Scheduled Railroading”, earning the railroad’s executives millions of dollars in awards.

“In 2021, when  Norfolk Southern hit a record low Operating Ratio, it helped then-CEO Squires land nearly $3.5  million in cash – almost three times what he had earned the year before,” according to the complaint.

The lawsuit goes on to allege that  at least four other executives received more than a million dollars each, including current CEO Shaw, who was an executive vice president at the time.

A Norfolk Southern proxy statement filed with the Security and Exchange Commission in highlighted its 2021 “record performance for train length and weight” as partial justification for why Company executives earned a cash payout that year, according to the complaint.

Claiming that the growing length of trains and the industry’s increased efforts to reduce costs and headcount has increased the potential for accidents,  the lawsuit cites a December 2022 Government Accounting Office report that Norfolk Southern’s accident rate had hit a 10-year high in 2021.

The suit alleges that the railroad industry has increased lobbying efforts in state and federal governments trying to block whistleblower protections and speed limits for high-hazard flammable trains.

The complaint says that Norfolk Southern played a role in defeating an Obama-era safety rule in 2018 that was issued following several oil train accidents.

The rule required trains carrying oil or other hazardous liquids to be equipped with electronically controlled pneumatic brakes on their rail cars.

While air brakes stop train cars individually, as air pressure moves sequentially from one car to the next, ECP brakes operate using an electronic signal which can stop an entire train much faster, according to the lawsuit.

Norfolk Southern made over 100 contributions to Ohio state officials and candidates totaling $98,000 over the last 5 years, according to data from Ohio’s secretary of state.

The suit claims Norfolk Southern used lobbyists to further its legislative agenda:

“Norfolk Southern hired lobbyists to influence the course of legislation with the Company filing more than 200 state-required quarterly reports disclosing lobbying in the past 6 years. In Ohio, the Company employs the well-connected Columbus-based lobbying firm called The Success Group. Governor DeWine’s former legislative director Dan McCarthy led the firm prior to joining the administration. McCarthy was later implicated in facilitating the bribery of the former Ohio House of Representatives Speaker Larry Householder, who was convicted of racketeering conspiracy for taking $60 million from Ohio utility First Energy to assist that company in passing House Bill 6. McCarthy resigned from the DeWine administration in September 2021. The Success Group began representing Norfolk Southern in 2009. Since then, the Company’s lobbyists have repeatedly fended off legislation imposing a minimum staffing requirement of a 2-person crew or penalties for blocked railroad crossings.”

The suit alleges that several public statements issued by Norfolk Southern and its executives between 2020 and 2023 about the railroad’s “commitment to safety” were false or misleading because they focused on profits and failed to disclose “adverse” facts such as the use of longer, heavier trains staffed by fewer personnel had led to increased derailments.

“The purported risk disclosures provided in Norfolk Southern’s periodic financial filings were themselves materially misleading because they created the false and misleading impression that Norfolk Southern had adequately addressed the risks discussed and failed to disclose the extent of safety problems that had already occurred at the Company”, according to the complaint which alleges that “the true facts” began to be revealed on the evening of the East Palestine derailment.

The suit goes on to list a series of events and statements by company officials made after the derailment, each of which were followed by a decline in the value of Norfolk Southern shares.

The plaintiffs claim that Norfolk Southern and its executives either knew or disregarded that the statements issued in the name of the company have been false or misleading, allegedly violating federal securities laws and artificially inflating the value of stocks.

While not stating how many shareholders could be part of the proposed class, the suit says there could be hundreds or thousands.

The plaintiffs want a jury to decide if the defendants violated the Exchange Act; whether Norfolk Southern and its executives’ misrepresented facts about the business; and to determine compensatory damages to the stockholders.

Neither Norfolk Southern nor the three executives had filed a response to the suit as of Monday.