I look at stocks from a quant perspective, but I also care about social responsible investing. Recently, there has been quite a bit of news with regards to Herbalife (NYSE:HLF), allegations of pyramid schemes and social responsible investing. I care about social responsible investing and although I don't know much about 'pyramid schemes', I know a bit about unresolved local environmental problems. So I want to give you an example of a social investing problem that (according to some) isn’t being properly addressed in Ann Arbor, Michigan.
I follow social responsible investing and I care. I live in Ann Arbor, Michigan and unbeknownst to many outside and inside of Ann Arbor, Ann Arbor’s groundwater has a 1-4 Dioxane plume in it. For those politically minded, this is Michigan Governor Snyder's hometown -- he lives here. This plume is spreading, and it is the responsibility of Pall Corporation (NYSE:PLL) to clean it up. A larger map of the plume is located here.
Citizens in Washtenaw County are concerned and so the Coalition for Action on Remediation of Dioxane (CARD) was formed. According to the Washtenaw County website:
The Coalition for Action on Remediation of Dioxane (CARD) is a partnership of local governments and citizens that develops policies and strategies to address the problems caused by 1,4-dioxane released by Pall/Gelman. The groundwater contamination has expanded in Washtenaw County to an area over three miles long and one mile wide.
Soon, a petition will be circulated that will be filed to the Division of Health Assessment and Consultation, at the Agency for Toxic Substances and Disease Registry with regard to Ann Arbor’s dioxane problem and Pall Corporation. Here is a sampling of thoughts from the petition and it will go to politicians, concerned citizens, environmental groups (and hopefully Change.org):
In Washtenaw County and Ann Arbor, Michigan a 1,4-Dioxane, in groundwater and surface soil contamination from Gelman Science, persists after nearly 20 years of cleanup activities and has now spread in groundwater to an area over three miles long and a mile wide. Recent events including a leaking pipeline, a change in treatment technology that will result in a carcinogenic by-product being discharged and the imposition of a “Prohibition Zone” that prevents the use of wells and bans permitting new wells within that zone and requires notification to potential buyers when a property transfer occurs, have heightened concern among citizens governments and others over the effectiveness of the ongoing remediation plan.
This contamination is classified by some as the ‘Mother’ of all 1,4-dioxane groundwater contamination sites in eastern US by a California university scientist studying waters contaminated with this compound.
Large parts of the City of Ann Arbor and parts of Scio Township have now been placed in a Groundwater Use Prohibition Zone (PZ) by the court, as the plume is now being allowed to flow through the city to vent into the Huron River. Homes and businesses in the PZ automatically become part of the Cleanup Facility and are required to give this notice to any potential buyers of their properties.
Latest court ordered PZ expansion shows new flows moving north east, toward the main Ann Arbor drinking water source at Barton Pond on the Huron River.
Data collected in the last few years by Pall on the status of the cleanup has not been adequately shared with state regulators or the community.
We have had the highest levels in well samples ever recorded in 20 years in 2012... 102,983 ppb.
It has been reported that over 850,000 pounds of the solvent was used at the fromer medical manufacturing facility between 1966-86. More 1,4-dioxane has been remove then Pall claimed to have seeped into the groundwater. Currently, over 107,000 pounds have been reportedly removed.
City of Ann Arbor has taken out of use, one of it's two groundwater based drinking water sources after detecting the contaminate in one of the wells in 2001.
In a letter from CARD to government officials it was noted that Pall was monitoring fewer wells, less frequently and they reduced the purging from extraction wells.
The integrity of the data matters... especially in light of PLS's recent decisions to let more dioxane spread unremediated with reduced purging, with fewer wells being monitored, and with less frequent monitoring of the remaining wells. With an unknown amount of dioxane being left to spread at various levels in various directions that are not adequately defined, we should have more monitoring, not less. With cession of purging, the conditions at the site will return back close to what they were when the contamination first spread.
The email goes on and gives an example of a high dioxane reading that was excluded from the reports. It lists Sample ID #55597, entered 10/20/10, from well MW-5d. The 1,4 dioxane results show 67,500 ppb – an incredibly high level for dioxane. According to the email:
This reading, [at that time] the highest dioxane reading on the whole site since 1997 (since Pall took over the cleanup), was never made public in PLS's monthly Excel or PDF reports.
Pall's problems don't end there, as their testing methods might not be meeting all EPA guidelines and they're keeping the public health database away from the public... (turn the page for more)
Pall’s problems don’t end there, as their testing methods might not be meeting all EPA guidelines, and yet according to Pall’s press releases they are a purification leader and admired by Newsweek magazine.
Pall Corporation (NYSE:PLL) is a filtration, separation and purification leader
Pall has been named a “top green company” by Newsweek magazine
According to CARD, from August to November 2012, 366 out of 427 samples were not tested within the 14 day requirement set by the EPA – 86% of the samples did not meet the 14 day limit. Furthermore, earlier in the year, 128 samples also exceeded the 14 day holding time. So the leader in water purification wasn’t meeting all the EPA limits.
According to correspondence at the DEQ, Pall was using USEPA Method 1624. Further clarification from Washtenaw County stated:
The EPA Method document for 1624 Revision B dictates the following: “9.4 All samples shall be analyzed within 14 days of collection.”. For most volatile organic compound analysis a 14 day holding time is common. Below is from the State of Michigan laboratory website for method 8260, which is another approved method for analysis of 1,4-dioxane
Method 8260 also listed 14 days, and this EPA document also lists 14 days.
Access to the database that holds the data has also been an issue. According to CARD member Roger Rayle,
For years, Pall was providing excerpts from its sampling database to the DEQ. But in the 2010-2011 timeframe, Pall moved their internal database to a new one. When CARD finally got a snapshot of the new database via the DEQ and compared it to the old one, there were hundreds of inconsistencies/errors in the new database. When the DEQ reported these to Pall in October 2011, instead of explaining the problems, Pall cut off the DEQ’s (hence the public’s) access to the database that holds information about a public health hazard.
According to the DEQ, that database is/was at Wayne State University (or hosted by someone who works there). It should be noted that Farsad Fotouhi is the Corporate VP of Sustainability, Safety and Environmental Engineering at Pall Corporation. It should also be noted that there is a Farshad Fotouhi (not the same person), who serves as the Dean at the College of Engineering at Wayne State. They are brothers, and so Pall is linked to Wayne State personally. Perhaps, then it's no surprise that Wayne State University (one brother) is hosting Pall (the other brother) in an event on environmental sustainability. According to Wayne State:
The Office of the Vice President of Research is pleased to host the Sustainability@Wayne Seminar on Tuesday, January 15, 2013 at 2:30 p.m. at the Welcome Center Auditorium. The presenter for this seminar will be Dr. Farsad Fotouhi, Corporate VP, Sustainability, Safety and Environmental Engineering at Pall Corporation in Ann Arbor, Michigan. Dr. Fotouhi is responsible for global sustainability, and Safety and Environmental Engineering Programs at Pall.
I tried a FOIA request for information relating to the database and that request was denied. So I filed an appeal with the President of Wayne State University. At first I was told that I would get a quick response, and then I was told by their lawyer that they would give me a response in 10 days. Although the lawyer told me that I’d get a response, I did not receive it, and when I reminded Wayne State of the issue – they offered no response. Wayne State ignored my request in this environmental issue of public safety, and they ignored my FOIA appeal. And that's especially troubling as they are hosting an event on the environment. It should be noted that according to CARD, the Engineering Dean at Wayne State is the brother of the person in charge of Sustainability, Safety and Environmental Engineering at Pall. Take a look at this document at CARD:
First, DEQ's Sybil Kolon revealed that Pall has been working for about a year on moving their 1,4-dioxane sampling database from their own computers to one hosted at Wayne State University (WSU). That helps explain why there hasn't been a database update from Pall/Gelman via the DEQ to the public since December 2010.
Why Wayne State? WSU researcher Larry Lemke, who, like the other non-DEQ people at the meeting, was surprised by the news, then revealed that it might just be a coincidence, but Pall's Corporate Vice President of Sustainability, Safety & Environmental Engineering in charge of the cleanup, Farsad Fotouhi, has a brother, Farshad Fotouhi, who was chair of the Department of Computer Science at Wayne State University prior to having been appointed dean of the University's College of Engineering in December 2010. The brother connection revelation surprised Sybil and the other people present.
On January 8th I asked Pall for a comment. No answer was given. But, on January 10th, Farsad Fotouhi contacted a member of CARD and he wanted to know about their concerns regarding the database. The timing of Fotouhi's email is ironic as he will be speaking at Wayne State University on environmental safety in a few days, and he responded to CARD after my inquiry to Pall for a comment. Normally Fotouhi doesn't communicate to CARD and this is reflected in Fotouhi's comment to CARD,
I know we have not communicated for a while
Along with Pall's communication issues, there is big problem with Fotouhi's request -- as per this documentation, CARD has already expressed their concerns about the database issues. Fotouhi is listed in that documentation, so Pall was already informed about the database issues. So for Pall to ask,
Would you please let me know what data you are missing from your files.
... is an insult to the questions that have already been asked. And listed in that documenation, it bluntly states that Pall (the 'leader' in water filtration) would cut off access to the dioxane database (a database that directly deals with water filtration) from the State of Michigan and the public. As stated in the documentation:
Consequently, as set forth in greater detail below, PLS is terminating the State's direct access to the database.
So Pall is not providing transparent access to the database.
What is missing from Pall's 10-K? Read about it on the next page...
But perhaps one of the most insulting ways that Pall could insult those who are concerned about the dioxane problem in Ann Arbor, is best illustrated by what it doesn't say in the annual 10-K report. What word does the annual report neglect to mention? What word is missing from the section that talks about Ann Arbor's pollution problem?
dioxane
Not once do I see the word 'dioxane' in Pall's 10-K report. From pages 84 to 86, Pall speaks about 'contamination' in Ann Arbor, but they don't mention that the contamination is dioxane. For Pinellas Park, Flordia they talk about Methyl Isobutyl Ketone concentrations but Pall neglects to mention dioxane for Ann Arbor. As a reminder, according to the EPA website, 1-4 dioxane is a probable human carcinogen:
1,4-Dioxane is used as a solvent. Acute (short-term) inhalation exposure to high levels of 1,4-dioxane has caused vertigo, drowsiness, headache, anorexia and irritation of the eyes, nose, throat, and lungs in humans. It may also irritate the skin. Damage to the liver and kidneys has been observed in rats chronically (long-term) exposed in their drinking water. In three epidemiologic studies on workers exposed to 1,4-dioxane, the observed number of cancer cases did not differ from the expected cancer deaths. Tumors have been observed in orally exposed animals. EPA has classified 1,4-dioxane as a Group B2, probable human carcinogen.
1,4 dioxane, a probable human carcinogen, is not mentioned in the Ann Arbor portion of the 10-K report. As such, it's in my personal opinion that the Ann Arbor portion of the 10-K is incomplete and it certainly insults this CARD member.
And so I have to ask – with 1-4 dioxane spreading in Ann Arbor’s groundwater, an inaccessible database and issues with data analysis – is that the socially responsible way that Pall should be ‘leading’ in water filtration? Is that how a leader should behave?
As for Fotouhi at his Wayne State presentation, here are 2 questions that were submitted to me from Roger Rayle, the chair of Scio Residents for Safe Water (SRSW). Fotouhi should be prepared to answer these questions at the presentation:
Did Pall have any qualms about introducing a new carcinogen (bromate) in its discharge to waters of the state upstream from where Ann Arbor gets 80-85% of its water when Pall switched its dioxane treatment process from UVOx to Ozone-Oxidation at the Pall/Gelman Groundwater Contamination Site ... as part of reducing its carbon footprint (and saving Pall ~$1M/year)?
Wouldn't sharing data electronically with designated public entities (including restoring the State's read access to Pall's full sampling database of its dioxane in our Waters of the State) be more sustainable and effective than the current approach of monthly mailings of paper copies of piecemeal, selected data?
Pall -- get the database to the public and make sure it is complete (do not remove the high readings from the database). Do the tests and make sure they are on time and complete. Clean up the dioxane. Test more and test often and release the results to the public. The public should have the right to know all the data. Fix the 10-K so that you are disclosing 1,4 Dioxane. Social responsible investors, politicians, concerned residents and others should pay more attention to this stock and this public health issue.
Kai Petainen's views on the market and stocks are his alone, and do not reflect the views of the Ross School of Business, or the University of Michigan. Kai teaches a class on quant screening, F334 -- Applied Quant/Value Portfolio Management, at the Ross School of Business. Kai is a member of CARD and so he cares about dioxane in Ann Arbor. He talks about ethics and social responsible investing in his class. Kai is a MFolio master at Marketocracy, and is featured in Matthew Schifrin’s book, "The Warren Buffetts Next Door".
