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SEC Reportedly Probing Altria's $12.8 Billion Stake in E-Cigarette Maker JUUL

By Keith Speights – Feb 21, 2020 at 6:15PM

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The federal agency is concerned that the tobacco giant failed to adequately disclose the risk it was taking with investing in JUUL.

The U.S. Securities and Exchange Commission (SEC) has launched an investigation into tobacco giant Altria's (MO 1.51%) stake in e-cigarette maker JUUL Labs, according to a report by The Wall Street Journal. SEC regulators are reportedly looking into whether or not Altria fully disclosed to its shareholders the risks associated with its investment in JUUL.

In December 2018, Altria invested $12.8 billion for a 35% stake in JUUL in a deal that pegged the e-cigarette company's value at $38 billion. JUUL remained independent but gained access to Altria's retail channels and logistics expertise.

Man exhaling vape smoke and holding an e-cigarette

Image source: Getty Images.

Risky business

When Altria first invested in JUUL, the tobacco company's CEO, Howard Willard, said that the deal would "have long-term benefits" for Altria shareholders. Those benefits haven't materialized so far. 

In October 2019, Altria wrote down its investment in JUUL by $4.5 billion. This action came on the heels of several actions by federal agencies against JUUL. The U.S. Food and Drug Administration (FDA) took steps toward banning all e-cig flavors except for tobacco and accused JUUL of illegally marketing its products as being safer than traditional cigarettes. The U.S. Federal Trade Commission also launched an investigation into JUUL for targeting teens with its marketing practices. 

Altria wrote down another $4.1 billion in the valuation of its JUUL stake last month. The tobacco giant stated that since its earlier impairment, the number of lawsuits filed against JUUL soared by 80%.

What's next

The SEC has issued subpoenas to both Altria and JUUL, according to The Wall Street Journal. Both companies have reportedly responded to these subpoenas. It's unknown at this point how long the SEC's investigation will last.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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