Shareholders Hit Zale Corp. With 3 Suits Over Financials

Zale Corp. has been hit with three shareholder lawsuits, the latest filed Wednesday, alleging it mislead investors about its financial condition.

NEW YORK — Zale Corp. has been hit with three shareholder lawsuits this summer alleging that the company misled investors about its financial condition.

“We believe that the lawsuits are without merit,” said David Sternblitz, vice president and treasurer of Zale. He said the company will defend itself vigorously.

Three separate lawsuits, each seeking class-action status, were filed against Zale, Mary L. Forte, Mark R. Lenz, Cynthia T. Gordon and Sue E. Grove in Manhattan federal court on behalf of purchasers of the company’s publicly traded stock between Feb. 18, 2005, and May 5, 2006. The first lawsuit was filed July 19, the most recent was filed Aug. 23.

According to the allegations in each of the three complaints, company executives were charged with issuing false and misleading financial results to the market during the class period to artificially inflate the price of Zale’s shares. The complaints alleged the named defendants sold more than $15 million worth of company stock that they owned.

The complaints alleged specifically that Zale neglected to disclose it had improperly timed vendor payments and improperly accounted-for extended service agreements, leases and accrued payroll. The lawsuit also alleged the company does not have adequate internal controls.

Zale said on April 10 that the Securities and Exchange Com­mission was conducting an investigation related to the accounting procedures listed in the complaints. At the time, Zale said it believed that its practices complied with generally accepted accounting principals and that it would fully cooperate with the SEC. Following that announcement, Lenz, the chief financial officer, was placed on administrative leave in May, and was subsequently replaced. Forte resigned as chief executive officer in January, citing lagging financial results.

Separately, the company faces a fourth lawsuit, filed on Aug. 7 in a Manhattan federal court, seeking class-action status on behalf of participants in Zale’s retirement plan between August 2005 and the present. The complaint alleged Zale breached its fiduciary duty by imprudently investing in its own common stock.

This story first appeared in the August 25, 2006 issue of WWD.  Subscribe Today.