NEW YORK — A Manhattan federal district court judge on Thursday dismissed a shareholder class-action lawsuit against Hugo Boss AG and two of its former executives.
The lawsuit was filed in July 2002 by Hasko Froese, who alleged that Hugo Boss misrepresented its financial results through a practice known as “channel stuffing.”
It was filed on behalf of shareholders who purchased shares in the Metzingen, Germany-based fashion firm between Nov. 5, 2001, and May 28, 2002.
In addition to the fashion firm, two former executives, Marty Staff and Vincent Ottomanelli, were named as defendants. Hugo Boss is majority-owned by Marzotto SpA. Staff was the former president and chief executive officer of the U.S. arm of Hugo Boss, while Ottomanelli was the chief financial officer.
Court documents charged that Hugo Boss prepared and issued, from Germany, press releases and an annual report which were “materially false or misleading because of the channel stuffing.”
The allegation specifically said that the financial results for the third quarter of 2001 through the first quarter of 2002 were inaccurate. It cited “defendants overstated the company’s revenues by including as revenues amounts for products that the company did not actually sell, but instead forced its retail network to accept notwithstanding that there was no demand for these products.”
Income was alleged to have been overstated by $11 million after taxes and the lawyers for Froese were seeking millions in damages.
The apparel firm had warned of weaker results in late May 2002 due to inventory discrepancies at its U.S. unit. A second warning was issued at the end of July.
According to Thursday’s decision dismissing the suit, the district court judge granted the defendants’ motion to dismiss for lack of jurisdiction. The judge wrote in his decision that the “fraud itself occurred, if at all, when the allegedly fraudulent statements were conceived, engineered, and published in Germany.”
It was those misstatements, the judge noted, that “directly caused” the financial losses.
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