BERLIN — The law office of Shalov Stone & Bonner in New York filed a shareholder lawsuit in Manhattan federal court on Tuesday against Hugo Boss AG and two former key executives of its U.S. unit.
Shareholder Hasko Froese is seeking class action status. The two former executives named as defendants are Marty Staff, former chief executive officer of Hugo Boss USA, and Vincent Ottomanelli, former chief financial officer of the unit. Co-counsel for the shareholder is the German law firm Rotter Rechtsanwälte, based outside of Munich.
The lawsuit, on behalf of shareholders who purchased shares in the Metzingen fashion firm between Nov. 5, 2001, and May 28, 2002, charged the defendants with federal securities law violations in connection to the issuance of "material misrepresentations" and "omissions of material facts" concerning the company’s financial condition. Staff and Ottomanelli were sued because they, as "control persons," were directly "involved in the day-to-day operations of the company at the highest levels and [were] privy to confidential proprietary information concerning the company and its operations."
The lawsuit said that as of July 2001, there were 70.4 million shares of Hugo Boss common and preferred stock outstanding. The shareholder plaintiff said he believed that there could be "thousands of shareholders of record." Marzotto SpA is Boss’s majority shareholder.
Court documents said that the financial results for the third quarter of 2001 through the first quarter of 2002 were "materially false and misleading because 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."
The company on May 27 lowered its full-year profit forecast for 2002 due to inventory discrepancies during stocktaking in the U.S. The plaintiff shareholder alleged that as a result of the "channel-stuffing scheme," Boss was portrayed as a firm that was financially stable when its condition in fact was severely worse than publicly represented.
Specifically, Froese charged that the firm’s "income was overstated by at least $11 million after taxes." The legal action is seeking class action certification, compensation for unspecified damages and attorneys’ fees. Froese is also demanding a jury trial.Boss, which has not yet seen the suit, declined comment. According to a published report, the lawyers are seeking damages of at least $10 million.
As reported Tuesday, Boss issued another profit warning for 2002 this week, lowering its full-year earnings expectations to $71 million from $96.4 million.
The company had originally projected earnings of $108.6 million. Dollars are converted from euros at current exchange rates.
Since the end of May, Boss preferred shares have lost over half their value, according to Reuters. Common shares closed in Frankfurt at a 52-week low of $11.40 on Wednesday.
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