J.C. Penney is set to dole out $97.5 million to a class of investors who sued over claims that the retailer lied about the state of its finances.
A federal judge in Texas on Monday gave preliminary approval to the settlement, which will put an end to allegations by a class of J.C. Penney investors who bought shares in mid-2013 that the retailer misled them about its state of affairs, leading to inflated share prices.
Between August and September 2013, the class period for the litigation, shares of the retailer were trading between $12 and $13, then an all-time low for Penney’s. Shares have continued to trend down since and are currently trading at around $5.25.
The $97.5 million settlement fund will equal an estimated payout of 64 cents per share purchased during the class period, but the fund is subject to certain deductions, like legal fees. Attorneys for the class are planning to seek one-third of the settlement amount as payment, the maximum allowed under class-action law.
While Penney’s has continued to deny the allegations, it has nonetheless agreed to the settlement.
The investor plaintiffs said in a June court filing outlining the settlement that the deal presents “a very good recovery and is in the best interests of the class.”
“There were significant risks associated with continuing to litigate through trial, and if the defendants prevailed at trial, the class would receive nothing,” the investors said at the time. “In addition, the amount of damages recoverable by the class was and is challenged by the defendants…had the action gone to trial, the defendants intended to assert that they have not violated the law, that they are not liable, and that any losses of class members were caused by non-actionable market, industry, general economic or company-specific factors.”
A hearing on final approval of the settlement is set for November.
A company spokeswoman declined to comment on the settlement beyond referring to an earlier statement by Penney’s saying the deal would be funded by insurance and will have “no financial impact on the company.”
The case was launched in October 2013 by investor Alan Marcus, who claimed the retailer “made false and misleading statements” earlier in the year regarding its liquidity, inventory and overall supplier relationships amounting to securities fraud.
For Penney’s, 2013 was a rocky year. By April, former Apple Inc. retail leader Ron Johnson’s brief stint as chief executive officer was over after his plans to remake the store didn’t prove immediately effective and his predecessor Myron “Mike” Ullman 3rd was brought back for a second round as ceo.
Current ceo Marvin Ellison was tapped in October 2014 as Ullman’s successor, but the chain continued to struggle. Two-thousand sixteen marked the first year since 2010 that Penney’s posted a profit, but that came after closing scores of stores and mass layoffs.
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