Schubert Jonckheer & Kolbe LLP is exploring whether certain officers and directors at Urban Outfitters Inc. breached their fiduciary duties to the company and its shareholders by allegedly making improper insider sales and/or misrepresenting information about slowing sales growth in Urban Outfitters stores.
The Schubert firm’s investigation stems from a class action suit that was filed in U.S. District Court for the Eastern District of Pennsylvania in November 2013 that claimed that Urban Outfitters’ chief executive officer Richard Hayne and chief financial officer Frank Conforti made improper insider sales of Urban Outfitters stock and made numerous false and misleading statements about sales during the class period from March 12, 2013 through Sept. 9, 2013.
On May 4, Judge Luis Felipe Restrepo denied the defendants’ motion to dismiss the complaint in that case. The complaint alleges that during the class period, defendants engaged in a fraudulent scheme to artificially inflate the stock price by misrepresenting and concealing information related to failed product assortments and the resulting deceleration in sales growth during the first half of fiscal year 2014, leading up to and including Urban’s back-to-school season, according to Robins Geller Rudman & Dowd LLC. In denying the motion to dismiss in its entirety, the court rejected defendants’ challenges to virtually every element of the claims, the firm claimed.
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Urban Outfitters had not responded to requests for comment Thursday, nor had Robins Geller.
Among the plaintiff’s allegations filed in that lawsuit are that:
* Hayne sold about 1.2 million shares of common Urban stock for a profit of more than $50 million. The stock sales were unusual due to the time and amount since Hayne had not sold any stock in the 18 months prior.
* Conforti sold a total of 27,000 shares of common stock that totaled more than $1.1 million and accounted for more than 99 percent of his holdings. He too had not sold any of his shares in Urban during the 18 months prior.
* The suit charges that a week after Conforti sold 22,000 shares (for a total of 27,000), Urban reported third-quarter sales fell by more than 10 percent.
According to the suit, that sudden decline in third-quarter sales growth was not a surprise to Urban employees who were aware of persistent markdowns and promotional activity, which started in the beginning of the fiscal year. In addition, a few confidential witnesses, who were former Urban Outfitters employees, attest that employees could access total sales in North America and sales figures at any Urban brand store via an Intranet page. The company’s headquarters also allegedly released an Intranet newsletter called The Slant detailing promotional and sales event information and markdowns to be instituted.
Meanwhile, Schubert Jonckheer & Kolbe is investigating whether certain officers and directors breached their fiduciary duties to the company and thereby exposed the company to liability in the class action, according to the firm’s Miranda Kolbe.