Gildan Activewear Wins Insider Trading Ruling

(CN) - A federal judge in Manhattan dismissed a class action accusing T-shirt maker Gildan Activewear and two executives of insider trading. Company officials allegedly pocketed millions by selling shares before news of problems at the companies' Dominican Republic plant sent the stock price plummeting.

The company's investors accused Gildan of failing to disclose that its Dominican textile plant was underperforming and, as a result, sales were below expectations. The sportswear supplier allegedly overstated results and "lacked adequate internal and financial controls."

Gildan had moved its primary facility to the Dominican in 2005 in an effort to reduce costs.

Shareholders said continual technical and maintenance problems plagued the new plant, along with "chronic issues such as layoffs and employee turnover."

U.S. District Judge Harold Baer Jr. called the claims "empty vessels," noting that while the plant was experiencing these "major problems," Gildan posted record profits.

The company and its top executives allegedly delayed revealing the truth about the problems "so they could sell their stock at a huge profit," the complaint states.

CEO Glenn Chamandy and CFO Laurence Sellyn purportedly grossed $96 million by unloading some of their shares.

However, Judge Baer said shareholders failed to offer any evidence that pinpointed how much the executives actually profited from the sales.

Also, Judge Baer said the trades occurred "weeks before the principal allegation of material misstatement, and many months before the release of any negative information that caused Gildan's stock price to plummet."

Shareholders further argued that Gildan should have known the severity of the problems at the Dominican facility. But Baer rejected this claim, saying "corporate officials need not be clairvoyant."

"Allegations that the defendants should have anticipated future events and made certain disclosures earlier than they actually did do not suffice to make out a claim of security fraud," he wrote.

So long as public statements are consistent with available data, Baer said, corporate officials "need not present an overly gloomy or cautious picture of current performance and future prospects."

He called the allegations "fraud by hindsight" and added that executives are "entitled to express ordinary corporate optimism, or 'puffery,' without exposing themselves to liability."

Gildan, based in Canada, sells large quantities of blank T-shirts, polo shirts and fleece to wholesalers in the sportswear market.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit