Men’s Wearhouse Execs Dodge Shareholder Suit

     HOUSTON (CN) – Shareholders lost their fight to hold Men’s Wearhouse executives liable for allegedly misrepresenting the retailer’s projected earnings, boosting stock prices and giving “insiders” the chance to sell before prices fell.
     Material Yard Workers Local 1175 Benefit Funds filed a class action for violations of the Securities Exchange Act in federal court on behalf of those who bought Men’s Wearhouse stock between March 7, 2007, and January 9, 2008.
     The fund accused Men’s Wearhouse co-founder George Zimmer and executive Neill Davis of duping them into buying shares of the clothing company’s stock “at artificially inflated prices.”
     While Zimmer and Davis gave deceptively rosy projections for the company’s earnings to drive up prices, “insiders” ditched their own shares before the prices dropped, according to the complaint.
     U.S. District Judge Lynn Hughes tossed the case and filed an 11-page opinion on Friday.
     The fund failed to convince the judge that the executives were deceptive or that they sold their stock in response to insider information.
     Hughes criticized the fund’s use of information from four undisclosed employees of Men’s Wearhouse and two subsidiaries. “A party who presents the stories of unnamed people is neither giving the court nor the defendant a plain statement of the facts,” Hughes wrote. “When the fund offers facts from people whom it will not name, it is dissembling. A secret witness is not far above a false witness.”
     “Assuming that when unmasked they would testify, their statements do not support the claim,” the decision states. “These people disagreed with their superiors about the policy and strategy of Wearhouse executives. Their prediction of financial ruin – what became only a modest loss in actuality – shows their misplaced understanding of the facts at the time and their inability to anticipate the economy, consumer, and management.”
     The judge dismissed the case and concluded by saying: “The fund has lawyer friends. They talk. The fund decides to let them initiate a securities case. If the fund is wrong, it walks away with no responsibility for having wasted the company’s owners’ wealth. This lack of reciprocity creates what economists call a perverse incentive.”
     “The fund cloaked its ephemeral facts with the jargon of three laws. None of the facts suggests a violation of them.”

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