A pension fund-led class action lawsuit against Hasbro Inc. accuses the toy company of misleading investors about its financial health to artificially inflate its stock price while its CEO and CFO sold $147 million in personal shares.
According to the lawsuit, Hasbro’s executives allegedly made false statements, or failed to disclose adverse facts known to them about the company, to deceive the investing public regarding its prospects and business. It alleges that this propped up the stock’s price, allowing CEO Brian Goldner and CFO Deborah Thomas to collectively sell more than $147 million of their personally held Hasbro stock to the “unsuspecting public.”
The lawsuit argues that because of the “fraudulent scheme,” anyone who purchased Hasbro stock between April 24, 2017, and October 23, 2017, did so at artificially inflated prices. The lead plaintiff is the City of Warren Police and Fire Retirement System.
The plaintiffs claim that because Goldner and Thomas had the authority to control the contents of Hasbro’s quarterly reports, shareholder letters, press releases, and presentations, they knew that the “adverse facts” were being concealed from the public, and that “the positive representations being made were then materially false and misleading.”
The suit also argues that Goldner and Thomas knew that toy retailer Toys “R” Us, which accounted for 9% of Hasbro’s consolidated net revenues in fiscal year 2016, was in far worse financial condition than was being publicly reported.
Hasbro “knew or recklessly disregarded that Toys “R” Us would have to dramatically scale back its operations or file for bankruptcy and liquidate,” said the lawsuit, adding that “as a result, Hasbro would have to increase its financial support of Toys “R” Us or risk losing one of its most important customers.”
It also said that at the same time, Hasbro was experiencing “significant undisclosed adverse sales issues” in the UK and Brazil, which are two of the company’s main markets. The plaintiffs argue that because of the combination of these issues, the company “lacked a reasonable basis for their positive statements about Hasbro, its revenues, earnings, and prospect.”
The lawsuit cited a July 2017 Hasbro earnings press release that said the company “entered the important second half of the year with strong consumer momentum, a robust and diverse entertainment slate, and compelling new brand initiatives.”
The Pawtucket, Rhode Island-based company denied the allegations, according to the Providence Journal, saying “the claims have no merit and we intend to vigorously defend against them.”