Stock Plummets. Who’s to Blame?

When a stock price drops almost 75% in 20 months, it’s not shocking to discover a group of investors filed a lawsuit to recover losses. In August 2019 an appeals court issued an opinion in Municipal Employees’ Retirement System of Michigan v. Pier 1 imports, Inc., et al. The complaint: Pier 1 intentionally failed to timely disclose a substantial price markdown risk with rising inventory levels. During a period when new leadership worked to improve Pier 1’s on-line presence, things weren’t always rosy. Once Pier 1 announced the high inventory issue, their stock price, already sliding, dropped 12 percent overnight, and a second announcement caused the stock to plummet an additional 20 percent in just one day. The complaining party contended that Pier 1 leaders’ intentional misrepresentations about inventory resulted in securities fraud.

Spoiler Alert

The trial and appellate courts disagreed ruling the investors had no securities fraud claim. A significant part of the opinion focused on complainants failing to prove “scienter,” a business law term meaning, “a mental state embracing intent to deceive, manipulate, or defraud.” The court’s analysis included, “Knowledge of high inventory does not necessarily equate to knowledge of significant markdown risk—an equally plausible inference is that Smith [CEO] and Turner [CFO] reasonably believed they could fix the excessive inventory problem without resorting to markdowns.” Municipal Employees’ Retirement System of Michigan v. Pier 1 Imports, Inc., et al.

A Riveting Court Opinion?

Think reading court opinions is boring? Admittedly, some opinions are as difficult to slog through as swampland in Louisiana, or maybe more appropriately, Fifth Avenue during the Christmas season. But when the court opinion begins with a quote from Coco Chanel, “Fashion changes, but style endures,” you must keep reading. While the opinion is not a page-turner, it does include a comparison of women’s fashion retail group Ann Taylor to Fort Worth-based furniture retailer, Pier 1 Imports. From a business law standpoint, the opinion cites a myriad of cases regarding scienter while applying the law to the current fact pattern.

Lessons Learned?

The investors, in this case, were managing investments for a city’s retirement system. The motive behind the complex litigation may have been to help the retirees, or perhaps claimants felt the pressure of an investment decision gone bad. What we do know is not all investments are winners. Even when an investor researches a company, its leadership and watches economic and industry trends, the investor can still lose money. Hopefully, the Michigan retirees counting on this fund had managers with a diversified portfolio who analyzed financial statements and reviewed industry trends before investing.

Before you spend all your money on fashion or furnishings, or tape it under your Pier 1 table, seek the advice of experienced, successful investment advisors. Due diligence even in seemingly easy investments is a must, as is continued research and analysis. Diversify your portfolio, and evaluate your investments as the market and economy change. Most importantly, never let down your guard. Don’t rely on family and friends to provide advice. The traditional Ponzi schemes usually rely on family and friends to recommend their investments to others to perpetuate the securities fraud.

We hope your investments are sound and your rewards high. However, if you find yourself in need of a commercial lawyer or a breach of contract attorney, we are ready to put our decades of winning business law experience to work for you.

Mark Alexander
5080 Spectrum, Suite 850E
Addison, Texas  75001
Ph: 972.544.6968
Fax: 972.421.1500

E-Mail: mark@markalexanderlaw.com
www.commerciallitigationtexas.com
www.oilandgasfraudlawyer.com

For informational purposes, not part of the article: http://www.ca5.uscourts.gov/opinions/pub/18/18-10998-CV0.pdf

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Mark Alexander is the principal of the Firm. In 1979, he earned his undergraduate degree at Wayne State University in Detroit, Michigan, and his law degree at Thomas M. Cooley, Lansing, Michigan, in 1985 (Academic Dean’s List).

Mr. Alexander is licensed…

Mark Alexander is the principal of the Firm. In 1979, he earned his undergraduate degree at Wayne State University in Detroit, Michigan, and his law degree at Thomas M. Cooley, Lansing, Michigan, in 1985 (Academic Dean’s List).

Mr. Alexander is licensed to practice law by the Supreme Courts of the States of Texas (1985) and Michigan (1988), and holds licenses before the following courts: Supreme Court of Texas; Supreme Court of Michigan; United States Court of Appeals for the Fifth and Sixth Circuits; United States District Courts for the Northern, Southern, and Western Districts of Texas; and the Eastern and Western Districts of Michigan. In addition he has been admitted in several other Federal and State Courts to represent Texas clients, who have been engaged in significant litigation in those jurisdictions.

Courts have appointed Mr. Alexander to serve as a receiver, and facilitator in complex litigation lawsuits. Additionally he has been a frequent lecturer for organizations on a variety of business law matters.  Mr. Alexander has also served as an Adjunct Professor of Business Law at Henry Ford College in Dearborn, Michigan. Significantly, Mr. Alexander is AV-rated by Martindale-Hubbell, the highest rating an attorney can receive.

Additionally, due to the complex nature of its practice, the Firm has an on-going relationship with a legal group that provides litigation support services. This group is comprised of a team of attorneys, whose combined capabilities allow the group to provide nearly 24-hour coverage at crucial times for any case. This arrangement is but one example of the innovative, cutting-edge approach that the Firm provides to its clients in order to improve representation at reduced legal fees.