It’s not often that the words “pension” and “see-through clothing” appear in the same sentence. But this week, it happened.
A Louisiana pension fund has been appointed to lead a U.S. litigation against Vancouver-based Lululemon Athletica, whose stock it owned. The pension fund has accused the company of concealing fabric defects that made its signature yoga pants almost see-through, which led to a decline in its stock price.
U.S. District Judge Katherine Forrest in New York appointed the Louisiana Sheriffs’ Pension & Relief Fund, which owned about US$1.3 million of Lululemon stock at the time, as the lead plaintiff. The pension fund is bringing claims on behalf of investors who bought Lululemon stock between March 21, 2013, and June 10, 2013.
In March, Lululemon recalled its bestselling item, women’s black yoga pants, due to customer complaints that the stretch pants were almost sheer.
The pension fund accuses the company of essentially lying to investors that it closely monitored the operations of its third-party manufacturers to ensure the quality of its products and that it was able to manage its “rampant” growth, according to the fund’s law firm, Bernstein Litowitz Berger & Grossmann.
“In truth, Lululemon fuelled its surging growth by disregarding quality control standards and churning out products without adequate quality control testing,” according to a case description on the law firm’s website. “As a result, Lululemon experienced the worst quality problem in the company’s history, executed a massive recall of one of its most important products and ousted its once-beloved CEO and chief product officer.”
Against this backdrop, Lululemon’s shares fell to $67.85 on June 11, 2013, from a high of $82.28 the previous day. This one-day decline of more than 17% erased more than $1.6 billion off the company’s market capitalization.
The other plaintiff in the case against the athletic wear company is Houssam Alkhoury, a resident of Massachusetts who purchased 7,500 shares the day before the stock dropped. “The fabric used was very thin and overly translucent, and essentially rendered the yoga pants see-through when wearers bent over,” he alleges.
His case was merged with that of the Louisiana pension fund, which was appointed by the court to lead the lawsuit because it had a bigger financial stake.
Lulumelon did not immediately respond to a Benefits Canada request for comment.
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