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The world’s largest maker of soup may have lied to investors as to just how “M’m! M’m! Good!” its sales were from 1997 to 1999. And now a federal judge from the New Jersey district court has given the plaintiffs, including Connecticut’s state treasurer, reason for elation by ruling that a class action lawsuit against Campbell Soup Co. should proceed. “This is a complete victory at this stage of the litigation that will permit this important case to move forward to the central issue — the financial harm done by Campbell’s actions,” Connecticut State Treasurer Denise Nappier said. The state treasurer, one of three lead plaintiffs in the class action suit, represents pension beneficiaries and other investors as a trustee for the Connecticut Retirement Plans and Trust Funds in an attempt to recover losses resulting from the company’s alleged fraudulent activities. According to Hartford, Conn., attorney Andrew Schatz, of Schatz & Nobel — one of three lead counsel in the case — the class action suit alleges that Campbell, headquartered in Camden, N.J., violated sections of the Securities Exchange Act of 1934. Schatz said the company misled investors by engaging in a scheme to falsely portray Campbell as achieving “record sales;” a significant growth rate in both sales and earnings; and earnings in line with earnings estimates publicly disseminated by securities analysts. Schatz said Campbell’s scheme included a practice known as “loading.” During the last month of each fiscal quarter, sales people from the company would offer steep discounts — 15 percent to 20 percent in this case — in order to induce sales to customers who already had more than enough Campbell products in inventory. The class action complaint, Laborers Local 1298 Pension Fund v. Campbell Soup Company, Dale F. Morrison and Basil L. Anderson, states the company “disseminated materially false and misleading information” to the investing public about business operations and financial performance between Sept. 8, 1997, and Jan. 8, 1999. Morrison was the president and CEO at Campbell during the period in question, while Anderson was the company’s executive vice president and chief financial officer. Both have since been replaced. The suit was filed by Schatz, New Jersey attorney Lisa Rodriguez of Rodriguez & Richards, and attorneys from Berger & Montague in Philadelphia. Last month, federal Judge Joseph E. Irenas of the U.S. District Court for the District of New Jersey, denied Campbell’s motion to dismiss, largely due to the plaintiffs’ substantial arguments supporting their many allegations. The suit, in some aspects, echoes similar problems faced by Florida-based Sunbeam Corp., which filed for Chapter 11 bankruptcy in February. Former Sunbeam chairman Albert Dunlap is facing a civil fraud complaint with the Securities and Exchange Commission for allegedly conjuring up an accounting scheme to inflate earnings, including recording the appliances the company made as sold when they had yet to be delivered to retailers. The Arthur Andersen accounting firm, a former Sunbeam auditor, agreed in April to pay $110 million to settle a class action suit brought by shareholders of the company. “We have some of that in the Campbell case,” Jeffrey Nobel, also of Schatz & Nobel, said of some financial impropriety claims made against Sunbeam. Counsel for the defense, which includes attorneys from New Jersey’s Latham & Watkins and New York’s Cravath, Swaine & Moore, argued that the company’s loading practices were known to the public through various analyst reports. They also claimed that statements made about the company’s projection of revenues were forward-looking statements and, as such, were not actionable due to the safe harbor provisions of the Private Securities Litigation Reform Act. Although lawyers for Campbell argued that companies need not disclose their sales practices and the plaintiffs’ claims that the “loading” was extraordinary did not affect their disclosure obligations, Judge Irenas noted the “plaintiffs did not allege loading in and of itself was fraudulent” but rather claimed a failure to disclose material information without which investors might reasonably be misled. Schatz said such loading practices were due to a large “buy in” by Campbell’s customers, mainly wholesalers and grocery store chains, which made substantial purchases during the third fiscal quarter in 1997 due to an anticipated price increase. An amended complaint, filed last June after Connecticut was named as a lead plaintiff in the case, also alleges the company induced customers to take additional product by assuring the customers that the product could be returned if it could not be sold within a reasonable time. “Although the customer paid for the product the revenue recognized on these transactions was improper and in contravention of the Generally Accepted Accounting Principals,” the attorneys wrote in the complaint. “Due to the unprecedented level of loading, Campbell’s was unable to reasonably estimate the amount of returns and, in connection with the ‘sham shipments’ described below, the risk of loss did not pass to the buyer at the time of sale.” Schatz said in fiscal 1998, Campbell’s customers’ warehouses were so full of the company’s products that the customers had nowhere to store subsequent purchases. In order to continue the loading practices, he said, the company would sell the products but would not ship them. Instead, the company would place the product on trucks parked at Campbell’s facilities until the customer needed them. Irenas wrote in his decision that the defendants’ repeated statements that “shipments are made promptly” contradicted the company’s alleged practice of storing “purchased” product. On Jan. 12, 1999, Campbell CEO Dale Morrison told securities analysts his company “planned to end its long-time practice of offering retailers rebates and steep discounts at quarters’ end as a way to entice the stores to stock up on soup so the company could meet its sales target.” However, according to the complaint, Morrison failed to disclose the extent of the loading and the effect it could have on future quarters. He also didn’t disclose the questionable revenue recognition practices and sham shipments. Irenas sharply chastised the defense attorneys for misquoting and improperly applying Pension Benefit Guar. Corp. v. White Consol. Indus. to support the defense’s proposition that a “plaintiff with a legally deficient claim could survive a motion to dismiss simply by failing to attach a dispositive document.” “Misquoting cases is not acceptable in the Southern District of New York nor is it acceptable in the District of New Jersey,” Irenas chastised. The plaintiffs also alleged in the complaint that the company overstated its reported revenue by treating discounts given to customers as a marketing expense rather than reducing the amount of revenue by the amount of the discounts. That maintained “the appearance of higher sales and gross margins which defendants touted and upon which analysts focused,” the attorneys wrote. Shortly before the opening of the first market-trading day in January 1999, Campbell announced to the investing public that fiscal-year earnings would fall up to 23 cents a share [between $77 million and $100 million] below analysts’ estimates. The stock market reacted by driving down Campbell’s stock price by nearly 16 percent. “Instead of disclosing that the failure to meet earnings estimates were as a result of its loading practices, improper revenue recognition, sham shipments and sham recordings of sales and profits, Campbell blamed the earnings shortfall on ‘inefficiencies in the supply chain’ and ‘unseasonable warm weather,’ ” the attorneys wrote.

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