U.S. District Judge Philip Brimmer of Colorado ruled on Feb. 28 that the plaintiffs’ claims did not amount to securities fraud. He said that the alleged misstatements in press releases, financial reports and conference calls were not false and misleading.
“While the 180-page Complaint is detailed, those details almost exclusively reveal mismanagement by Crocs, not fraud,” Brimmer wrote.
Crocs, founded in 2002, had been riding a wave of success on its colorful plastic shoes and had expanded to include other types of apparel, such as t-shirts and socks, according to the ruling.
The share price of Crocs rose by 246% from January through October 2007. But problems in inventory buildup prevented Crocs from meeting demand by retailers. At times, the company resorted to leasing jets to ship shoes, according to the ruling.
Then, on Oct. 31, 2007, Crocs revealed that distribution problems had caused a buildup of inventory, the ruling said. Its share price dropped on Nov. 1 from $74.75 to $47.74. By April 15, 2008, the share price had reached $10.11.
“The official start of the recession is December 2007, so all that growth, including expected and future growth, ran into the recession and left them with a bunch of inventory that they had to later on in 2008 write off,” said Erik Olson, a partner in the Palo Alto, Calif., office of Morrison & Foerster who represented Crocs and the individual defendants.
Brimmer also dismissed insider trading claims. The consolidated complaint, which combined five shareholder lawsuits, had alleged that some of the defendants illegally sold 2.8 million shares worth $195.6 million.
Lead plaintiffs’ attorney Charles Piven, name partner of Brower Piven in Baltimore, Md., did not return a call for comment.
The proposed class would have included investors who purchased shares of Crocs from April 2, 2007, to April 14, 2008.
The case also was dismissed against Deloitte & Touche, the outside auditor for Crocs. The accounting firm’s lawyer, Scott Fink, a partner in the San Francisco office of Gibson, Dunn & Crutcher, did not return a call for comment.