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MajorsJun 25, 2019
Judge Denies Signet’s Motion in Securities Fraud Lawsuit
Signet Jewelers sought to have one of the two claims brought against it by shareholders in a 2016 suit dismissed.
New York—Earlier this month, a New York federal judge denied Signet Jewelers Ltd.’s request to dismiss one of the two claims contained in a lawsuit brought against it by shareholders.
The Public Employees’ Retirement System of Mississippi, a pension fund, is the lead plaintiff in a purported securities class-action against Signet originally filed in 2016.
The lawsuit accuses the jewelry retailer of misrepresenting two aspects of the company: the health of its credit portfolio (which the company has since outsourced) and allegations of a culture of “pervasive” sexual harassment.
The sexual harassment aspect of the shareholder lawsuit relates to Jock, et al. v. Sterling Jewelers Inc., a subsidiary of Signet. That case was filed in March 2008 by several women accusing the company of discriminatory pay and promotion practices based on their gender.
Though the case itself contains no allegations of sexual harassment, documents eventually unsealed in connection to the case, and reported on by The Washington Post as well as other media outlets, painted a picture of a culture where women were objectified, disrespected and scared of retaliation, generating a lot of negative publicity for the retailer and, the shareholders noted in their lawsuit, sending Signet’s stock price plummeting.
Signet previously sought to have the entire shareholder lawsuit dismissed, but U.S. District Court Judge Colleen McMahon denied that motion in November 2018.
In May 2019, the retailer sought the dismissal of the claims relating to its company culture. It filed a motion for a judgement on the pleadings, which is when a party asks the court to rule in its favor based not on new evidence but interpretation of the law.
Signet asked the court to take a look at a March ruling from the Second Circuit Court of Appeals in a case called Singh v. Cigna Corp.
In that case, a shareholder alleged that Cigna’s pamphlet about its code of ethics misled investors about its compliance with Medicare regulations, court documents show.
The code of ethics, which included statements about staying in compliance with the law and acting with integrity, was determined to be a “textbook example of puffery,” court papers state, meaning the statements were too general for a reasonable investor to take into consideration when buying shares of the company.
Signet argued in its motion for a judgement on the pleadings that its code of conduct should be viewed in the same manner, but Judge McMahon disagreed and
in a June 11 ruling denied its request to have a portion of the investor lawsuit dismissed.
In her ruling, the judge wrote that statements included in a company’s code of conduct can be specific enough for investors to rely upon when deciding to invest in a company.
The judge also noted that the Singh v. Cigna decision did not mean that all company codes of conduct were now “inactionable” and highlighted the importance of context.
McMahon summarized the plaintiff’s argument, stating: “In the face of a credible accusation (by way of another lawsuit) that Signet suffered from rampant sexual harassment … defendants sought to reassure the investing public that Signet did not, in fact, have a toxic workplace.”
The judge pointed to examples of Signet’s public reassurances, including its denial of the allegations in its SEC filings; its affirmations that hiring decisions were made based on merit, that misconduct would be disciplined, and that sexual harassment could be reported without fear of retaliation; and its assurance that its senior executives were held to high standards.
“As alleged, a reasonable investor—who otherwise would be concerned about how grave allegations concerning rampant sexual misconduct might affect her investment in Signet—took defendants at their word,” McMahon wrote. “As alleged, their word was not truthful.”
Signet’s attorneys requested last Tuesday that the judge reconsider due to alleged factual errors, including errors about when the code of conduct was published in relation to the Jock case.
McMahon denied that motion Thursday, stating that the court did not rely on factual inaccuracies or mischaracterizations.
“The problem for defendants is that …. Signet’s codes of conduct and ethics—again, reincorporated by reference in Signet’s SEC filings and posted on Signet’s website after Jock was filed—touted certain values and practices that constitute the exact opposite of what the company allegedly valued and practiced,” she wrote.
The securities fraud case against Signet is still in pre-trial proceedings and the court has not officially certified it as a class action.
Signet Jewelers declined to comment on the judge’s ruling, saying it does not comment on pending legal matters.
The investors’ counsel did not respond to request for comment.
In her ruling, the judge wrote that statements included in a company’s code of conduct can be specific enough for investors to rely upon when deciding to invest in a company.
The judge also noted that the Singh v. Cigna decision did not mean that all company codes of conduct were now “inactionable” and highlighted the importance of context.
McMahon summarized the plaintiff’s argument, stating: “In the face of a credible accusation (by way of another lawsuit) that Signet suffered from rampant sexual harassment … defendants sought to reassure the investing public that Signet did not, in fact, have a toxic workplace.”
The judge pointed to examples of Signet’s public reassurances, including its denial of the allegations in its SEC filings; its affirmations that hiring decisions were made based on merit, that misconduct would be disciplined, and that sexual harassment could be reported without fear of retaliation; and its assurance that its senior executives were held to high standards.
“As alleged, a reasonable investor—who otherwise would be concerned about how grave allegations concerning rampant sexual misconduct might affect her investment in Signet—took defendants at their word,” McMahon wrote. “As alleged, their word was not truthful.”
Signet’s attorneys requested last Tuesday that the judge reconsider due to alleged factual errors, including errors about when the code of conduct was published in relation to the Jock case.
McMahon denied that motion Thursday, stating that the court did not rely on factual inaccuracies or mischaracterizations.
“The problem for defendants is that …. Signet’s codes of conduct and ethics—again, reincorporated by reference in Signet’s SEC filings and posted on Signet’s website after Jock was filed—touted certain values and practices that constitute the exact opposite of what the company allegedly valued and practiced,” she wrote.
The securities fraud case against Signet is still in pre-trial proceedings and the court has not officially certified it as a class action.
Signet Jewelers declined to comment on the judge’s ruling, saying it does not comment on pending legal matters.
The investors’ counsel did not respond to request for comment.
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