A federal judge in Manhattan dismissed a class action accusing Gildan Activewear and two executives of insider trading.
According to the lawsuit, CEO Glenn Chamandy and CFO Laurence Sellyn allegedly grossed $96 million just before announcing problems at one of its plants in the Dominican Republic. Investors accused Gildan of failing to disclose that its Dominican textile plant was underperforming and, as a result, sales were below expectations. Gildan allegedly overstated results and “lacked adequate internal and financial controls.”
In his ruling in favor of Gildan, U.S. District Judge Harold Baer Jr. called the claims “empty vessels,” noting that while the plant was experiencing these “major problems,” Gildan posted record profits.
Judge Baer also said shareholders failed to offer any evidence that pinpointed how much the executives actually profited from the sales. He also wrote that the trades occurred “weeks before the principal allegation of material misstatement, and many months before the release of any negative information that caused Gildan's stock price to plummet.”
Although shareholders had argued that Gildan officials should have known of impending problems at the plan, Baer wrote “corporate officials need not be clairvoyant.”
“Allegations that the defendants should have anticipated future events and made certain disclosures earlier than they actually did do not suffice to make out a claim of security fraud,” he wrote. He added that as long as public statements are consistent with available data, corporate officials “need not present an overly gloomy or cautious picture of current performance and future prospects.”
He called the allegations “fraud by hindsight” and added that executives are “entitled to express ordinary corporate optimism, or 'puffery,' without exposing themselves to liability.”
