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Victoria’s Secret’s parent company is facing legal action – not for the bra and underwear designs it is being called out for swiping from ex-employee Jennifer Zuccarini’s label Fleur du Mal – but instead, for allegedly violating federal securities laws by making “materially false and misleading statements and/or failing to disclose adverse information regarding L Brands’ business and prospects,” thereby, causing investors to pay “artificially inflated prices for L Brands common stock,” only to have stock prices fall late last year, and throughout this year, as well.

According to the proposed class action lawsuit that L Brands shareholder Rickey Walker filed on behalf of himself and similarly situated shareholders in a federal court in Ohio last month, L Brands, its founder and chairman Leslie Wexner, and Chief Financial Officer Stuart Burgdoerfer have engaged in a “fraudulent scheme … [that has] deceived the investing public regarding L Brands’ business … and [its] present and future business prospects,” as well as “the intrinsic value of L Brands common stock.” As a result of such alleged wrongdoing, the defendants caused Walker “and the class to purchase L Brands publicly-traded common stock at artificially inflated prices.”

In the complaint, counsel for Walker asserts that in light of “deteriorating operating performance at [its] flagship Victoria’s Secret and PINK, businesses, as well as L Brands decreasing operating cash flows and rising debt levels,” on multiple occasions, Burgdoerfer “misled investors by stating that L Brands had sufficient cash flow and cash on hand to sustain its dividends,” (i.e., the distribution of a portion of a company’s earnings to holders of its stock), and that L Brands “in its history, has never reduced the dividend.”

Just weeks after Burgdoerfer issued public statements in May, June, and August 2018, saying that L Brands was “comfortable” with its current dividends, “L Brands announced that it was cutting its dividend in half so that it could pay down existing debt,” prompting L Brands stock price to drop 18 percent “from $34.55 per share on November 19, 2018 to $28.43 per share on November 20, 2018.”

While Retail Dive’s Ben Unglesbee states that “reducing the dividend may have been the financially sound move [for L Brands], the lawsuit argues that executives should have known about the cut and revealed earlier that it would likely be necessary.”

More than that, though, Walker asserts that on or after May 31, 2018, L Brands further injured investors by way of filings with the Securities and Exchange Commission, in which it “failed to disclose material risks associated with its cash requirements, liquidity and/or capital resources that made an investment in the company risky.”

By certifying those filings, Wexner and Burgdoerfer – who have a legally-mandated “responsibility to investors for establishing and maintaining controls to ensure that material information about L Brands is made known to them and that the company’s disclosure related controls were operating effectively” – “knew or recklessly ignored facts related to the core operations of L Brands.”

Walker asserts that had he known “that the market prices had been artificially and falsely inflated [as a result of the defendants’] misleading statements,” he – and the class of other shareholders – “would not have purchased L Brands common stock at the prices they paid, or at all.” Because they did, and “as a direct and proximate result of the defendants’ wrongful conduct,” Walker and his fellow plaintiffs claim that they “have suffered damages in connection with their purchases of L Brands common stock.”

In addition to seeking court-certification of his proposed class action suit to enable other L Brands shareholders to take part, Walker has asked the court to award him and  the other members of the class “damages together with interest,” their costs and expenses of this litigation, including reasonable attorneys’ fees, and any further relief that the court deems reasonable.

UPDATE (October 16, 2020): In an opinion and order, Judge Sarah D. Morrison granted the defendants’ motion to dismiss, holding that while “Victoria’s Secret and PINK began experiencing significant decline in financial performance due to the popularity of new lingerie brand” in the years leading up to the class action period and by “February 2018, L Brands’ credit ratings were equivalent to that of junk bonds,” the plaintiff’s claims that Wexner and co. ran afoul of federal securities laws by “falsely and misleading reassured investors the Company’s dividend amount was sustainable” are not actionable.

According to the court, in order to prevail on a securities fraud claim, a plaintiff must satisfy the heightened pleading standards, including that the plaintiff “specify each statement alleged to have been misleading, [and] the reason or reasons why the statement is misleading” and “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind,” and Walker failed to do so for a number of reasons, including by alleging that certain opinion-based statements were misleading.

*The case is Rickey R. Walker v. L Brands, Leslie H. Wexner, and Stuart B. Burgdoerfer, 2:19-cv-03186 (S.D. Ohio).