Two former top executives of Bauer skate manufacturer Performance Sports Group Ltd. have agreed to pay US$13-million to compensate shareholders who alleged they were misled about the company’s performance in 2015 and 2016 before it filed for bankruptcy protection.
Former chief executive officer Kevin Davis and former chief financial officer Amir Rosenthal were accused of using improper tactics to inflate the company’s sales, according to a class-action lawsuit filed in U.S. District Court for the Southern District of New York.
The settlement will be funded entirely by the company’s insurance carriers.
Performance Sports Group was created in 2014 after the company behind the iconic hockey brand Bauer purchased Easton, a baseball equipment manufacturer. The Exeter, N.H.-based sports company quickly announced it would open its own retail stores, a blow to its retailer customers who fought over an already-tight market. Independent sports retailers told The Globe and Mail in 2016 that they were being forced to purchase increasingly larger orders, under the treat that wholesale discounts would be revoked.
Later that year, Performance Sports Group and 17 of its affiliates filed for bankruptcy protection in Canada and the United States. At the time, it had a market value of US$181-million and more than US$440-million in debt. Soon after, investors, led by the Plumbers & Pipefitters National Pension Fund, filed legal action, claiming that Mr. Davis and Mr. Rosenthal had used shady accounting and sales tactics to misrepresent the company’s success.
This included inflating its financial results through tactics such as channel stuffing, where a company sends more product to its retailers than can be sold to the public, and threatening that retailers who didn’t buy enough would lose substantial wholesale discounts.
According to a court filing, the settlement was reached after extensive litigation, which included a substantial investigation into more than 21.2 million pages of documents produced by the company’s bankruptcy estate.
The company was also investigated by the U.S. Securities and Exchange Commission and other securities regulators in the United States and Canada for fraudulent business practices. However, neither Mr. Davis nor Mr. Rosenthal were charged for wrongdoing.
Lawyers for Mr. Davis did not respond The Globe’s requests for comment and Mr. Rosenthal’s counsel declined to comment.
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