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In Re Signet Jewelers Limited Securities Litigation 16-CV-06728-Third Amended Class Action Complaint for Violations of the Feder

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In Re Signet Jewelers Limited Securities Litigation 16-CV-06728-Third Amended Class Action Complaint for Violations of the Feder Case 1:16-cv-06728-JMF Document 86 Filed 09/29/17 Page 1 of 181 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK Case No.1:16-CV-06728-JMF THIRD AMENDED CLASS ACTION In re Signet Jewelers Limited Securities COMPLAINT FOR VIOLATIONS OF Litigation THE FEDERAL SECURITIES LAWS JURY TRIAL DEMANDED Case 1:16-cv-06728-JMF Document 86 Filed 09/29/17 Page 2 of 181 TABLE OF CONTENTS I. INTRODUCTION .............................................................................................................. 2 II. JURISDICTION AND VENUE ......................................................................................... 8 III. THE PARTIES.................................................................................................................... 9 1. Lead Plaintiff .............................................................................................. 9 2. Defendants .................................................................................................. 9 IV. SUMMARY OF THE FRAUD ........................................................................................ 11 A. Signet Misrepresented the Credit Quality Of Its In-House Loan Portfolio, its Underwriting Process, and Its Loan Loss Reserves .............................................. 11 1. Signet’s Consumer Lending Portfolio Was Critical To The Company’s Value, and Was a Key Focus of the Market and Defendants ................... 11 2. As the Credit Portfolio Increases in Size to Drive Sales, Defendants Repeatedly Assure Investors that Their Underwriting Is Conservative and Credit Quality is Strong ..................................................................... 13 3. Contrary to Defendants’ Statements, Signet Had Engaged In High- Risk Lending Practices To Drive Loan Volume, Thus Filling Its Credit Portfolio With Huge Amounts of Toxic Loans......................................... 20 4. As Signet’s Hidden Credit Problems Begin to Emerge, Defendants Issue False Assurances to Quell Market Concern..................................... 28 5. The Truth Emerges ................................................................................... 36 a. Contradicting Their Prior Representations about the Strength of the Credit Portfolio, Defendants Announce That Signet Has Retained a Third Party to Review the Portfolio, and Is Considering Selling It ................................................................... 36 b. As Signet Is Forced To Tighten Its Underwriting Practices, Its Sales Rapidly Decrease ................................................................. 40 c. As Market Concern Intensifies Over Defendants’ Use of Recency Accounting, the SEC Questions the Company, and Signet Stonewalls .......................................................................... 44 d. Defendants Reveal that the Portfolio Contains $700 to $800 Million in Subprime Loans, Which Are So Toxic that Signet Has Not Been Able to Find a Buyer for Them ............................. 47 Case 1:16-cv-06728-JMF Document 86 Filed 09/29/17 Page 3 of 181 B. Signet Misled Investors about a Culture of Sexual Harassment at the Company ............................................................................................................... 49 1. Signet Repeatedly Mischaracterized the Jock Actions and Made Misleading Statements Concerning the Conduct of Its Business ............. 50 2. In Reality, and Contrary to Signet’s Representations, Signet Had a Culture of Rampant Sexual Harassment Reaching up to the Highest Levels of the Company ............................................................................. 57 a. Sterling Management—Including Executives at the Highest Levels of the Company—Were Known Throughout the Company for Harassing Female Subordinates .............................. 58 b. Sterling Executives Routinely Sexually Harassed Subordinates at Sterling’s Annual Managers’ Meetings and Other Special Events ............................................................................................ 61 c. Sterling Executives Regularly Harassed Female Subordinates in the Ordinary Course of Business .............................................. 65 d. Sterling Executives Regularly Conditioned Employment Decisions Concerning Female Employees on Whether or Not Those Employees Acceded to Sexual Demands ........................... 67 e. Sterling Repeatedly Failed to Respond to Sexual Harassment Allegations and to Protect Female Employees who Complained of Sexual Harassment from Retaliation ........................................ 71 f. Sterling Repeatedly Attempted to Intimidate Employees into Silence in the Context of the Actions ........................................... 77 3. The Truth Emerges ................................................................................... 79 V. POST-CLASS PERIOD EVENTS ................................................................................... 84 VI. ADDITIONAL SCIENTER ALLEGATIONS ................................................................. 87 A. Additional Scienter Allegations Related to the Statements Concerning the Credit Operation.................................................................................................... 87 B. Additional Scienter Allegations Related to the Statements Concerning the Arbitration and the Conduct of Signet’s Business ................................................ 91 VII. SIGNET MATERIALLY UNDERSTATED THE RESERVES FOR ITS LOAN PORTFOLIO, THEREBY MATERIALLY OVERSTATING ITS INCOME ................ 92 VIII. MATERIALLY FALSE AND MISLEADING STATEMENTS AND OMISSIONS .... 99 - ii - Case 1:16-cv-06728-JMF Document 86 Filed 09/29/17 Page 4 of 181 A. Materially False And Misleading Statements And Omissions Concerning The Second Quarter Fiscal 2014 ................................................................................ 100 B. Materially False And Misleading Statements And Omissions Concerning The Third Quarter Fiscal 2014 ................................................................................... 107 C. Materially False And Misleading Statements And Omissions Concerning The Fourth Quarter And Full Fiscal Year 2014 ......................................................... 111 D. Materially False And Misleading Statements And Omissions Concerning The First Quarter Fiscal 2015 .................................................................................... 117 E. Materially False And Misleading Statements And Omissions Concerning The Second Quarter Fiscal 2015 ................................................................................ 121 F. Materially False And Misleading Statements And Omissions Concerning The Third Quarter Fiscal 2015 ................................................................................... 124 G. Materially False And Misleading Statements And Omissions Concerning The Fourth Quarter And Full Fiscal Year 2015 ......................................................... 129 H. Materially False And Misleading Statements And Omissions Concerning The First Quarter Fiscal 2016 .................................................................................... 133 I. Materially False And Misleading Statements And Omissions Concerning The Second Quarter Fiscal 2016 ................................................................................ 136 J. Materially False And Misleading Statements And Omissions Concerning The Third Quarter Fiscal 2016 ................................................................................... 138 K. Materially False And Misleading Statements And Omissions Concerning The Fourth Quarter And Full Fiscal Year 2016 ......................................................... 142 L. Materially False And Misleading Statements And Omissions Concerning The First Quarter Fiscal 2017 .................................................................................... 149 M. Materially False And Misleading Statements And Omissions Concerning The Second Quarter Fiscal 2017 ................................................................................ 153 N. Materially False And Misleading Statements And Omissions Concerning The Third Quarter Fiscal 2017 ................................................................................... 156 O. Materially False And Misleading Statements And Omissions Concerning The Fourth Quarter and Full Fiscal Year 2017 .......................................................... 159 IX. LOSS CAUSATION ....................................................................................................... 160 A. The Credit Portfolio ............................................................................................ 160 - iii - Case 1:16-cv-06728-JMF Document 86 Filed 09/29/17 Page 5 of 181 B. Sexual Harassment .............................................................................................. 166 X. THE INAPPLICABILITY OF THE STATUTORY SAFE HARBOR .......................... 167 XI. THE PRESUMPTION OF RELIANCE ......................................................................... 168 XII. CLASS ACTION ALLEGATIONS ............................................................................... 169 XIII. CAUSES OF ACTION ................................................................................................... 170 XIV. PRAYER FOR RELIEF ................................................................................................. 175 XV. JURY DEMAND ...........................................................................................................
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