The US District Court for the Eastern District of Pennsylvania recently denied a motion to dismiss filed by Urban Outfitters, Inc. and its senior executives in a securities fraud class action. The court found that the plaintiffs’ claims were sufficiently particularized under the heightened pleading standard of the Private Securities Litigation Reform Act of 1995 (PSLRA).
The plaintiffs’ complaint alleges that in 2013, the defendants made a series of statements to the market suggesting that the company’s sales growth in its retail stores was steady, and that it was reducing its use of price markdowns. According to the plaintiffs, in contrast to Urban Outfitters’ representations, sales growth was declining, the company was experiencing excess inventory and stores were marking down their prices on merchandise.
The plaintiffs relied on a number of “confidential witnesses” who are or were purportedly employees at Urban Outfitters’ retail stores. The complaint alleged that these employees were able to observe declining sales figures and increasing markdowns because Urban Outfitters tracked this information in an internal Intranet available to all employees.
The court held that the plaintiffs’ allegations were sufficiently particularized to survive a motion to dismiss. The court held that, while plaintiffs did not provide details such as the dates on which their confidential witnesses learned of their information, they did provide sufficient details regarding their access to such information through the company’s Intranet. Additionally, the court noted that, according to the complaint, one senior executive sold $50 million of stock during the class period, while another officer sold 99 percent of his holdings shortly before the company announced negative results.
In re Urban Outfitters, Inc. Securities Litigation, No. 13-5978 (E.D. Penn. May 4, 2015).