Oct 1 A JC Penney Co shareholder on
Tuesday sued the struggling retailer over its surprise decision
to issue more than $810 million of stock to shore up liquidity,
which led to a steep drop in its share price.
The plaintiff, Alan Marcus, said JC Penney publicly assured
investors in August and September that its business was
improving and that it saw no need to raise capital, only
subsequently to agree to sell 84 million common shares at $9.65
Marcus accused JC Penney of knowing it did not have enough
liquidity to get through the holiday season without raising new
capital, and said the Plano, Texas-based company concealed this
knowledge so as not to raise concern among vendors.
He said when the truth became known, investors "hammered"
the share price, including on Friday, when it dropped 13.1
percent and JC Penney announced the terms of its stock offering.
"As a result of defendants' false statements, JC Penney
stock traded at artificially inflated levels," Marcus said in a
complaint filed with the U.S. District Court in Tyler, Texas.
A JC Penney spokeswoman declined to comment, saying the
company could not discuss pending litigation.
Marcus said he bought 300 JC Penney shares on Sept. 26, just
before news of the stock offering seeped into the market.
He is seeking class-action status on behalf of shareholders
from Aug. 20 to Sept. 26. Marcus is represented by the
class-action specialist firm Robbins Geller Rudman & Dowd.
In a regulatory filing on Tuesday, JC Penney said it expects
net proceeds of $785.8 million from the stock offering and
potentially $903.8 million if underwriters led by Goldman Sachs
& Co boost the size by 15 percent.
When it announced the share sale, JC Penney also projected
having $1.3 billion of cash by the end of the year. In August,
it had forecast $1.5 billion.
JC Penney has been struggling to boost sales in its
approximately 1,095 stores after a failed attempt by Chief
Executive Myron Ullman's ousted predecessor, Ron Johnson, to
move it up-market and reduce its dependence on heavy discounting
to lure shoppers.
"We could not risk losing the confidence of our Associates
or our supplier partners, both of whom are paramount to our
long-term success," Ullman said in a note on Friday to store
Ullman and Chief Financial Officer Kenneth Hannah are also
defendants in the lawsuit.
JC Penney shares closed down 7 cents at $8.75 on Tuesday,
about 90 percent below where they traded as recently as February
The case is Marcus v. JC Penney Co et al, U.S. District
Court, Eastern District of Texas, No. 13-00736.