An Adidas stockholder is suing the German sneaker giant for allegedly misleading investors on the risks associated with Kanye West and his Yeezy brand.
HRSA-ILA Funds, on behalf of itself and other Adidas shareholders, filed a class action-complaint Friday against Adidas, former CEO Kasper Rørsted and chief financial officer Harm Ohlmeyer alleging they violated federal securities laws by making “false and misleading statements” that “artificially inflated” Adidas’ stock price.
Ina statement, Adidas said it “outright reject[s] these unfounded claims and will take all necessary measures to vigorously defend ourselves against them.”
A perpetual source of controversy, Ye, the musician-turned-designer commonly known as Kanye West, finally went too far last year, when a series of antisemitic remarks and other outrageous behavior forced Adidas and others to cut ties with the once-lucrative collaborator.
The full weight of this decision became clearer when Adidas released its 2022 preliminary results in February. Uncertain of what the Three Stripes would do with its existing Yeezy inventory, executives warned investors that the company could experience a potential loss of 1.2 billion euros ($1.32 billion) should the Yeezy stock remain unsold. When Adidas shared its full fourth-quarter results in March, it revealed that terminating the Yeezy partnership produced a negative impact of around 600 million euro ($660 million) in the fourth quarter.
Facing rising recession risks in Europe and North America and uncertainty in Greater China as well, Adidas predicted revenues would decline in the high-single digits during the year and that the company would just break even. Failing to sell its Yeezy stock would bring 2023 potential operating losses to an estimated 700 million euros ($770 million).
Plaintiffs in the proposed class-action lawsuit now aimed at Adidas claim that the company’s annual earnings reports for the years 2018 through 2021 failed to address the risks of its Yeezy partnership. It specifically called out these reports for “ignor[ing]” the risk of oversupply of Yeezy shoes should a controversy suddenly bring the partnership to an end or result in demand falling.
The complaint also called out Adidas’ 2020 annual report, which included a section on risks related to media and stakeholder activities.
“While it disclosed that adverse or inaccurate media coverage could have an adverse negative impact on the Company, it failed to disclose that the Company risked considerable negative media coverage if Kanye West made public comments which were consistent with statements he made internally in the Company (such as anti-Semitic statements),” the lawsuit reads.
Though West has long been a source of controversy, a November report published by The Wall Street Journal revealed that Adidas senior leadership had discussed the risk of employee’s “direct exposure” to West as far back as 2018. A presentation to the Adidas executive board, including former CEO Rørsted, outlined mitigation strategies related to the Yeezy collaboration, including cutting ties with the one-time Gap partner, The Wall Street Journal reported.
The November article also cited current and former employees who reportedly witnessed West berate staff and sometimes watch pornography at work, something that was brought to human resources in 2018. He also reportedly made antisemitic comments in front of Adidas staff occasionally, including in 2018 when he floated naming an album after Adolf Hitler.
The lawsuit alleges that Adidas, Rørsted and Ohlmeyer “disseminated or approved false statements” that they knew contained “misrepresentations” and failed to disclose material facts. Rørsted and Ohlmeyer, it adds, had “actual knowledge” of the omissions and/or falsity of the material statements and “intended to deceive” shareholders. As a result, they conclude, the market price of Adidas securities was artificially inflated.
