Lululemon Athletica Inc. is facing another legal proceeding in the U.S. related to the controversial recall of its too-sheer black Luon yoga pants.
Like the other suits, the new filing announced Friday in New York alleges disclosure shortcomings that artificially inflated the stock price of the Vancouver-based retailer of high-end activewear.
Morgan & Morgan, a major American law firm, launched its action in the U.S. District Court for the Southern District of New York on behalf of investors who bought Lululemon stock between March 21 and June 10.
The securities fraud class action suit claims among other things, that defects that made the pants see-through resulted in part from the company's alleged attempts to raise profit margins by cutting costs.
It also alleges that Lululemon stock was artificially inflated as a result of the defendants' positive statements, that the company was forced to sell product at a discount to obtain sales and protect market share and that discussions had been underway concerning the possible replacement of CEO Christine Day.
Day announced she was stepping down on June 10, the same day the company released its first-quarter results. The next day, shares of Lululemon fell $14.43, or 17.5 per cent, to close at US$67.85.
The stock was trading down $1.44 at $63.03 mid-afternoon Friday on the Nasdaq.
Third class action over Luon recall
Earlier this week, a similar class action was filed in New York District Court on behalf of plaintiff Houssam Alkhoury.
A third suit was filed in the Court of Chancery in Delaware by the Hallandale Beach Police Officers and Firefighters' Personnel Retirement Fund in May.
The pension fund filed suit over Lululemon's decision to increase potential bonuses for executives prior to announcing the recall.
It said it wanted to examine the company's corporate books and records to investigate whether the maker of trendy workout gear breached their duties to protect the interests of their shareholders.
The fund alleged Lululemon had suffered "several quality control issues" this year, with the most recent recall of its Luon pants estimated to have cost the company approximately $60 million.
None of the allegations have been proven in court.