Lawsuit
blasting finance ‘falsities’
Accounting
firm report on Fruit of the Loom led to worthless buys: suit
By Justin Willis,
jwillis@bgdailynews.com
--
270-783-3256
Troubled
garment maker Fruit of the Loom, already under fire with a class-action
suit that targets two former executive with allegations of fraud, is at
the center of a new legal action.
The latest
complaint, filed Wednesday in U.S. District Court in Bowling Green, alleges
the Chicago accounting firm Ernst & Young contributed to the
fueling of false public notions that Fruit of the Loom, which filed for
bankruptcy in December, was successfully recovering from a massive 1995
reorganization that detractors contend sabotaged the company’s finances.
The complaint,
filed through Bowling Green attorney Stephen B. Catron, seeks unspecified
damages on behalf of New England Health Care Employees pension fund.
The fund
purchased 10,500 shares of Fruit of the Loom stock in 1997 after an Ernst
& Young audit report of 1996 financial statements indicated millions
of dollars in Fruit of the Loom write-offs were part of a restructuring
effort and the company appeared to be headed toward strong growth, the
lawsuit contends.
The lawsuit
claims normally accepted accounting standards were not used for
the report.
“Ernst and
Young is liable for making false statements and participating in a scheme
which permitted Fruit’s officers and directors to sell almost 1.4 million
shares of Fruit stock at artificially inflated prices for $46-plus million
in insider trading profits,” the complaint said.
In 1996,
Fruit of the Loom appeared to have a major recovery – enhanced, the complaint
said, by a false and unqualified audit report – and investors sought Fruit
of the Loom’s stock. The stock rose to $38 a share by the end of 1996 and
its all-time high of $44 7/8 by March 1997.
Behind the
scenes, however, the company’s finances were dangerously plummeting, the
lawsuit asserts.
|