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.

 

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