Facts

The Public School Teachers' Pension & Retirement Fund of Chicago and the Arkansas Teacher Retirement System filed suit against RH, Inc., its CEO Gary Friedman, and its Co-President and CFO Karen Boone, in relation to defendants' statements concerning its RH Modern product line and the company's inventory levels.

PLAINTIFFS' CONTENTIONS: Plaintiffs alleged that defendants made false and misleading statements regarding the in-stock merchandise of their new RH Modern product line, and these false and misleading statements deceived shareholders. Plaintiffs contended that defendants repeatedly assured investors that RH was prepared for the launch of its RH Modern product line by claiming the inventory levels were growing, the necessary inventory investments were being made, and it could compete on speed of delivery for the product line. Plaintiffs alleged that these RH knew these statements to be misleading, since the inventory was not actually available upon the launch of RH Modern. Plaintiffs specifically argued that Friedman delayed finalization of designs for the products until just before release, which prevented RH from placing inventory orders, and this created long undisclosed delays when customers ordered products. Plaintiffs contended that RH engaged in an $18 million initiative to try to improve customer sentiment, and defendants reported increased levels of inventory from RH's existing lines to mislead shareholders. Plaintiffs alleged that the value of RH fell by $89 million, and RH eventually disclosed the production delays and expenses for customer accommodation incurred after the product line launch. Plaintiffs claimed that the disclosures led to further decline in RH's stock price, and over $3 billion in shareholder value was lost. Plaintiffs asserted that RH's actions violated Section 10(b) of the Exchange Act and Section 20(a) of the Exchange Act.

DEFENDANT'S CONTENTIONS: Defendants disputed the allegations.

Result

The court granted final approval of a settlement reached between the parties under which RH, Inc. agreed to pay $50 million to settle plaintiffs' claims. From that sum, $797,049.35 was paid by RH to plaintiffs' lead counsel as reimbursement for litigation expenses. Additionally, Lead Plaintiffs Public School Teachers' Pension & Retirement Fund of Chicago and Arkansas Teacher Retirement System were awarded $5,960 and $1,892.28, respectively, from the settlement fund.