Scotts Miracle-Gro Co. executives “repeatedly and consistently obfuscated the truth” about excess inventory while pushing extra products on distributors, according to a new investor lawsuit.
Miracle-Gro Investor Sues Board : Stock Price Plunge
The lawsuit claims that the company’s stock price plummeted 19% in one day when the truth emerged.
Investor Rachel Scott filed the lawsuit against the lawn seed company’s current board of directors and some former executives in federal court in the Southern District of Ohio on Wednesday. Scott alleges that they breached their duty to investors and the company by misrepresenting the business’s state.
Allegations of Overloading Inventory
The investor’s derivative complaint asserts that the executives caused the company to “flood its sales networks with inventory” after overcorrecting for a previous product shortage. They allegedly did not disclose this situation to shareholders until significant damage was done.
While flooding the market with product at a rate higher than actual demand, the suit claims, the executives “boasted” to investors about a sales boom and claimed there was no inventory problem. The truth began to surface as refill orders from overloaded distributors fell short of expectations, and the company had to restructure its debt, according to the suit.
SEC Filing Reveals Financial Struggles
The complaint states that “the truth fully emerged” on Aug. 2 via a filing with the U.S. Securities and Exchange Commission. The filing revealed that the company had adjusted its covenants with creditors in anticipation of lower earnings. This came on the same day as a conference call that disclosed a 6% drop in sales and other negative financial news. Consequently, Scotts Miracle-Gro’s stock price dropped from $71.44 to $57.86, a 19% decrease.
Miracle-Gro Investor Sues Board : Accusations of Fiduciary Breach
The lawsuit accuses current and former executives of unjustly enriching themselves, breaching their fiduciary duties by misleading investors, wasting company assets, abusing their control over the firm, violating the Securities Exchange Act, and gross mismanagement.
Seeking Damages and Reforms
The suit asserts that Scotts Miracle-Gro is entitled to damages with interest for the alleged violations by its current and former board members. Additionally, the plaintiff investor requests the court to mandate efforts to increase shareholder participation in board practices, including allowing shareholders to nominate at least four board members. The suit also seeks attorney fees for the investor.
