Lawsuit Says St. John Knits Executives Manipulated Stock

Executives at St. John Knits artificially inflated the company’s stock price by making false statements about its business prospects, according to a lawsuit filed this week.

The complaint, filed in U.S. District Court in San Diego, contends that Robert E. Gray, chief executive of the Irvine-based women’s apparel maker, sold 100,000 shares of St. John stock for $2.9 million after company officials forecast 15% to 20% earnings growth earlier this year.

St. John’s stock price has been in a downward slide since July. It closed Wednesday at $14, up 50 cents.

A St. John spokesman Wednesday denied any wrongdoing and said Gray sold the shares below the market price according to a personal financial plan that calls for him to sell stock on specific dates for a predetermined price.

Gray sold the 100,000 shares on July 13 for $29.15. The closing price that day was $39.06.

“We believe there is no truth whatsoever to the unfounded charges of fraudulent stock sales or intentional misrepresentation of the company’s financial condition,” said spokesman Michael Freitag. “We believe this is a standard off-the-shelf class-action suit brought by the firm that’s famous for it. And we intend to challenge it vigorously in court.”

The suit was filed by Milberg, Weiss, Bershad, Hynes & Lerach, a firm that is well-known for filing class-action securities fraud lawsuits. The suit seeks class-action status for St. John shareholders who bought shares between Feb. 25 and Aug. 25.

The suit is the second in as many weeks filed against St. John. Last week, Amen Wardy Jr., the former chief executive of the St. John subsidiary Amen Wardy Home Stores, filed a wrongful termination lawsuit claiming, among other things, that St. John used improper accounting methods to improve its bottom line. The company also denied those allegations.

St. John has been struggling this year after failing to meet analysts’ profit expectations for the second and third quarters.