Mossimo to Pay $13 Million to Settle Lawsuit

Irvine sportswear maker Mossimo Inc. said Tuesday it will pay $13 million to settle state and federal class-action lawsuits alleging it misled investors with falsely optimistic financial statements and progress reports.

Company chairman Mossimo Giannulli disputes the allegation that Mossimo deceived shareholders, but said the deal would remove uncertainty at a time when the clothier is trying to retrench.

“It’s been an absolute distraction,” he said. “We wanted to move on.”

Giannulli said the company’s insurance, bolstered by an additional policy he paid for personally, will cover the settlement payout.

The case was filed on behalf of those who bought Mossimo shares between its initial public offering on Feb. 22, 1996, and Jan. 14, 1997. In that period, the stock ballooned from $18 per share to as high as $50 before plummeting to less than $6.

The stock closed Tuesday at $10.13 a share, down 19 cents, on the New York Stock Exchange.

Plaintiffs’ attorneys say Mossimo executives failed to tell investors quickly enough about production snafus and a troubled-plagued effort to expand into women’s wear.

Mossimo spent last year in transition, losing $13.8 million on sales of $45.3 million, down 36% from 1997.

The company hired turnaround specialist John Brincko, who cut jobs, closed some of its businesses and moved the company to less expensive headquarters. Giannulli also brought in Edwin Lewis, former chairman and chief executive of Tommy Hilfiger, as new chief executive.

It is unknown how many shareholders will qualify for the class, what their losses were or how much they can expect to recover from the settlement, plaintiffs’ attorney Jan Adler said. Still, Adler said, “we believe it’s an excellent settlement.”

Adler’s firm and two others representing the shareholders will receive an as-yet-undetermined portion of the $13-million settlement in fees. Attorneys usually keep one-third of the amount recovered in such cases.

The settlement agreement still needs approval from judges in Orange County Superior Court and U.S. District Court.

Giannulli decided to settle the lawsuit despite a recent ruling by the U.S. 9th Circuit Court of Appeals that makes it tougher for shareholders to win securities fraud lawsuits.

The court ruled that investors have to show a company intended to commit fraud and had not just acted recklessly.

“You never know what can happen in court,” he said, adding that Adler’s firm, Milberg Weiss Bershad Hynes & Lerach, is “notorious for doing this.”

Milberg Weiss has received $700 million from class-action shareholder lawsuits since 1988.

To meet federal regulations, Giannulli’s purchase of extra insurance will show up in the company’s balance sheets as a noncash, $6.1-million charge to earnings in the quarter that ended June 30.