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RAPAPORT... Signet Jewelers is facing potential class actions initiated in the past two weeks by three law firms which allege the retailer may be in violation of federal securities laws. Despite the controversy, Nomura maintained its buy rating on the company.

Signet’s share price has plummeted 19 percent since a report on Buzzfeed on May 25 cited customers of Signet subsidiary Kay Jewelers who complained their diamonds had been replaced with lower-quality gems.

The retailer, which rejected the lawyers’ probes as “advertising,” has also come under pressure after James Grant’s influential investment newsletter raised concerns about the jeweler’s credit operations and the extent to which it has used credit to bolster sales, Bloomberg reported June 2.

New York and New Jersey-based Bronstein, Gewirtz & Grossman said June 2 its investigation “concerns whether Signet Jewelers and certain of its officers and/or directors have violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.”

Oklahoma City-headquartered Federman & Sherwood also said June 9 it initiated its own probe and the Law Offices of Howard G. Smith, based in Bensalem, Pennsylvania, also announced an investigation June 10.

All three firms’ websites feature a form for potential plaintiffs to sign up for a class action.

Signet earlier this month denied its team members systematically engage in “diamond swapping.” In a statement to Rapaport News Monday, David Bouffard, Signet’s vice-president for corporate affairs, described the lawyers’ claims as “advertising.”

“Signet takes all legal matters seriously,” Bouffard said. “However, we believe there is no merit to the allegations referred to in the advertising by these plaintiff’s law firms.”

Meanwhile, investment bank Nomura kept its “buy” rating for Signet despite the jeweler’s negative publicity.

"Although recognizing it is too early to tell with any level of certainty, management explicitly noted that since the publication of the negative articles, there has been no meaningful uptick in customer claims," Nomura analysts Simeon Siegel, Gene Vladimirov and Julie Kim said in a note after a meeting with executives.

“Unfortunately there are bad transactions in any line of business. Whether it be a shrink reserve or an attempt to resolve customer complaints, it seems superhuman to assume there will be no mistakes and only happy customers."

Two senior insiders "took advantage of the cheap stock," Nomura pointed out, with U.S. Securities and Exchange Commission filings showing chief executive officer Mark Light bought 2,897 shares and director Todd Stitzer acquired 3,480 shares on July 7.

Author: Rapaport News


Source: Rapaport

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