Estée Lauder to go to court for 'artificially inflating' share prices

By Lorraine Heller

- Last updated on GMT

Related tags Estée lauder Stock market Stock

Cosmetics giant Estée Lauder has been accused of artificially
inflating its share prices in a lawsuit filed by shareholders who
claim they were tricked into investing in the struggling company.

Law firm Milberg Weiss Bershad & Schulman said the suit was filed on behalf of investors who bought shares in the company between April 28 2005 and October 25 2005.

The complaint alleges that Estée Lauder's market share was decreasing at the start of this period, but that, "rather than reverse this negative trend, or fully disclose it," the company "launched a largely successful campaign that employed channel stuffing and the dissemination of materially false and misleading statements to prop up reported revenues and earnings."

This action, continues the compliant, boosted the company's share price "long enough for Estée Lauder insiders to sell millions of their personally held Estée Lauder shares to unsuspecting investors at prices that were artificially inflated by defendants' false and misleading statements."

According to the law firm, "the truth began to emerge" in September 2005, when the company announced it was not going to meet its expectations for the first half of fiscal 2006.

At the time, Estée Lauder said that it expected currency translation to negatively impact sales results by approximately 1 per cent, while expenses relating to closures and over-stocking were expected to hit the bottom line by up to 10 per cent.

The global manufacturer of skin care, fragrance, and hair care products lowered its expectations at around the same time as rival company Avon, a move that demonstrated it was not the only one hit by the continued rise in oil price and the resulting economic uncertainty.

Estée Lauder claims there are no grounds for the current lawsuit.

"We believe the charges of the lawsuit to be wholly without merit,"​ company spokesperson Sally Susman told CosmeticsDesign.Com. She said the company declined to comment any further at this time.

The lawsuit is currently pending in the US District Court for the Southern District of New York.

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