Lawsuit against Bare Escentuals filed in California

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A class action was officially filed in the US district court in California this week against directors and executives at Bare Escentuals, accusing them of misleading investors.

Law firm Scott + Scott is asking that any investors who claimed to have been affected by the company’s actions should make their concerns known to the Californian courts on or before September 15, 2009.

The Color cosmetics company is accused of making misleading statements about the positive performance of the business from November 7 2006 to November 26 2007, according to a class action lawsuit filed last week in a US District Court in the Northern District of California.

These statements artificially inflated the value of the company’s common stock, according to the lawsuit, thereby causing harm to those buying shares in the company during this period.

Share prices artifically inflated

The lawsuit alleges that during the period common stock was artificially inflated to a price of $42.99 per share on May 30, 2007, belying the fact that weakness in the infomercials market and other channels had led to significant difficulties for the company.

In addition, the suit alleges that during the period the company’s CEO and CFO, Leslie A. Blodgett and Myles B. McCormick, along with other company insiders, sold personally-held shares in the company to the value of $644.2m.

When, in late summer and autumn 2007, additional details about the company’s performance came to light, notably the weak infomercial performance, Bare Escentuals shares dropped 30 percent, according to the lawsuit.

The allegedly misleading statements surround the company’s infomercials – commercials airing on shopping channels that provide a large proportion of the San Francisco-based company’s sales.

According to the lawsuit, press releases and statements made during press conferences from November 2006 to 2007 were ‘materially false and misleading’ because they did not communicate a number of facts known to the company.

Company 'aware' of poor performance

The lawsuit claims that the company was aware that its infomercial business was not performing to international expectations and would need to be revamped. In addition, it claims Bare Escentuals was aware that the new infomercial released during the period led to an immediate decrease in sales and that as a result the growth rate was likely to slow.

Rather than communicate these facts, the company continually referred to the positive performance of the infomercials and the good outlook until August 2007, according to the lawyers.

Law firms involved in bringing the suit against the company, which include Coughlin Stoia, are calling for shareholders who bought stock during this period to take part in the class action suit.

If the lawsuit goes ahead it will be calling for damages to be paid to the plaintiff and all those in the class that were sustained as a result of the defendants’ actions.

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