JC Penney is sued over share sale, stock plunge

Reuters

Oct 1 (Reuters) - A JC Penney Co shareholder onTuesday sued the struggling retailer over its surprise decisionto issue more than $810 million of stock to shore up liquidity,which led to a steep drop in its share price.

The plaintiff, Alan Marcus, said JC Penney publicly assuredinvestors in August and September that its business wasimproving and that it saw no need to raise capital, only tosubsequently agree to sell 84 million common shares at $9.65each.

Marcus accused JC Penney of knowing it did not have enoughliquidity to get through the holiday season without raising newcapital, and said the Plano, Texas-based company concealed thisknowledge so as not to raise concern among vendors.

He said when the truth became known, investors "hammered"the share price, including on Friday, when it dropped 13.1percent and JC Penney announced the terms of its stock offering.

"As a result of defendants' false statements, JC Penneystock traded at artificially inflated levels," Marcus said in acomplaint filed with the U.S. District Court in Tyler, Texas.

JC Penney did not immediately respond to requests forcomment.

Marcus said he bought 300 JC Penney shares on Sept. 26, justbefore news of the stock offering seeped into the market.

He is seeking class-action status on behalf of shareholdersfrom Aug. 20 to Sept. 26. Marcus is represented by theclass-action specialist firm Robbins Geller Rudman & Dowd.

In a regulatory filing on Tuesday, JC Penney said it expectsnet proceeds of $785.8 million from the stock offering andpotentially $903.8 million if underwriters led by Goldman Sachs& Co boost the size by 15 percent.

When it announced the share sale, JC Penney also projectedhaving $1.3 billion of cash by the end of the year. In August,it had forecast $1.5 billion.

JC Penney has been struggling to boost sales in itsapproximately 1,095 stores after a failed attempt by ChiefExecutive Myron Ullman's ousted predecessor, Ron Johnson, tomove it up-market and reduce its dependence on heavy discountingto lure shoppers.

"We could not risk losing the confidence of our Associatesor our supplier partners, both of whom are paramount to ourlong-term success," Ullman said in a note on Friday to storeemployees.

Ullman and Chief Financial Officer Kenneth Hannah are alsodefendants in the lawsuit.

JC Penney shares closed down 7 cents at $8.75 on Tuesday,about 90 percent below where they traded as recently as February2007.

The case is Marcus v. JC Penney Co et al, U.S. DistrictCourt, Eastern District of Texas, No. 13-00736.

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