December 2, 2021
Two former Performance Sports Group executives will pay $13 million through company insurance to end a proposed class action alleging they lied to shareholders about the now-bankrupt athletic gear manufacturer’s sales tactics, according to a proposed deal filed Wednesday.
The all-cash deal requires former PSG CEO Kevin Davis and ex-CFO Amir Rosenthal, through the company’s directors & officers insurance policy, to compensate potentially thousands of class members who purchased the company’s common stock between January 2015 and October 2016, according to a preliminary approval motion in the 5-year-old Manhattan federal court case.
If approved, the $13 million settlement would supplement a $1.2 million deal that PSG inked with investors in its Delaware bankruptcy case in 2017 as part of a Chapter 11 plan that sold off $575 million of PSG’s assets.
The shareholders, led by the Plumbers & Pipefitters National Pension Fund, told U.S. District Judge Gregory H. Woods that they struck a deal with Davis and Rosenthal at a JAMS mediation session in September. The agreement followed the depositions of numerous former PSG executives and relied on documents subpoenaed from the company’s auditor KPMG and former investor Kohlberg & Co., the investors said.
“The settlement was reached after extensive litigation, including … extensive fact discovery including the service of more than 40 subpoenas by the parties on non-party witnesses and production and review of over 21.2 million pages of documents produced by PSG’s bankruptcy estate and various non-parties,” the investors wrote.
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PSG held an initial public offering in 2014, just months after it was formed in a $330 million tie-up between sports gear company Bauer Hockey and iconic baseball equipment maker Easton.
After the company reported significantly reduced earnings in January 2016, investors filed suit alleging PSG, Davis and Rosenthal had for years juiced quarterly profits by threatening to reduce wholesale discounts unless retail chains increased their order sizes.
This aggressive sales tactic blew up in PSG’s face, shareholders said, when demand plummeted over the course of 2016 because retailers were faced with a buildup of unused inventory. Investors said the company and its top brass silenced internal critics of these ill-fated sales strategies and lied to the public with a rosy picture of a well-run company and solid earnings.
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The proposed class is represented by Carol V. Gilden, S. Douglas Bunch, Steven J. Toll and Joshua C. Handelsman of Cohen Milstein Sellers & Toll PLLC.
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