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Shareholder Class Certified Against Urban Outfitters

Recently, a U.S. District Court Judge in the Eastern District of Pennsylvania, Mark A. Kearney, certified a class of shareholders that charged Urban Outfitters ("Urban" or the "Company") and its officers (collectively, "Defendants") with engaging in a fraudulent scheme to artificially inflate the Company's stock price, which later led Urban's stock to plummet by 13%.

Specifically, the Complaint alleged that Defendants made materially false and/or misleading statements regarding and/or failed to disclose the "harsh truth" about the Company's sales trends, in violation of the Securities Exchange Act of 1934. For example, Defendants asserted that Urban was in a "healthy place," "overall, sales trends continue to be strong," and "[t]here is no reason to believe that we couldn't see a continued decrease in markdowns." However, Defendants' attempt to inflate their stock price came crumbling down when they filed their 10-Q for the third quarter of fiscal 2014. The document finally revealed that sales growth was around 4% lower than expected, to the dismay of investors and the market. On this news, the stock price plummeted from $42.71 on September 9, 2013 to a close of $38.35 on September 10, 2013.

The precipitous drop in Urban's stock price was paired with questionable behavior on the part of corporate executives (who were named Defendants in the action), CEO Richard Hayne ("Hayne") and CFO Frank Conforti ("Conforti"). While neither Hayne nor Conforti had sold any Urban stock in the 18 months preceding the class period, they had lined their pockets with proceeds of more than $51 million from insider stock sales during the class period while Urban's stock remained artificially inflated.

Judge Kearney sided with the Lead Plaintiff by certifying the class against Urban. In opposing class certification, Defendants attempted to argue that the class period should not include investors that purchased Urban's stock after the Lead Plaintiff's purchase on August 6, 2013. The basis for this argument was what the Defendants called "well-established Supreme Court precedent." They argued that a lead plaintiff "only has standing to assert claims based on activity prior to the date he purchased his stock." However, Judge Kearney rejected that argument, commenting it "would require lead plaintiffs for each representation even when they are essentially similar or we would need a lead plaintiff for each day of the class period or the last day of the class period." In response to the order granting class certification, Plaintiffs' attorney stated that "we are pleased with the court's order and consider this a significant milestone in the case, we look forward to continuing with discovery and preparing for a trial in November."

The legal team at SFMS has significant experience litigating securities matters. If you have any questions regarding this subject or this posting, please contact Alec Berin ([email protected]) or Chiharu Sekino ([email protected]). We can also be reached toll-free at (866) 540-5505.

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Case No.: 2:13-cv-05978, Complaint (Document 1)

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