(CN) - A class action is brewing against java company Green Mountain Coffee Roasters and its upper echelon because the firm allegedly neglected to spill the beans about bloated financial estimates and flawed consumer demand, and the CEO sold off a million of his own shares to earn nearly $66 million while prices were hot.
According to the complaint, the company "operates in three business units: the Specialty Coffee business unit, which includes a variety of coffee brands that are sold, among other ways, in single portion K -Cup packs; the Keurig business unit ... which consists of coffee brewers; and GMCR Canada, which is responsible for all GMCR sales in Canada."
Plaintiff claims the firm projected a rosy picture in a release about first quarter results, stating that, "Our brewer sales in the first quarter of fiscal year 2012 were above our expectations, with approximately 4.2 million brewers sold by the combination of GMCR and our licensed partners. That total is more than half of the 6.5 million brewers sold in all of our fiscal year 2011. As these brewers come into use, we expect them to have a positive impact on future portion pack demand."
On the news, share prices perked up 23.8 percent to $66.42, a significant one-day jump of $12.79 per share, the claim alleges. The company also told investors that it expected its guidance to be even better than they had originally anticipated, stating that "With a blowout quarter, the only real question is why wouldn't management raise guidance?" Shortly after the announcement, the company founder and CEO Robert Stiller sold 500,000 shares for a profit of more than $32 million. Nine days after the first transaction, Stiller sold another half a million shares, raking in another $33 million, the class claims.
Plaintiff alleges that two weeks later, java giant Starbucks announced it would be launching a competitor for Keurig's at-home system with a machine that would brew coffee and espresso. GMCR stock fell 6 percent on the news.
On May 2, 2012, GMCR announced its previous fiscal guidance for 2012 was "sales, earnings ... and capital expenditures and reported that its revenues for the quarter were $885.1 million (well below 12 analyst estimates of $971.6 million)." The company blamed the misses on "lower than anticipated portion pack and brewer sales." Share prices almost "halved" themselves, dropping 48 percent in one day to close at $25.87.
"The economic loss, i.e., damages, suffered by Plaintiff and the other Class members was a direct result of Defendants' fraudulent scheme to artificially inflate the prices of GMCR common stock and the subsequent significant decline in the value of GMCR common stock when Defendants' prior misrepresentations and other fraudulent conduct were revealed."
The class is represented by Michael Fistel of Holzer Holzer & Fistel LLC in Atlanta and Jeffrey Berens of Dryer & Berens in Denver.