Federal Judge Refuses to Dismiss Shareholder Lawsuit Against Mohawk

Chattanooga, TN, October 5, 2021-A federal judge has refused to dismiss charges that Calhoun, Georgia-based Mohawk Industries deliberately misrepresented sales and performance of its luxury vinyl tile operations in the United States for more than two years, artificially inflating the company's stock value before what a lawsuit calls a ‘channel stuff’ scheme was reported and the value of the company's stock plunged by $7.4 billion, reports the Chattanooga Times Free Press.

“In a 58-page opinion issued last week, U.S. District Court Judge Eleanor L. Ross ruled that a lawsuit against Mohawk may proceed to determine whether the world's biggest floor covering firm misled shareholders in 2017 and 2018. The suit claims Mohawk falsely booked revenue through a scheme to make deliveries on the last Saturdays of each fiscal quarter when customers were closed and couldn't decline product they didn't need yet or that Mohawk knew was defective.

“The proposed class-action suit, brought by the Public Employees' Retirement System of Mississippi, refers to accounts of former employees, including 14 anonymous sources, and portrays the 'Saturday scheme' as a way for the company to "conceal from investors the true reasons for the company's ballooning (LTV) inventory."

"‘The federal securities laws should not be treated as a system for investor insurance that reimburses investors for any decline in the value of their investments,’ [Atlanta attorney John Latham, counsel for Mohawk Industries] said in his 46-page motion to dismiss the lawsuit.

“But Judge Ross said there is sufficient evidence to warrant a trial on some of the allegations made against Mohawk, including questions about Lorberbaum saying that LTV was ‘being well accepted across all channels’ when builders returned about 80% of Mohawk's domestic produced LTV and retail customers returned from 25 to 50% of the Mohawk LTV they bought. The lawsuit against Mohawk claims that the company's LTV sales fell by more than 60% due to alleged defects and customer complaints.

“No trial date has been set for the shareholders' lawsuit."

The full article is available here.