Adidas Beats Securities Fraud Class Action Over Kanye West Partnership Debacle
Written by djfrosty on August 19, 2024
Adidas AG has won a court order dismissing a class-action lawsuit that claims the German sneaker giant violated securities laws by failing to warn its shareholders about Ye’s offensive behavior.
The case claimed that Adidas knew about serious problems with Ye (formerly Kanye West) as far back as 2018 but failed to disclose them, leaving investors facing losses when the company finally ended the partnership in 2022 over Ye’s antisemitic tirades and erratic behavior.
In a ruling Friday (Aug. 16), Judge Karin Immergut said she did not condone Ye’s conduct “erratic, inappropriate, and antisemitic” behavior and said it was “troubling” that it had happened at Adidas, but that it did not rise to the level of securities fraud.
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“The question before this court is not whether to admonish Ye or hold Adidas morally accountable for Ye’s conduct,” Immergut wrote. “Rather, this Court is faced with a precise legal question: has Plaintiff sufficiently pleaded facts showing that Adidas misled investors and thereby committed federal securities fraud? On the current record before this Court, the answer is no.”
Adidas ran a lucrative collaboration with Ye and his Yeezy apparel brand for nearly a decade. But the party ended in 2022, when the sneaker company (and many others) cut ties with the embattled rapper amid a wave of offensive statements he made about Jewish people. In an October 2022 statement announcing the split, Adidas said the rapper’s statements were “unacceptable, hateful and dangerous.”
It’s been a messy breakup for Adidas. The split contributed to a loss of $655 million in sales for the last three months of 2022 and left Adidas holding $1.3 billion worth of unsold Yeezys and facing tricky questions about how to dispose of them responsibly. Adidas also battled Ye in court over millions in company funds and disclosed that it was litigating other aspects of the divorce in private arbitration.
In May 2023, a group of investors took Adidas to court over the breakup, arguing that Adidas executives had been aware for years of the potential harm that could come from the Ye partnership but had failed to publicly share such concerns with shareholders, as required by U.S. securities law.
In particular, the lawsuit cited a November 2022 Wall Street Journal article reporting that Adidas executives feared for years that the Yeezy relationship could “blow up at any moment.” The article reported that West had made antisemitic comments in front of Adidas staffers, including suggesting that an album be named after Adolf Hitler. The Journal story also highlighted a 2018 presentation to then-CEO Kasper Rørsted that detailed the risks of the arrangement and contemplated cutting ties with him.
But in Friday’s ruling, Judge Immergut sided with arguments from Adidas that the company’s disclosure statements had not misled investors about the risk posed by Ye. In one passage, she reminded the plaintiffs that Ye had shown signs of erratic behavior well before the split with Adidas — quoting statements in which he said that “racism is a dated concept” and that slavery was a “choice.”
“This court would be remiss not to note the very public nature of Ye’s behavior before Fall 2022,” the judge wrote. “After all, courts are not required to exhibit a naiveté from which ordinary citizens are free.”
The judge gave the investors one final chance to refile an updated version of their case against Adidas, but she cast doubt on whether they could overcome the problems she had identified in her ruling.
Attorneys for both sides did not immediately return a request for comment.