Hasbro sued an investor for allegedly lying about overpurchasing inventory after pandemic demand

A self-proclaimed “investor rights law firm” filed a lawsuit on Wednesday alleging that Hasbro, the tabletop gaming and toy company, misrepresented its excessive inventory to investors, something the company says violates federal securities laws. Polygon has reached out to Hasbro for comment and has yet to hear back.

Bernstein Litowitz Berger & Grossmann (the law firm) filed a complaint in a New York court on behalf of the West Palm Beach Firefighters’ Pension Fund, asking the court to grant the case class action status – meaning that other investors and stock buyers can participate. Hasbro, like other gaming companies, saw a surge in interest and sales during the pandemic as people looked for things to do at home; games were an obvious choice. The lawsuit alleges that Hasbro purchased inventory to meet that demand but ultimately purchased too much. Hasbro allegedly told investors that the high purchases were necessary to “mitigate supply chain risk and meet consumer demand” ahead of the 2022 holiday season, the lawsuit said. When that inventory was depleted, Hasbro said the stock “reflected outstanding and anticipated demand” and not reduced demand. The lawsuit alleges that Hasbro intentionally misled investors and knew it had “overpurchased inventory to an extent that significantly exceeded customer demand.” The timeline makes sense: in 2022, the world started opening up more widely and people were eager to get out of their homes.

Hasbro announced in 2023, previewing its 2022 financial report, that sales fell due to poor sales in the toy market. To limit that loss, it laid off 15% of its workforce – about 1,000 people. Despite this, Hasbro continued to tell investors there was no inventory problem. In October 2023, an investor asked about Hasbro’s stock, to which Hasbro Chief Operating Officer Gina Goetter said Hasbro was spending $50 million to move and market inventory and as “obsolescence costs,” which is corporate lingo for outdated , devalued stock.

All of this – especially the October 2023 financial disclosures – caused stock prices to fall and investors lost money, the lawsuit alleges, amounting to an $831 million loss in shareholder value. The stock value Hasbro previously held, according to the lawsuit’s claims, was due to inflated prices due to the lack of disclosures. The lawsuit states that Hasbro stock is owned by “hundreds or thousands” of investors who would be affected. The law firm is asking the court for damages due to the alleged violation of the Exchange and Securities Act, which requires listed companies to be honest and transparent with shareholders.

In its most recent earnings report says filed on October 24Hasbro reported a 15% decline in sales. According to the report, the stock fell 39% in the third quarter of last year. Hasbro expects business to decline by 14% overall by 2024.