Risk & Compliance

Short on the Charm at Charming Shoppes

The retailer enters into the proxy fray by suing two hedge funds, accusing them of submitting misleading information to the SEC.
Stephen TaubMarch 10, 2008

Charming Shoppes Inc. is suing two hedge funds that have launched a proxy fight against the company, alleging they have filed “materially misleading and incomplete documents” with the Securities and Exchange Commission.

On Friday, the retailer that owns the Lane Bryant and Fashion Bug brands filed its suit against Crescendo Partners and Myca Partners, as well as director nominees Arnaud Ajdler, Eric Rosenfeld and Robert Frankfurt. Ajdler is a managing director of Crescendo Partners II L.P., Rosenfeld is Crescendo’s CEO, and Frankfurt is the president of Myca.

The retailer said it filed the suit “to ensure that our shareholders receive complete and accurate information about the group’s interests, plans, and motivations that is required by the federal securities laws,” said Dorrit Bern, chairman, CEO, and president of Charming Shoppes.

Charming Shoppes stated in its complaint that Crescendo and Myca “have depicted themselves to the investing public as legitimate investors and ‘would-be’ directors, when in truth their intention is to achieve personal gain at the expense of Charming Shoppes and its shareholders.” The women’s specialty retailer implied that the defendants have a history of using proxy fights “to disrupt corporations and to profit by forcing them to sell assets, buy back stock, or buy off defendants and their cronies.”

Charming Shoppes asked the U.S. District Court of in the Eastern District of Pennsylvania to stop the three nominees and two hedge funds from making any additional false or misleading public statements and public filings regarding the company. They are also asked through the court filing to immediately correct previously made misstatements and divest themselves of the company’s stock.

A Crescendo Partners spokesman declined to comment to CFO.com for this article, saying that the firm plans to issue a press release about the matter on Monday afternoon. On behalf of Myca, Frankfurt told CFO.com the “frivolous” lawsuit is a “veiled attempt” on the part of Charming Shoppes to distract shareholders from getting the business fixed.

The SEC requires anyone who acquires at least 5 percent of a stock to file a 13D and state their intentions. A few years ago, the regulator created the 13G form for entities that own over 5 percent but is a passive investor.

When Crescendo initially reported it owned 6.2 percent of the retailer, it chose the 13D form. In the filing, the hedge fund said Charming’s stock was bought under the belief that they were “significantly undervalued and represented an attractive investment opportunity.” The filing’s language also left room for Crescendo to seek board representation, submit proposals, and engage in short selling.

Crescendo is known for its aggressive activism. Last year, it failed to prevent Topps Co. from being acquired by Tornante Co., which is controlled by former Walt Disney CEO Michael Eisner, and Madison Dearborn Partners. Crescendo was also trying to get its own nominees on the board. And late last year, Crescendo Partners II, which owns about 11.2 percent of the common shares of O’Charley’s Inc., nominated four people as candidates for the casual dining chain’s board of directors.