A Pittsburgh-based lawsuit filed a class action lawsuit yesterday charging that Home Depot, and its top executives, made false and misleading statements about its operations and financial condition. The law firm of Alfred G. Yates Jr. PC filed the suit in the U.S. District Court for the Northern District of Georgia on behalf people who bought Home Depot securities between May 19, 2001 and Feb. 22, 2005. Among the defendants named are Home Depot Chairman, President and CEO Robert Nardelli; Chief Financial Officer Carol Tome; and company co-founder and former New York Stock Exchange Director Kenneth Langone. According to the Atlanta Business Chronicle, the false statements made by Home Depot caused its “securities to trade at artificially inflated prices during the class period.” The suit also charges that Home Depot deceived its vendors through fraudulent return-to-vendor (RTV) policies. The suit charges that Home Depot forced its workers to inflate company charges to vendors to cover the cost of defective and/or damaged merchandise, and pressured suppliers who complained about these excessive charges with a reduction in orders. The complaint also states, according to a New York Post account, that Home Depot received “a material portion of its revenues and profits” from this RTV practice, and that the retailer had inadequate financial controls “to accurately report its financial results.” The Securities & Exchange Commission has opened an investigation into this matter. By raising the cost of “chargebacks” to its vendors for damaged merchandise, Home Depot in effect lowered the cost of its goods, and thus increased its profits — at the expense of its suppliers.
Home Depot says it disputes the allegations in the lawsuit. For earlier stories about Home Depot’s legal problems, search Newsflash by “lawsuit.”