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Adidas investors appealed to the U.S. Court of Appeals for the Ninth Circuit to renew their putative securities class action that an Oregon federal district court judge dismissed in August 2024. According to investors, Adidas failed to disclose the risks of relying on Ye (f/k/a Kanye West and a/k/a Yeezy) for a multibillion-dollar partnership due to the rapper's extreme antisemitism. They claim that although the public knew Ye had been somewhat controversial in the past, they were unaware of his rampant antisemitic tendencies. In fact, Adidas executives had expressed concerns about his antisemitism as far back as 2013, including his proposal for a proposed swastika shoe design during a meeting in Germany.
The case is HRSA-ILA Funds v. Adidas AG et al., Case Number 24-6655, U.S. Court of Appeals for the Ninth Circuit.
Ye and Adidas struck an endorsement deal in 2013, and over the next seven years, the partnership netted Adidas $1.7 billion in sales and over 40% of its profits. Ye purportedly continued his antisemitic remarks to Adidas executives and employees, including repeated praise for Hitler, especially in front of Jewish colleagues. Adidas executives also knew that West settled a complaint of workplace harassment over his antisemitism for $5 million. Despite these events, it wasn't until Ye posted public racist rants online and wore a "White Lives Matter" shirt to a Paris fashion show in 2022 that Adidas moved to cancel his endorsement deal. The cancellation of the partnership led to a precipitous drop in Adidas stock.
Company investors initially filed suit against Adidas in May 2023. The federal district court judge dismissed the suit, finding that none of the allegedly misleading corporate statements were legally actionable. The judge further found that Adidas had no duty to disclose Ye's behavior and issued sufficient risk disclosures.
On appeal, the investors argued that the district court judge misapplied Ninth Circuit precedent in concluding that Adidas's disclosures wouldn't have misled a reasonable investor. However, at least one appellate judge differentiated between the cases cited as precedent, which involved undisclosed data security breaches, as opposed to the actions of a celebrity business partner. The investors attempted to distinguish between Ye's publicly-known controversial behavior and his extreme antisemitism, which caused a second stock drop after Adidas executives disclosed that they had been aware of the antisemitism for years.
Adidas described the litigation as "an improper attempt to turn what is really an adverse business development into a claim of securities fraud." While the outcome of the partnership was unfortunate, counsel for Adidas noted that the function of federal securities laws is not to guard against adverse business developments. Likewise, the attorney argued, risk disclosures cannot adequately account for subjective changes in human behavior; for instance, over one four-year period, Ye made no objectionable comments, whether antisemitic or otherwise. According to Adidas, allowing the investors' claims to proceed would create confusion about a company's duty to disclose bad behavior of celebrity partners.
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