Adidas says it didn't mislead investors about the collapse of the Kanye West and Yeezy partnership

Adidas AG is asking a federal judge to dismiss a class-action lawsuit that claims the company violated securities laws by failing to warn its shareholders about Ye's abusive behavior, calling the fraud case “misguided” and opportunistic.

Filed last year, the suit alleges that Adidas knew of serious problems with Ye (formerly Kanye West) as early as 2018. By failing to disclose such risks, the suit alleges, the company left investors facing losses when they eventually ended the partnership in 2022 over Ye's anti-Semitic riots and erratic behavior.

But in a motion filed last week, Adidas' lawyers argue the case should be thrown out immediately. They say the lawsuit's allegations fall far short of securities fraud and that federal law does not allow investors to take companies to court for “ex post fraud.”

“This lawsuit is a misguided attempt to turn the dramatic and unfortunate end of the commercial partnership between Adidas and Ye … into a claim for securities fraud,” Adidas' lawyers wrote in the Feb. 2 filing. “Plaintiff takes these unfortunate events opportunistically and alleges, without basis, that Adidas' prior statements … were somehow false.”

Adidas has had a lucrative partnership with Ye and his Yeezy clothing 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 spate of offensive statements he made about Jews. In an October 2022 statement announcing the split, Adidas said the rapper's statements were “unacceptable, hateful and dangerous.”

It was a messy breakup for Adidas. The split contributed to a $655 million loss in sales for the final three months of 2022 and left Adidas holding $1.3 billion worth of unsold Yeezys and facing difficult questions about how to dispose of them responsibly. Adidas also fought Ye in court for millions in corporate funds and revealed it was contesting other aspects of the divorce in private arbitration.

In May, a group of investors took Adidas to court over the dissolution, arguing that Adidas executives had known for years about the potential damage the Ye partnership could cause but failed to publicly share those concerns with shareholders. , as required by the US. securities law.

Specifically, the lawsuit cited November 2022 Wall Street Journal article that said Adidas executives had feared for years that the Yeezy relationship could “blow up at any moment.” The article said West had made anti-Semitic comments in front of Adidas executives, including suggesting an album be named after Adolf Hitler. The Newspaper The story also highlighted a 2018 presentation to then-CEO Kasper Rørsted who details the dangers of the deal and considers cutting ties with him.

But in last week's motion to dismiss the lawsuit, Adidas' lawyers flatly denied that the company had misled investors.

Instead, Adidas' lawyers said the company's regulatory filings had clearly informed shareholders of the potential for Kanye-related problems, even if specific past incidents were not detailed. These disclosure statements included a warning that “inappropriate conduct” by “associates in the entertainment industry” could ultimately have a “negative knock-on effect on the company's reputation,” leading to “high costs or liabilities” and could even ” disrupt business operations.'

A lawsuit alleging such statements misled investors “turns the securities laws on its head,” Adidas' lawyers wrote.

“Adidas has issued detailed risk disclosures in all of its annual reports since 2018 that specifically warned investors about several issues, including the potential negative impact of a creative partner's misconduct — exactly what the plaintiff claims happened to Ye October 2022,” Adidas' lawyers wrote. “Although the plaintiff alleges that Adidas was aware of discrete instances of misconduct by Ye from years earlier, there is no legal obligation to accompany blanket risk disclosures with a description of past incidents of misconduct.”

Rather than showing that the company knew it was withholding information from investors, Adidas' lawyers argue that internal disputes over Ye's behavior show that “Adidas believed it was successfully managing the sometimes difficult partnership with Yeezy.”

An attorney for the plaintiffs did not immediately return a request for comment on Adidas' filing.