Adidas has successfully defeated a lawsuit from U.S. shareholders who alleged the company committed fraud by hiding Ye’s problematic behavior before their high-profile partnership imploded. The 9th U.S. Circuit Court of Appeals decided Wednesday that Adidas had properly warned investors about the risks tied to celebrity partnerships, upholding the rejection of the proposed class-action suit.
What Was the Lawsuit About?
Shareholders, backed by the HLSA-ILA Funds, sued Adidas after its stock price declined following the dissolution of its Yeezy deal with Ye (previously Kanye West) in October 2022. The split came after the rapper made a series of public antisemitic statements.
The investors claimed Adidas engaged in securities fraud. They contended that the business was “well aware” since at least 2018 that Ye frequently made unpleasant and inappropriate remarks to staff members, but it proceeded with the profitable arrangement without informing shareholders. They claimed that when the truth came out and the sale fell through, the market was deceived by this concealment, resulting in financial losses.
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What Was the Court’s Ruling?
The three-judge panel unanimously rejected the investors’ arguments, finding that Adidas’ annual reports clearly stated that improper behavior by entertainment industry partners could negatively affect the company.
Key points from the ruling include:
- Inherent Risk Disclosure: The judges declared, “A reasonable investor would recognize that a collaboration with a celebrity partner like Ye would come with inherent risks connected to unlawful behavior.”
- No Proof of Fraudulent Intent: The court found no evidence that Adidas acted with an intent to defraud shareholders.
- Adequate Warning: The panel concluded Adidas’ language presented the “hypothetical risk as the negative effect of improper behavior, not the improper behavior itself,” which was a sufficient disclosure.
What Were the Consequences of the Split?
The end of the Yeezy partnership had a significant financial impact. The collaboration generated about 1.5 billion euros in sales in 2021 alone. After severing ties, Adidas was left with a massive inventory of unsold Yeezy shoes.
In 2023, the corporation finally sold off the remaining stock, promising to donate a portion of the revenues to anti-hate organizations. Adidas stated in March 2024 that their revenues in North America declined 2% for the year, explaining the drop “solely due to drastically lower Yeezy sales.”
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Your Questions Answered: Adidas-Ye Lawsuit FAQs
Q: What exactly were the shareholders accusing Adidas of doing?
A: They alleged securities fraud, claiming Adidas knowingly concealed Ye’s history of making offensive and antisemitic comments to employees since 2018, thereby artificially inflating its stock price by presenting the partnership as less risky than it was.
Q: Why did the court rule in Adidas’ favor?
A: The court held that Adidas’ public disclosures about potential risks from celebrity partner behavior were sufficient notice to “reasonable investors.” Additionally, there was no evidence that the business purposefully misled or misled the market.
Q: Did the court rule on whether Adidas knew about Ye’s behavior?
A: The ruling did not make a factual finding on what Adidas knew. It focused on whether the company’s public disclosures were legally adequate, concluding they were.
Q: What happens to the lawsuit now?
A: The dismissal by the lower court has been upheld. Barring a further, unlikely appeal to the U.S. Supreme Court, the case is concluded in Adidas’ favor.
Q: Was Ye involved in this lawsuit?
A: No, Ye was not a defendant in this particular case. The lawsuit was filed solely against Adidas by its shareholders.
