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The law firm of Robbins Arroyo LLP, which specializes in shareholder rights cases, has filed a class action lawsuit against Fairway Group, charging that the company misrepresented its financial situation during its IPO last year.

Specifically, the complaint alleges that "Fairway Group made materially false and misleading statements regarding the company's business, operational, and compliance policies. Specifically, Fairway failed to disclose that: (i) the company's same store sales were declining; and (ii) its direct store expenses were increasing; (iii) Fairway's financial forecasts were wholly unrealistic."

As reported here on MNB about a week ago, Fairway - which was predicting at the time of its IPO that it could challenge Whole Foods nationally and eventually open as many as 300 stores, has been suffering from same-store sales declines and quarterly losses of more than $30 million. The company lost its CEO, Herb Ruetsch to retirement; he was replaced by the company's president, William Sanford, who has almost no retail marketing experience, having previously served as operating partner at the private equity group that bought Fairway in 2007 and took it public last year.
KC's View:
I have no idea if the lawsuit will stand up to scrutiny, or if the plaintiffs will be able to prove any sort of willful deception on the part of Fairway's owners. (I also have no sense about the credibility of Robbins Arroyo, a firm that seems to thrive on investigating a suing corporate entities and putting out press releases about it.)

However … I would point out that anyone surprised by Fairway's travails clearly was not reading MNB, because I've been skeptical about the whole construct almost from the beginning of the company's efforts to generate lots of money with big talk and little else. I've been saying all along that it seemed to me that much of what Fairway was doing seemed geared to satisfying Wall Street rather than Main Street, and I'm pretty sure that I used the actual phrase, "Investors beware."

Not that I deserve too much credit for this. After all, even a broken clock is right twice a day.

But the Fairway promises just seemed too good to be true.