Two Cayman funds sue world’s largest jewellery retailer

Two Cayman-registered investment funds are suing the world’s largest jewellery retailer for allegedly concealing material information, which cost the funds tens of millions of dollars in losses.

The Cayman funds, Pennant Master Fund LP and Pennant Windward Master Fund LP, claim to have invested millions of dollars from 2014-2016 in Signet Jewelers, whose retail brands include Jared, Kay Jewelers, and Zales.

Around that time, Signet’s credit loan portfolio grew to roughly US$1.7 billion and was the second-largest asset on the company’s balance sheet, according to the Cayman funds.

Signet’s customer loans helped boost sales, and the company’s stock traded as high as US$150 a share before June 2016.

However, “Signet was actually a reckless subprime lender that had systematically built a massive portfolio of high-risk consumer loans,” the Cayman funds state in their lawsuit, which is posted on the financial services site OffshoreAlert. “As the truth about Signet’s credit portfolio began to be revealed to the market, the price of Signet’s stock fell.”

The Cayman funds claim that “Signet’s misrepresentations cost Plaintiffs tens of millions of dollars.”

By June 2016, Signet’s stock was trading at less than US$75. The jewellery retailer disclosed for the first time on Dec. 1, 2017 that its lending practices had triggered an investigation by the New York attorney general, and in January of this year, Signet settled with the New York attorney general and the Consumer Financial Protection Bureau because of its lending practices.

“The Bureau’s and the State’s parallel investigations found that [Signet subsidiary Sterling Jewelers, Inc] violated the Consumer Financial Protection Act of 2010 by opening store credit-card accounts without customer consent; enrolling customers in payment-protection insurance without their consent; and misrepresenting to consumers the financing terms associated with the credit-card accounts,” the Consumer Financial Protection Bureau announced on Jan. 16. “The Bureau also found that Sterling violated the Truth in Lending Act by signing customers up for credit-card accounts without having received an oral or written request or application from them.”

Signet, which is domiciled in Bermuda, agreed to pay a US$10 million civil penalty to the Bureau and a US$1 million civil penalty to the State of New York.

In its fourth-quarter financial results released on Tuesday, Signet reported losses on Q4, as well as its latest full fiscal year.

According to the Akron Beacon-Journal, Signet is asking its 2,600 employees in Akron, Ohio – where it is headquartered – and others in Texas for voluntary buyouts in an effort to transform its business.

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