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Green Mountain Investors Sue Claiming Keurig Deception

Green Mountain Coffee Roasters Inc. investors alleged in a consolidated securities lawsuit that the maker of Keurig coffee brewers misled them about the demand for Keurig and K-Cup products.

“Unbeknownst to investors, and contrary to defendants’ statements that they were barely able to ship orders as they came in, Green Mountain Coffee Roaster’s warehouses were overflowing with unused and expiring coffee products that were not being sold to consumers,” according to the complaint filed Oct. 29 in federal court in Burlington, Vermont.

A group of pension funds, including the Louisiana Municipal Police Employees’ Retirement System, accuse the Waterbury, Vermont-based company of violating U.S. securities law. They seek to represent all investors who bought Green Mountain shares from Feb. 2, 2011, to Nov. 9, 2011, and request unspecified damages.

Green Mountain shares plunged 34 percent Nov. 9, 2011, erasing $3.1 billion in market value, after fourth-quarter sales fell short of analyst’s estimates. The Louisiana retirement fund sued the same month, accusing the company of overstating revenue “based on falsified sales orders” and using a fulfillment vendor to store overproduced, unsold products.

Katie Gilroy, a company spokeswoman, didn’t immediately return a call to her office for comment on the consolidated complaint after regular business hours yesterday.

Grocery Stores

Green Mountain is facing more competition as grocery stores such as Safeway Inc. and Kroger Co. make private-label capsules that fit into the company’s Keurig machines. The main patents for Green Mountain’s K-Cups expired in September.

To combat rivals, Green Mountain earlier this year introduced Vue machines, which make lattes and cappuccinos. Starbucks Corp., the world’s largest coffee shop operator, recently began selling its own single-serve brewer, the Verismo.

Hedge fund manager David Einhorn said in March that the Starbucks single-cup machine “is part of the competitive onslaught hitting Green Mountain.” Einhorn, head of Greenlight Capital Inc., last year criticized the company for its accounting practices and lack of transparency.

Green Mountain is the subject of a U.S. Securities and Exchange Commission inquiry, disclosed in September 2010. Two months later, the company restated earnings for years dating back to 2007 because of issues with K-Cup coffee-pod revenue and royalties, according to a statement.

Shareholder Lawsuits

The company is also a defendant in a consolidated shareholders lawsuit in Vermont federal court by investors who bought the stock from July 28, 2010,to Sept. 28, 2010, the day the company announced the SEC inquiry. A third series of shareholder suits was filed in May, after Green Mountain said its second-quarter result fell short of its previous guidance.

In addition to the securities fraud cases, Green Mountain also faces a consolidated derivative shareholder lawsuit in Vermont, combining four separate cases filed by investors on behalf of the company against the board, and a derivative case filed in Vermont state court, according to Green Mountain’s quarterly report filed Aug. 1 with the SEC.

The case is Louisiana Municipal Police Employees’ Retirement System v. Green Mountain Coffee Roasters, 11-00289, U.S. District Court, District of Vermont (Burlington.)

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