Dec. 18 (Bloomberg) -- Barnes & Noble Inc., the largest U.S. bookstore chain, was sued by a shareholder over the Securities and Exchange Commission’s investigation into a restatement of earnings and an ex-employee’s allegation of improper accounting.
The shareholder, David Shaev, accused company directors of breach of fiduciary duty and abuse of power in the lawsuit filed yesterday in New York state Supreme Court in Manhattan. Shaev asked a judge to order Barnes & Noble to improve its corporate governance and internal procedures, saying the restatement and the accounting allegations are “only two symptoms of a pervasive deficiency of internal controls.”
“Barnes & Noble has operated with deficient and inadequate financial reporting and inventory management systems since at least 2001,” Shaev said in his complaint. “These systems do not adhere to industrywide best practices and company internal audits have repeatedly shown them to be unreliable and subject to manipulation.”
The book retailer this month disclosed in a regulatory filing that the New York office of the SEC notified the company it had begun a probe into the restatement and the former employee’s allegation. Barnes & Noble said it’s cooperating with the SEC and responding to requests for documents.
In July, New York-based Barnes & Noble restated earnings from fiscal 2008 to 2012. In the year ended April 28, 2012, the restated earnings narrowed its net loss to $64.8 million from $68.9 million because of “inadequate controls” for accounting overstated certain items.
A former employee, whom the company described as a non-executive, alleged that Barnes & Noble improperly allocated certain expenses between its Nook electronic reader and retail segments for the purposes of reporting, according to the filing.
The investigation is the latest hurdle for the company, which has been losing money for more than three years as it grapples with a shift to digital books. The chain, which has more than 680 stores, has been heavily investing in its Nook digital unit to gain a foothold in electronic books.
Mary Ellen Keating, a spokeswoman for Barnes & Noble, declined to comment on the shareholder suit in an e-mail.
The company’s shares fell 19 cents, or 1.4 percent, to $13.90 at 2:11 p.m. in New York after dropping as much as 3.4 percent. The stock has declined about 20 percent since the July restatement.
The case is David Shaev Profit Sharing Account v. Riggio, 654339/2013, New York State Supreme Court, New York County (Manhattan.)
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