July 3, 2013
Lululemon Sued For Fraud Over Sheer Yoga Pants

A lawsuit was filed against Lululemon Athletica Inc. on Tuesday, which accuses the company of fraud by hiding defects in its yoga pants. The pants were deemed too sheer, resulting in a costly recall.

The company allegedly also concealed talks, which led the company's CEO to leave. The lawsuit was filed in the US district court in Manhattan on Tuesday by a shareholder.

The suit comes three weeks after CEO Christine Day announced her decision to leave the company after five and-a-half years. She called the decision to leave Lululemon a personal one.

The company has not made any comments about the new lawsuit, which is separate from one filed in May in Delaware Chancery Court. The previous lawsuit accuses the company's director of boosting executive bonuses shortly before the recall happened.

Lululemon, an athleticwear retailer, was forced to recall women's yoga pants earlier this year after it was determined that the pants, using the company's Luon fabric, were too sheer.

The company also admitted that re calling the black pants could reduce its profit for this year by upwards of $40 million. Lululemon's redesigned and no longer sheer yoga pants returned to store shelves last month.

The company has long been known for clothing that can withstand wear and washes for many years. But the scandal, which was dubbed as "sheergate" by some, may have forced consumers to reconsider the company's ability to live up to expectations.

The most recent Lululemon lawsuit, which was filed by shareholder Houssam Alkhoury, also asserted that Day, along with company founder and Chairman Dennis Wilson, hid defects in the yoga pants, which were partially a result of cutting costs.

As a result of the scandal and Day's departure, Lululemon shares fell by 17.5 percent on June 11. The stock tumble resulted in a loss of about $1.62 billion in the company's market value. The suit seeks status as a class-action for shareholders between the dates of March 21 and June 10 when full-year results were announced.