Headphones Brand Skullcandy Accused of Stealing $4 Million from Investors

Utah-based audio accessory brand, Skullcandy, has been accused of stealing $4 million out of investors from insider trading.

According to Digital Music News, a class action suit is being filed against Skullcandy founder and executive director Rick Alden. The case, filed by New York-based Bragar Eagle & Squire, P.C. alleges that Alden withheld critical information from Skullcandy investors before dumping a large amount of shares.

Lodged in the United States District Court for the District of Utah, the case is calling for participation from any Skullcandy investor between the dates of August 7, 2015 and January 11, 2016.

The case alleges Alden had engaged in insider selling and unlawfully profited $4 million in doing so. Furthermore, it claims Alden had failed to disclose to investors that Skullcandy’s revenue and net income guidance for the third and fourth quarters of 2015 were unattainable. As a result, Alden’s statements about Skullcandy’s business and operations were false and misleading, and lacked a reasonable basis.

Last month, Skullcandy released statement updating the company’s financial outlook on the fourth quarter of 2015. The company had missed its quarterly net sales projections; with sales increasing by only 2 per cent as opposed to Skullcandy’s predictions of 8 – 10 per cent. Skullcandy’s stock reportedly fell more than 28 per cent following this news, coming to a close at $3.26 per share on January 12, 2016 

In a statement, Skullcandy President and CEO Hoby Darling said he was “disappointed” in the lack of sales during the fourth quarter.

“We are disappointed that our strong sell-through performances could not overcome the softness in the U.S. audio headphone market, which was unexpectedly down in the fourth quarter,” he said.

“This headwind, as well as aggressive promotional activity by our competitors, negatively affected our replenishment business for Skullcandy branded products contributing to the majority of our revenue miss, combined with a product mix shift that negatively weighed on gross margins.”