Adidas shareholders launch class-action lawsuit over Ye fallout

Adidas shareholders have launched a class-action lawsuit alleging the sportswear brand knew about the potential harm that the "personal behavior" of Ye — the artist formerly known as Kanye West — could cause the company, but failed to warn investors.

The lawsuit alleges that Adidas' former chief executive officer, Kasper Rorsted, and chief financial officer, Harm Ohlmeyer, either "intended to deceive" investors or "acted with reckless disregard for the truth" by failing to disclose issues between the company and Ye.

It was filed Friday in the U.S. District Court for the District of Oregon — Portland is home to the German company's North American headquarters.

"We outright reject these unfounded claims and will take all necessary measures to vigorously defend ourselves against them," a spokesperson for Adidas said in a statement. Rorsted did not immediately reply to a request for comment sent to an email address associated with him.

Adidas cut ties with Ye in October after facing widespread pressure to end its partnership with the rapper in the wake of his antisemitic comments.

However, the suit alleges that the company had known for years about behavior from Ye, who is not party to the lawsuit, but failed to disclose the potential risks to the company and its investors in a string of annual reports.

The lawsuit cites a report by The Wall Street Journal in November that cited people familiar with the matter and documents it reviewed. According to the report, Adidas executives, including Rorsted, had discussed the risk of Ye’s behavior and considered cutting ties with him.

The suit notes that Ye's collaboration with Adidas, which saw the rapper design the hugely successful Yeezy line of trainers for the company, initially had a "positive impact on the Company."

"The Yeezy shoes were extremely popular," the lawsuit states. "By 2019, sales of Yeezy shoes hit over $1 billion. Further, Kanye West accumulated significant wealth as a result of the Partnership. By September 2019, Forbes ranked him as the Number 1 highest-paid hip-hop star, largely as a result of the Partnership," it says.

However, the suit notes that in the midst of that success, Ye, who has spoken openly about living with bipolar disorder, was making increasingly controversial comments, which Adidas officials appeared to address at the time.

In May 2018, while speaking on TMZ Live, Ye said slavery "sounds like a choice" because it had lasted "for 400 years," the lawsuit notes. Days later, Rorsted said in a televised interview with Bloomberg, while declining to address Ye's specific comments about slavery, that there were clearly "some comments we don't support."

"Tellingly, Rorsted also stated that West and the Yeezy footwear brand are a 'very important part of our brand from a revenue standpoint and how we promote our products'," the lawsuit states. At the time, Rorsted had also said he had not considered dropping Ye in the prior 24 hours, it notes.

The lawsuit alleges that in an annual report for the year 2018, released March 13, 2019, Adidas "ignored serious issues affecting the Partnership" with Ye "and the resulting potential risk to shareholders" in a section outlining "Business Partner Risk."

It said the company had generally alluded to risks involving individuals it was partnered with, instead of "stating that the Company had actually considered ending the Partnership as a result of West's personal behavior, or how the Company's reputation might be affected if his behavior as it related to the Company were to become public."

In an inventory risk section of the report, the lawsuit further states that Adidas ignored the risks of oversupply of Yeezy-branded shoes in the event that the partnership were to suddenly end "and in particular, if demand for the shoes were to fall due to any controversy surrounding West."

It said the company's 2019, 2020 and 2021 annual reports either had similar language regarding such potential risks or "otherwise failed to mention risks relating to the Partnership."

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