Panera Bread Settles Class Action Suit Alleging Stock Fraud

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Panera Bread, the Richmond Heights-based company behind the Saint Louis Bread Company restaurants here and countless Panera eateries across the nation, has settled a class action lawsuit alleging it defrauded its investors.

The suit provides $5.75 million to be shared by anyone who purchased Panera stock between November 1, 2005 and July 26, 2007.

So what did Panera do? Well, if the company were talking to us, we'd imagine its answer would be "Nothing! Move along now, folks!" But the company thus far has ignored our requests for comment, so we'll have to go with the details in the legal filings. Not surprisingly, they're a heck of a lot more interesting than any public-relations-minded statement.


The settlement, inked earlier this month, originates from two lawsuits originally filed by Panera shareholders in 2008 and subsequently consolidated. Both suits allege that the company made lots of cheerful-but-not-quite-true claims about how great things were, causing investors to purchase stock -- even as some of its top officers were unloading theirs.

Indeed, according to both suits, top Panera officers and "other company insiders" sold off tens of thousands of shares in Panera stock at a time when those insiders should have known the stock was artificially inflated. Records show the insiders made $11 million by selling before the stock began to fall in the spring of 2006.

Among those cashing in? Chairman and CEO Ronald M. Shaich, who allegedly "reap[ed] more than $7 million in gross proceeds." Shaich sold off more than 100,000 shares between November 2005 and February 2006 -- when Panera was trading between $61 and $72 per share, the suits say.

But by July 2006, after Shaich unloaded, heretofore undisclosed damaging information came out about the company, the investors allege. Shares tumbled to just $44 per share, and all the outsiders out there began wishing they'd sold off at the same time as Shaich.

Interestingly enough, the damaging info seems to have all surfaced in a negative story published in Barron's in July 2006. (The title: "Running Low on Yeast.") Barron's alleged that, even though Panera's stocks were "on a tear," the company's "torrid growth has begun to slow" ... "same-store sales gains...have cascaded in recent months" and "newer stores are doing less business, on average, than those opened before 2005." In the story, the company seemed to be pinning its hopes on a new product called the Crispani pizza -- but, as the investors note in their lawsuits, even that didn't pan out. Panera would yank the product two years later thanks to the high labor costs associated with serving it.

Argued the Western Washington Laborers-Employers Pension Trust in one of the two suits,

The Individual Defendants are liable as participants in a fraudulent scheme and course of conduct that operated as fraud or deceit on purchasers of Panera Bread's common stock by disseminating materially false and misleading statements and/or concealing material adverse facts.
Panera argued that the suit should be dismissed on summary judgment. But the judge refused, ruling in 2010 that the consolidated suits should be allowed to continue. The parties entered into meditation soon after -- and this month's $5.75 million settlement is what Panera will cough up to make the whole thing go away.

Perhaps coincidentally -- but what the heck, perhaps not! No one from Panera is calling us back, so how do we know? -- Shaich resigned as CEO after the company's annual meeting in May 2010. He currently serves as Panera's executive chairman of the board.


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