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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I did not know about the stock fraud, but recently at a Panera's Location, I found that they no longer offer a "Small" cup of coffee, just medium & larger. The rational I got from an employee is that "nobody wants a small cup". How obserd, the customer has the option of purchasing larger cups. It seems to me that it is just another way to gain additional revenue for a cup of coffee.Vin

Bill Moreton
Bill Moreton

As Chief Executive Officer of Panera Bread I want to respond to the blog posting of February 24, 2011, that discussed our company. While Panera explicitly denies all claims alleged against the Company and Company officers referenced in the blog, it seems appropriate to provide some additional perspective. The fact is that Panera Bread has been one of the best-performing stocks in the country over our approximate two decades in the public markets. Our company went public in 1991 at $4.50 per share (adjusted for splits) and our share price closed Friday, February 25, 2011, at $116.31. In fact, over the last decade the company delivered shareholder returns in excess of nearly every other consumer discretionary stock. I can’t imagine there are many shareholders that are disappointed with a company that has been up over 25-fold since going public nor management that created those results. Regarding our Executive Chairman Ron Shaich, he is a founder of our company, remains our largest individual shareholder and was our CEO until May of 2010. Indeed he has been the architect and driving force at our company these past two decades. His unwavering commitment to do what is right for customers, shareholders and the company has been at the core of our success. I know our Board, and I imagine the vast majority of our shareholders, were extraordinarily pleased with his leadership of our company. Similarly, the Board was pleased that when Ron wanted to evolve his role at the company, it was into the role of Executive Chairman. As Executive Chairman, Ron remains active in the leadership of the company while allowing Ron more time to work on other projects, like Saint Louis Bread Co. Cares. As you may know, Saint Louis Bread Co. Cares is the company's prototype of a community cafe of shared responsibility which features a leave-what-you-can donation system. As CEO of our company I would only add how pleased I am that Ron continues to assist me in guiding the company and helping me as we attempt to continue a multi-decade long record of extraordinary success at Panera Bread.

Bill MoretonCEO and President, Panera Bread

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