Tandy Leather Facing Proposed Securities Suit After Reported Internal Audit Triggered Stock Price Drop

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Tandy Leather Factory, Inc. faces a proposed class action filed by an investor who claims certain stockholders lost money when it was revealed that the Fort Worth, Texas company had misstated in financial statements certain inventory valuations and costs.

The 24-page lawsuit out of California, which also names as defendants the specialty retailer’s current and former CEOs and former CFO, claims the parties revealed after market hours on August 13, 2019 that an internal audit committee was investigating “certain aspects of the Company’s methods of valuation and expensing of costs of inventory and related issues regarding the Company’s business and operations.” Upon this news, the case says, the company’s stock price fell over 10 percent, which was followed by another eight-percent drop two days later when Tandy Leather stated it was unable to timely file its quarterly financial report due to the investigation.

Two days after revealing both that certain financial statements could no longer be relied upon and the departure of its CFO and Treasurer, Tandy Leather, on October 21, 2019, released the audit committee’s findings. The lawsuit says that the investigation revealed that Tandy’s inventory had been stated using a methodology that attempted to approximate FIFO (first-in, first-out), resulting in an estimated inventory overstatement of between $1.5 million and $2.5 million. Further, the investigation reportedly found that warehousing and handling expenses were not correctly capitalized and were improperly classified as operating expenses, resulting in an overstatement of Tandy’s operating costs.

The lawsuit argues that the company’s stock prices had been artificially inflated as a result of the defendants’ false statements concerning Tandy Leather’s financial health, which damaged investors when the truth was revealed. The case seeks to cover those who acquired Tandy Leather securities between March 7, 2018 and August 15, 2019.