Lead Plaintiff Pennsylvania Fund brings this suit on behalf of all persons who acquired the common stock of Whitehall Jewellers, Inc.between November 19,2001, and December 10,2003 .
Plaintiff alleges that Defendants engaged in a reciprocal inventory scheme with Whitehall's vendors to inflate Whitehall's financial results. It contends that Defendants deliberately concealed the scheme from investors. Under the alleged scheme, Whitehall purchased merchandise inventory from its vendors, usually on credit and recognized the value of the inventory on its books. After the inventory depreciated in value, Plaintiff alleges that Whitehall improperly failed to write-down the value of the depreciated inventory to reflect its fair market value. Instead, Whitehall negotiated side agreements, outside its normal policies and contractual obligations. This allowed Whitehall to return the inventory to the vendor in exchange for excessive discbunts, incentives, "vendor allowances" or "barter credits" which reimbursed Whitehall for the full average cost of the merchandise purchased from the vendor, even though the fair market value of the inventory had depreciated well below its average cost. In exchange for these discounts, vendor allowances and credits, Whitehall issued additional purchase orders for new merchandise inventory from the vendor. This, in turn, enabled vendors to inflate their revenues and receivables.