Lawsuits bring a touch of class action to Barnes & Noble Nook filing debacle

As reported in Forbes and widely elsewhere, Barnes & Noble’s latest quarterly filing includes an item to the effect that the US Securities and Exchange Commission has “commenced an investigation into: (1) the Company’s restatement of earnings announced on July 29, 2013, and (2) a separate matter related to a former non-executive employee’s allegation that the Company improperly allocated certain Information Technology expenses between its NOOK and Retail segments for purposes of segment reporting.”

Nate Hoffelder and others have withheld judgment on the issue for now. But investors haven’t (B&N stock fell 12 percent on the day the news broke, according to Associated Press). Nor has the well-established class action law firm Pomerantz Grossman Hufford Dahlstrom & Gross LLP, which has announced that it is “is investigating claims on behalf of investors of Barnes & Noble, Inc.” as to whether the company “and certain of its officers and/or directors have violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. On Friday, December 6, 2013, shares of Barnes & Noble fell on higher than usual volume after the company announced that the Securities and Exchange Commission (SEC) has begun an investigation.” And as if one wasn’t enough, Bronstein, Gewirtz & Grossman, LLC has also announced a similar investigation.

The Pomerantz Firm, by its own admssion, “is acknowledged as one of the premier firms in the areas of corporate, securities, and antitrust class litigation. Founded by the late Abraham L. Pomerantz, known as the dean of the class action bar, the Pomerantz Firm pioneered the field of securities class actions.” The firm is clearly very busy at the moment, having just launched a similar suit against electric vehicle maker Tesla. Bronstein, Gewirtz & Grossman, meanwhile,  declares that its “primary expertise is the aggressive pursuit of litigation claims on behalf of our clients.”

Obviously, it doesn’t do to make price-sensitive strategic errors or failings in fiduciary responsibility in today’s litigious public markets, with the likes of the Pomerantz Firm and Bronstein, Gewirtz & Grossman prowling just outside the circle of firelight. Apple is also a target, as it struggles to have a similar suit, over its actions in the ebook price fixing scandal, dismissed.

Exactly whether these suits and the actual SEC investigation say anything about the strategic position of the NOOK division at B&N, and the entire company’s viability and management quality, of course will have to wait on further developments. But they are hardly good omens. The Motley Fool’s verdict was swift and incisive:  “Bookseller Barnes & Noble (NYSE: BKS ) seems to have a lot wrong with it” – although the same report still conceded that B&N “‘still has potential.”

But for players in the book business from Big Five traditional publishers to disruptive digital media juggernauts, the overall lesson should be clear: Keep your strategy on track and your act clean, or you will face a far quicker comeback than the slow attrition of market forces, or even anti-price-fixing investigations.