The owner of Jessica Simpson’s lucrative fashion empire is facing trouble from all sides, and a bankruptcy filing could be next.
New York City’s Sequential Brands Group, the subject of a securities fraud investigation and shareholder lawsuit seeking class-action status, secured a temporary reprieve on a credit agreement valid through July 8, the eighth such extension since Nov. 15, according to a Securities and Exchange Commission (SEC) filing outlining the covenant with lender Wilmington Trust, National Association. The unusual activity suggests the company could be close to defaulting on its financial obligations.
A spokeswoman for the brand management firm did not immediately respond to a request for comment.
Founded in 2012, Sequential has been struggling for some time. In April of 2019, the parent to 10 brands, including denim labels such as Joe’s Jeans and Justin Timberlake’s William Rast, offloaded Martha Stewart Living Omnimedia and Emeril Lagasse, along with their intellectual property, to rival Marquee Brands for $175 million. In October of the same year, Sequential, which also owns the yoga-centric Gaiam brand, said it was mulling strategic alternatives. Six months ago, in December, it put itself up for sale.
Debt has dogged Sequential. After acquiring Heelys for $5.5 million in 2013, it sold the skate shoe brand to BBC International in April for $11 million, planning to funnel the proceeds toward paying down debt.
Sequential’s best known and most successful brand, Jessica Simpson was believed to drive $1 billion annually prior to Covid. The celebrity behind the eponymous maker of apparel, shoes, accessories and more is said to be in talks with an investment bank on possible bids for Jessica Simpson Collection, which Sequential acquired in 2015.
Sequential’s troubles have only piled up after airing plans for a strategic review.
In November, the company ended a lease for its former corporate headquarters at Manhattan’s Starrett-Lehigh building, a West Chelsea landmark at 601 West 26th Street. It has since moved several blocks north to the 38th floor at 1407 Broadway.
In its April annual report filed with the SEC for the year ended Dec. 31, 2020, Sequential documented an ongoing legal dispute with the commission.
“In the past year we have been subject to litigation from the Securities and Exchange Commission and a third party relating to accounting decisions in 2016 and 2017. There has been a demand regarding a derivative action related to the same facts as well,” Sequential wrote. “There could be other federal or state actions brought regarding the facts surrounding this matter or other accounting or disclosure decisions made by the Company subsequently, including a federal class action that has been filed.”
The SEC lawsuit filed on Dec. 11, 2020, in a Manhattan federal court “alleges that the Company delayed a goodwill impairment in the fourth quarter of 2016 and first three quarters of 2017 at a time the SEC asserts there was evidence of likely impairment,” according to Sequential’s annual report.
“In the fourth quarter of 2017, we impaired all of our goodwill, resulting in an impairment charge of $304.1 million,” it added. “The SEC also alleges there were related deficiencies in internal accounting controls. The case seeks injunctive relief and civil monetary penalties,” the document read.
Currently pending, Sequential’s motion to dismiss “with prejudice” argues that that SEC’s “precedent-setting” complaints seeks “carte blanche to bring securities fraud actions without alleging a sale of securities and unlimited authority to bring fraud charges for unintentional misstatements or omissions.”
Compounding the SEC imbroglio, a shareholder derivative suit claims that some of the firm’s former executives failed to report the commission’s allegations in its proxy statement last year. And a shareholder lawsuit filed in March is seeking class-action status.
Sequential shrank its losses last year to $89.4 million from $159.4 million in 2019, though 2020’s net revenue slumped 12 percent to $89.8 million from $101.6 million from the prior year, the annual report said.
On May 3, Sequential lost executive chairman William Sweedler, whose “resignation did not involve a disagreement with the company on any matter relating to its operations, policies or practices,” it reported in an SEC filing.
Additional reporting by Jessica Binns.