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Skokos and Goliath.

Skokos and Goliath

Unhappy TCBY Shareholders Line Up Behind Attorney Ted Skokos, Hurling Accusations Of Fraud and Misconduct At the Giant Company

Little Rock attorney Ted Skokos sits in his antique-appointed office looking like an advertisement for the "right" pen or the "right" cologne in an upscale magazine. Polished, yet amiable, he points to a stack of pink telephone message slips piled on his desk. "I'm getting calls from all over the country," he says. "TCBY shareholders have heard about our lawsuit and want to get in on it."

Skokos' legal action started with one, then two, individual suits and now seems certain to result in a class action of at least $10 million against the yogurt king. Skokos is spending most of his time these days returning phone calls and spearheading legal maneuvers for the disenchanted TCBY shareholders.

Some who have watched Skokos operate in similar actions before call him a "greenmailer." Another witness to his performances says, "This is one of the sleaziest areas of law there is. These guys that hold themselves up as working for the downtrodden shareholders are a joke."

"I'm not even going to comment on that," Skokos says, then adds that his success for shareholders in earlier and similar suits speaks for itself.

TCBY investors are alleging misrepresentation and nondisclosure by the company of material information to the investing public. They claim these actions inflated the price of the stock and induced unwitting investors to buy into the company.

As before, Skokos is taking on a Goliath and hurling strong accusations: fraud, deceit, manipulation and conspiracy. And as before, he is committed to the fight, regardless of how long it lasts.

One More Time, Now

The first of two similar suits lasted three years. Filed in 1985 on behalf of Worthen Banking Corporation against the directors and officers of the company, the derivative suit alleged the board was not acting in the best interests of the bank. Skokos won a $15.3 million settlement in 1988, $13 million of which was paid in cash directly to the capital account of the bank, with the balance a credit in services from Stephens Inc.

The second, and most recent success for Skokos, was a January 1989 class action filing against Environmental Systems Co., a case that more closely parallels the TCBY suit.

During the fall of 1988, Ensco stock had been trading at upwards of $17 a share. In early January of 1989, the company announced a huge loss associated with their field services division, which had been quietly shut down in October 1988, and the stock plummeted to the $10 range.

The suit, settled in the shareholders' favor to the tune of $5.5 million, alleged that the company didn't notify the investing public of the loss or shut-down in a timely manner. (A fairness hearing for the court to determine if the settlement is appropriate has been set for September 25.)

Like Ensco, TCBY shareholders have watched the value of their investment free fall over the past few months like something David Letterman would throw off the top of a building. The stock price reached the high twenties during the last calendar year, but languishes today in the $6-7 range.

Not surprisingly, Skokos won't reveal how many zeros were on his paychecks from the two big victories, but he's obviously been amply rewarded. In class action suits, the judge has some discretion in awarding attorney's fees. It's complicated, but he might take into account the amount of money recovered, the complexity or length of the litigation, the benefit to the class, and the work weighed against the risk.

Asked what his chances are for success in the TCBY suit, Skokos says confidently, "Excellent. As good as it was with the others, if not better."

But a point-by-point analysis shows Skokos' suit isn't airtight. Not yet, anyway.

Follow the Yellow Brick Road

The lawsuit alleges, not that the drop in the stock price could have been avoided, but that the investing public was not a fully informed public and so could not have seen the drop coming; in essence, they were led down a yellow brick road. Skokos' suit pinpoints four defendants: CEO Frank Hickingbotham, President Herren Hickingbotham, CFO Gale Law, and VP of Corporate Communications Mimi Hurst.

Just what did the four do, or not do, that has Skokos and shareholders so indignant? Skokos claims:

1) In the third quarter of 1989 TCBY's same-store sales numbers, a barometer of health for all retail business, went negative, down 1 percent. (Skokos hints that through discovery, this number may worsen.) TCBY attributed this to adverse weather conditions.

Skokos takes issue with how the news was handled. His complaint insinuates the beginning of a "cover-up"; management knew it was the start of a more serious downturn. The complaint further insinuates that after the announcement of the 1 percent decline the company shouldn't have billed itself as a fast growing company.

Devil's advocate: One quarter does not a year make. And total sales and net income were still setting records. The information was out there, mentioned in a letter to shareholders and in at least one newspaper article. Analysts and investors can make of it what they will. Letters to shareholders, annual reports, etc., are always positive sales pitches and should be read with a cynical eye.

2) Same-store sales continue to fall, yet the company agrees with analysts' earnings projections for 1990 and continues to represent itself as a growing enterprise.

Devil's advocate: The company acknowledges same-store sales are down, but focuses on record sales and earnings. They make no bones that this is attributed to the growing number of stores. In fact, you see this statement in every article and every press release. Is the company at fault or perhaps the analysts are getting lazy with their interpretations?

3) TCBY "recklessly disregarded" and downplayed increasing competition.

Devil's Advocate: The company has a market share of 34 percent; the nearest threat is just under 10 percent. While it's true there are new entries in the yogurt market, a research and marketing firm estimates that less than half of the population has tried yogurt, and once they do they'll be fans. The industry is expected to grow at 20 percent a year, usurping hard and soft-serve ice cream business.

4) Stores are being built too close together and are starting to cannibalize, or feed off of, one another.

Devil's Advocate: He takes the fifth.

Black and White Makes Gray

Exactly what is legally required of public companies or analysts? While there are some governing regulations on the books, unfortunately no one agrees on their interpretation or TCBY's adherence to them.

For example, same-store sales numbers must be reported quarterly. Wal-Mart reports these monthly, but they don't have to. Like Dillards, TCBY reports this figure quarterly. One Arkansas investor relations executive says, "If there is a development material in nature, a company is obligated to come forward between quarters and let everyone know at once rather than let it trickle out."

Another analyst who has followed TCBY closely for some time says the company has a delayed system in updating important trends. TCBY's information circle is reportedly tightly drawn at the top and a corporate culture of secrecy is the word.

For example, recent requests for information on Frank Hickingbotham's background went unattended by TCBY headquarters. For over a week the company acted as if the biography would be forthcoming, and finally admitted they would not comply with the request.

Regardless of how it shakes out, TCBY is in for a sweaty public relations and financial struggle. One local analyst comments that at best, shareholder suits distract management and cost legal dollars. Skokos admits there will be "lots of lawyering" going on.

"These are not matters that are disposed of quickly," he says, like a man entrenched.

PHOTO : BRINGING DOWN THE GIANTS: Attorney Ted Skokos has been called a "greenmailer," but believes his success for shareholders in suits against Worthen and Ensco speaks for itself.
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No portion of this article can be reproduced without the express written permission from the copyright holder.
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Title Annotation:Ted Skokos; TCBY
Author:Ford, Kelly
Publication:Arkansas Business
Date:Sep 24, 1990
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