Ex-Toys R Us bosses face $1bn lawsuit

Former C-suite executives handed more than $16m in bonuses days before toy retailer collapsed, a new lawsuit filed by the TRU Trust alleges

Written by Rhys Thomas

Posted 13.03.2020 | Retail

Ex-Toys R Us bosses face $1bn lawsuit thumbnail

Former top Toys R Us executives who allegedly pocketed $16 million in bonuses on the eve of the retailer’s collapse in 2017 are facing a new lawsuit seeking $1.1bn in damages.

A new filing yesterday in the New York Supreme Court from a group of creditors dubbed the TRU Creditor Litigation Trust says CEO David Brandon approved millions of dollars of bonuses to top executives just days before the business entered chapter 11 bankruptcy.

The TRU Trust says its investigation ‘uncovered ample evidence of wrongdoing’ and its complaints ‘quote extensively’ from internal emails acquired under a Bankruptcy Court Order

Bonus packages are said to have boosted the executives’ compensation by up to 75 per cent, including a $2.8m cut for Brandon.

The lawsuit alleges bonuses were paid ahead of the bankruptcy filing in order to avoid scrutiny by the courts. Work to arrange the fees began in the months leading up to TRU’s collapse, even as losses mounted, the suit says.

The lawsuit also takes aim at the consortium of private equity firms that acquired Toys R Us in 2005 using financial instruments that forced the toy retailer to take on more than $5bn in debt and pay regular dividends, or ‘advisory fees’.

Greg Dovel, the TRU Trust’s attorney, says the defendants were complicit in pulling money from the business and misleading toy suppliers and other vendors, before leaving them to foot the bill.

“They siphoned desperately-needed funds out of Toys R Us as it tumbled in bankruptcy and then misrepresented TRU’s financial situation to induce toymakers to provide goods on credit,” the attorney says.

More than 130 toy vendors are listed in the full hundred-page filing as having supplied goods to Toys R Us after on credit its bankruptcy filing and, as a result, incurred losses.

Bob Bodian, lawyer for defendant Richard Barry, who was at the time Chief Merchandising Officer at Toys R Us, and is now president of Toys R Us parent company Tru Kids Brands, blasted the lawsuit as “baseless” in a statement, according to the New York Post.

“Because none of the named defendants has any financial exposure, this lawsuit is just a misguided effort to pressure insurance carriers to pay meritless claims,” Bodian added.

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