Five Below Sued for Securities Fraud

Photo by Ildar Sagdejev via Wikimedia Commons

If you have kids, you no doubt are familiar with Five Below, the Philadelphia-headquartered chain of strip mall stores selling mostly toys and small household goods for $5 or less. Five Below was started in Wayne, Pennsylvania, in 2002 by Encore Books and Zany Brainy founder David Schlessinger and today boasts some 350 locations in 20 states. The company went public in 2012. And now Five Below and Schlessinger, among others, are named in a federal suit filed in Philadelphia alleging securities fraud.

According to the suit, filed by stockholder Richard Haan, Schlessinger and co-founder Thomas Vellios fraudulently inflated the price of Five Below’s stock in 2014 while concealing from investors their plans to step down from day-to-day management of the company. Then, says Haan, the two founders along with Five Below’s chief financial officer, cashed in by selling off nearly $30 million of their own shares at the allegedly fraudulently inflated prices.

Later, on December 4th, Five Below reported lower sales growth than it had anticipated, with sales growth falling from 31.8% in the first quarter of 2014 to 30.2% in the second quarter to 24.6% in the third quarter. And the fourth quarter forecast that it revealed on December 4th was particularly dismal, considering that the company was heading into the Christmas season. On the same day, Schlessinger and Vellios both resigned their positions with the company, effective January 31st.

At the time of the announcement, an analyst for Wells Fargo said he was “a little unsettled” by the “frequent inside selling…”

Haan accuses the company of making “false and misleading” statements in order to drive up the cost of the stock they intended to sell and claims they violated the Securities Exchange Act of 1934 and SEC regulations. He is seeking unspecified damages. A Five Below spokesperson was not immediately available for comment.