Abercrombie & Fitch has been ordered to cover the legal expenses of its former CEO, Mike Jeffries, as he faces charges of sex trafficking. The court's decision mandates that the renowned clothing retailer reimburse Jeffries for legal fees incurred since 2023 and provide funds for his ongoing defense. Although Abercrombie & Fitch is not implicated in the criminal proceedings, the company is bound by a 2014 agreement that requires them to finance Jeffries' legal costs.
The agreement was established when Mike Jeffries resigned as chief executive of Abercrombie & Fitch in December 2014. This arrangement stipulated that any criminal proceedings related to his role would be financially supported by the company. Despite this arrangement, Abercrombie & Fitch asserted in court that the charges against Jeffries stemmed from his personal life rather than his professional responsibilities.
"In my view, Jeffries's conduct, as alleged in the indictment, as horrific as it is, has a causal connection to his official capacity and status as CEO of Abercrombie." – Judge Paul Fioravanti.
Abercrombie & Fitch, a billion-dollar public company with over 750 stores worldwide, including the Hollister brand, continues to maintain its stance against abuse and harassment. The company has been vocal about its "zero tolerance for abuse, harassment or discrimination of any kind." Nevertheless, it finds itself defending multiple civil lawsuits from alleged victims who accuse the retailer of facilitating and funding Jeffries' "criminal enterprise."
In response to these allegations, Abercrombie & Fitch launched an independent investigation following a BBC report in 2023. Consequently, the company suspended $1 million in annual retirement payments to Jeffries.
The financial impact of these legal proceedings on the company's performance appears minimal. Abercrombie & Fitch reported record sales of $4.95 billion over the past year. Experts suggest that the lawsuits surrounding Jeffries have not significantly affected the company's sales or share price.
"It doesn't appear as though A&F are at a detriment financially [in sales or share price] due to the lawsuits surrounding Mike Jeffries." – Heather Cucolo, a New York Law School professor.
However, the financial burden of Jeffries' defense could be substantial. Legal experts predict that his legal fees will amount to millions of dollars, given the complexity and duration of both civil and criminal trials.
"Jeffries' legal fees will be millions of dollars when it's all said and done." – Neama Rahmani, a former federal prosecutor and president of West Coast Trial Lawyers.
"You'll have high-paid lawyers charging by the hour, especially if this leads to both a civil and criminal trial which can be expensive and time-consuming." – Elizabeth Geddes, a former federal prosecutor and partner at Shihata & Geddes.
While Abercrombie & Fitch may face significant costs related to this case, industry observers highlight that criminal conduct typically falls outside the scope of insurable business activities for companies.
"Generally, criminal conduct is not something that you can insure for because it falls outside the scope of any company's business." – Neama Rahmani, a former federal prosecutor and president of West Coast Trial Lawyers.