Abercrombie, Pushing a New Image, Confronts Accusations Against Ex-C.E.O.

 

Abercrombie, Pushing a New Image, Confronts Accusations Against Ex-C.E.O.

 

Recent sex trafficking charges against Michael Jeffries could entangle the retailer, too, as it tries to close a tumultuous chapter in its history.

 

On Tuesday, federal prosecutors charged Michael Jeffries, center, the former longtime chief executive of Abercrombie, with running a sex trafficking scheme from at least 2008 to 2015, while he was at the helm of the company.

 

Danielle Kaye

By Danielle Kaye

Oct. 25, 2024

https://www.nytimes.com/2024/10/25/business/abercrombie-mike-jeffries-sex-trafficking-charges.html

 

Fran Horowitz, the chief executive of Abercrombie & Fitch, said it plainly: “We are no longer the company that we used to be.”

 

That was in 2017, and Ms. Horowitz was referring to a series of crises that had tainted the clothing retailer during the tenure of her predecessor, Michael S. Jeffries, who had led the company from 1992 to 2014. There were lawsuits accusing Abercrombie of discriminating against Black, Latino and Asian employees; blowback for selling sexualized clothing to children; and accusations that its marketing to “the attractive all-American kid” excluded potential customers based on weight.

 

Under Mr. Jeffries, Abercrombie’s stores emulated nightclubs, with dimmed lighting and images of half-naked young models lining the walls.

 

Ms. Horowitz took the helm in 2017 and revamped the brand’s image. Its stores are brighter, its models are fully clothed and its stock has soared, bolstered by customers’ embrace of the expanded product offerings.

 

For a time, Mr. Jeffries’s legacy seemed to be a dark period that would stay in the past. But new accusations against him, more serious this time around, have come to light. They have threatened Abercrombie’s revamp of its image and could put the company at financial risk.

 

On Tuesday, federal prosecutors charged Mr. Jeffries, 80, with running a sex trafficking scheme from at least 2008 to 2015, while he was at the helm of the company, coercing young men to attend events around the world where he and his romantic partner sexually exploited them. The indictment echoed allegations that were first unearthed last year by a BBC investigation and a lawsuit accusing Mr. Jeffries of using the prospect of modeling jobs at Abercrombie to abuse dozens of men.

 

He was arrested this week in Florida and pleaded not guilty to all the charges on Friday, during his arraignment at a federal courthouse on Long Island. He was released on a $10 million bond with home confinement.

 

The company has denied any involvement in or knowledge of Mr. Jeffries’s activities.

 

“Abercrombie & Fitch Company’s current executive leadership team and board of directors were not aware of the allegations of sexual misconduct by Mr. Jeffries,” said Kate Wagner, a spokeswoman for the company.

 

She said that the company was “appalled and disgusted” by the allegations, and that Abercrombie had “successfully transformed our brands and culture into the values-driven organization we are today.”

 

The federal charges against Mr. Jeffries and two others — Matthew Smith, 61, his romantic partner, and James Jacobson, 71, whom prosecutors accused of acting as a recruiter in the sex trafficking scheme and who also pleaded not guilty — do not explicitly implicate the company. Prosecutors do not have evidence that the alleged crimes happened on company grounds, Breon S. Peace, the U.S. attorney for the Eastern District of New York, said at a news conference on Tuesday while announcing the indictment. And prosecutors have not said company resources were involved.

 

But the lawsuit filed in October 2023, on behalf of dozens of men who said they were victims of Mr. Jeffries’s sexual exploitation, named Abercrombie as a defendant. According to the complaint, the company not only knew about Mr. Jeffries’s alleged sex trafficking scheme, but also financed events where the alleged sex abuse took place. The defendants in the case moved this month to dismiss it.

 

“The thing that you’re going to be looking for is knowledge,” said Kenya Davis, a partner at Boies Schiller Flexner and former federal prosecutor. “It will really rise and fall on how much the company knew, and how much the company let this guy do whatever he wanted to do.”

 

The suit makes alarming claims: A video depicting Mr. Jeffries sniffing what appeared to be cocaine off a man’s private body part circulated within the Abercrombie office, but the company did not take action; for several years, Mr. Jeffries was permitted to pay hush money to victims using Abercrombie funds; and in 2010, one model who had been recruited to meet with Mr. Jeffries was given company gift cards to buy Abercrombie clothes.

 

“Without Abercrombie’s knowing participation, the sex trafficking scheme could not have existed and flourished,” the suit said.

 

Ms. Wagner, Abercrombie’s spokeswoman, declined to comment on the allegations in the suit because it was pending litigation. Last year, the company hired a law firm to investigate the accusations against Mr. Jeffries, though the company has not updated the status of that investigation.

 

Elizabeth Fegan, a partner at FeganScott who has represented sexual abuse survivors in high-profile cases including trials against Harvey Weinstein, said there was “fairly abundant” evidence that the company and its former board of directors had abdicated their responsibility to the victims. The board very likely knew, or should have known, about the nefarious activity, she said, adding that juries were more willing, in the post-“Me Too” era, to impose punitive damages on those who enabled or protected perpetrators.

 

But finding corporate liability for Mr. Jeffries’s alleged sex trafficking scheme could be a challenge, lawyers said. Typically, it is not enough to prove that a business has heard rumors about or may have been aware of bad conduct, said Amanda Kramer, a partner at Covington and former federal prosecutor. Liability often comes down to the amount and nature of the knowledge, she said.

 

“There has to be an involvement, and a knowing financial benefit,” Ms. Kramer said. “The way courts seem to be going is requiring more than just passive awareness and general business dealing with a person.”

 

The fact that some of the claims have been made by people who were not working for Abercrombie could be an additional challenge for plaintiffs aiming to hold the company to account, Ms. Kramer said. The standard for corporate liability is “quite different” for conduct perpetrated against an employee or in the workplace, she added.

 

Abercrombie’s strongest defense against liability would be to argue that Mr. Jeffries was acting outside his role at the company, said Heather Cucolo, a professor at New York Law School. But that could be a hurdle for Abercrombie, she said, because the civil suit seemed to indicate a significant connection between the alleged acts and Mr. Jeffries’s position as chief executive.

 

Ms. Cucolo pointed to a decision this year by a judge in Delaware ordering Abercrombie to pay for Mr. Jeffries’s legal fees in the lawsuit, on the basis that the allegations in the case were tied to his role at the company.

 

The heightened attention to Mr. Jeffries’s conduct comes as Abercrombie has continued to overhaul its public image — largely successfully — to lure back customers wary of buying clothes from a brand tainted by scandals. When Mr. Jeffries resigned from Abercrombie in 2014, he left the company with sluggish sales amid discrimination lawsuits and public backlash to its hypersexualized branding. Abercrombie’s sales and stock price were dropping sharply at the time.

 

But in the last fiscal year, the retailer brought in more than $4 billion in revenue, a level not reached in more than a decade.

 

Investors have liked the turnaround: Abercrombie’s share price rose 285 percent last year.

 

It remains to be seen if the new charges against Mr. Jeffries will hurt the retailer in the same way. Both the federal indictment and the civil suit could drag on for months, if not years, adding to public scrutiny of the company.

 

But many customers have become desensitized to allegations of sexual misconduct against people in power, said Shawn Grain Carter, a professor of fashion business management at the Fashion Institute of Technology. Even if they find the allegations reprehensible, they’re likely to keep shopping at Abercrombie, especially as Ms. Horowitz has pushed the retailer to expand its offerings and focus on inclusivity, a sharp departure from Mr. Jeffries’s exclusionary rhetoric, she said.

 

The accusations and charges against Mr. Jeffries are “not going to affect this brand at all,” Ms. Carter added, saying that “the customer is going to continue to support the brand because they’ll say, ‘This guy has been out of there for 10 years.’”

 

Abercrombie’s stock has fallen more than 11 percent since Mr. Jeffries’s arrest.

 

The company will have to do everything it can to distance itself from its former chief executive, stressing to the public that much of the leadership at the company — including the entire board of directors — has changed since Mr. Jeffries’s tenure, said Erik Gordon, a professor at the Ross School of Business at the University of Michigan. Two current senior executives, the chief financial officer and the head of human resources, worked at Abercrombie during Mr. Jeffries’s tenure, though both were in lower-level roles.

 

But beyond potential legal liability, there could be a bumpy road ahead for Abercrombie’s business, Mr. Gordon said, given the severity of the allegations against its former longtime leader. The public scrutiny could set the company back in its push to rebrand and “calls the brand’s identity into question,” he said.

 

Sean Piccoli contributed reporting.

 

Danielle Kaye is a business reporter and a 2024 David Carr Fellow, a program for journalists early in their careers. More about Danielle Kaye