A class action has been filed against Wet Seal, Inc., a specialty retailer operating stores selling women’s apparel and accessories, (NASDAQ: WTSLA) and certain of its officers and directors by stockholders who purchased the company’s common stock between January 9, 2003 and August 19, 2004. The action claims that the defendants violated federal securities laws by issuing a series of material misrepresentations to the market over this time period, thereby artificially inflating the price of the company’s securities. The stockholders seek to recover compensatory damages for the loss of value of their stock.

Specifically, the complaint alleges that the Company:

• Was hemorrhaging cash at a material rate requiring that the Company liquidate its stores, close stores and/or file for protection under the United States bankruptcy laws;
• Had overstated their balance sheet;
• Had gross margins that were declining at a rate of nearly 200 basis points per month;
• Had inventory that was grossly overvalued and the Company's new product line and had received disastrous reviews which defendants knew would result in declining margins and revenues in current and future quarters and/or bankruptcy for the Company;
• Knew that it had to liquidate stores;
• Had lost top creative personnel and merchants that had fled the Company;
• Falsely claimed that lease obligations which were well above market rates;
• Had hidden for months the fact that the "carrying value" of its stores was materially impaired;
• Had understated liabilities for Q1-Q3 2003 by at least $1 million relating to the Company's failure to pay its employees overtime wages;
• Had grossly understated earnings guidance of ($.53) to ($.57) for the Company's Q2 2004, and, in fact, the Company would ultimately reveal that its reported loss for Q2, alone, would be ($3.20) per share.

As a result of the announcement, Wet Seal's stock price traded at inflated levels during the Class Period, increasing to as high as $12.99 on July 8, 2003, whereby the Company's major shareholders, top officers and directors sold more than $40 million worth of their own shares and obtained a new "last minute" $50 million credit facility as the Company was faltering.