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Guess Co-Founder Accused of Rape, Will Not Fully Reimburse Company for Two Decades of Erroneous Medical Expenses
The apparel firm suggests the $5.3 million in erroneous payments should be seen as a perk for its co-founder.
April 8, 2021
Guess (GES), a lifestyle and apparel brand, was founded by brothers Maurice and Paul Marciano who own approximately 38% of the shares outstanding. The Marcianos and Guess engage in tens of millions of dollars in related party transactions. Investors should see the latest, according to the company, as nothing more than a perk.

In its latest 10-K, Guess revealed it recently discovered that for the past 20 years it has been paying the healthcare expenses for employees of other companies controlled by the Marcianos and says it:

“...had erroneously paid the medical expenses of the employees of certain entities controlled by Paul Marciano and Maurice Marciano (collectively the “Marciano Offices”) from approximately 2000 until October 2020.”

In all, Guess paid approximately $5.3 million in erroneous medical expenses. This is only an estimate though, as the company admits it doesn’t have records for all of the years in question:

“The Company believes its estimation method fairly approximates the Company’s incremental cost of paying the medical expenses of the employees of the Marciano Offices for the years 2000 to 2013 in which actual employment and medical expense data for the employees of the Marciano Offices are not available.”

Guess shareholders are stuck with much of the bill. The filing reveals the Marcianos reimbursed Guess a total of $2.7 million. Of this amount, Guess says $1.9 million is for fiscal years 2019, 2020, and 2021.

For the 17 previous years, the Marcianos reimbursed the company just $800,000 despite Guess estimating $3.5 million in erroneous medical expenses during this period. Since the company believes the error was immaterial, it simply corrected the mistake in the current year’s financial statements.

In all, the Marcianos reimbursed the company for just 51% of the erroneous medical expenses. Shareholders are left holding the bag for the other $2.6 million. In explaining why the company wasn’t reimbursed in full, Guess suggests investors should think of it as just another perk enjoyed by the founders:

“The fact that the Marciano Offices may have realized lower overall expenses in connection with obtaining and administering medical insurance for the employees of the Marciano Offices over the period from 2000 until October 2020 may itself be considered a perquisite inadvertently provided by the Company to Paul Marciano and Maurice Marciano, but there was ultimately no associated incremental cost to the Company for providing that benefit in fiscal 2021, fiscal 2020 and fiscal 2019 because of the Marciano’s reimbursement of the Company of 100% of the aggregate incremental cost to the Company in those fiscal years.”

The company doesn’t say why it felt the Marcianos should reimburse Guess for three years but not the other seventeen. Regardless, the reimbursements— or lack thereof— pales in comparison to other deals between Guess and the Marcianos; the company will pay related parties like the Marcianos $66 million in future lease payments. The company may also open its wallet, as it has done in the past, to settle new sexual harassment and assualt allegations against Paul Marciano.

The annual report also includes two new lawsuits against the company and Paul Marciano. In the filing, Guess describes the substance of the first lawsuit, filed by a former company model, like this:

“The complaint asserts several claims based on allegations that the former model was treated improperly by Mr. Marciano and retaliated against by the Company.”

The improper treatment, according to the lawsuit, alleges Guess enabled Paul Marciano to sexually assault the model over a number of years. Two months later, in March 2021, Guess disclosed that it:

“...received communications from another former model containing similar allegations against Mr. Marciano and the Company, for which no complaint has been filed to date.”

The company and Marciano dispute the allegations and will contest the lawsuit in court. In 2018, the company paid $500,000 to settle lawsuits with five women accusing Marciano of sexual harassment and unwantd kissing and groping. At the time, Marciano was the company’s Executive Chairman, a position from which he resigned following the conclusion of an internal investigation. Marciano also said at the time that he planned to leave the company upon the expiration of his employment contract in January 2019.

Paul Marciano remains Guess’s Chief Creative Officer and a member of the company’s board.

In its third quarter 2021 10-Q, Guess revealed though no lawsuit was filed as a result of the allegations in the March letter, the company paid the accuser $300,000 to settle the matter. The filing also reveals a third person who sent a letter in April containing similar allegations, including rape, has filed a lawsuit against Marciano and the company:

“The complaint asserts a claim under the Trafficking Victims Protection Act based on allegations that the individual was treated improperly by Mr. Marciano.”

The original suit also accuses Marciano of rape, keeping what the suit allges is a rape room, and says Guess knew for more than a decade Marciano was a “recidivist sexual predator”.
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