Abercombie & Fitch must pay for ex-CEOs criminal sex trafficking defence

Abercrombie & Fitch must pay for the legal fees of former CEO Mike Jeffries as he defends criminal charges of sex trafficking, a US court has ruled.

The fashion brand, which has previously said it was "appalled and disgusted" by Mr Jeffries alleged conduct, had signed an agreement in 2014 when the ex-CEO resigned, covering him for the costs of any criminal proceedings which arose from his position.

The company had argued in court that the charges, which allege Mr Jeffries ran an international prostitution and sex trafficking business, related to his personal life and not his work.

But a judge found that the "horrific" charges, filed last year, were tied to his corporate role.

The courts ruling could have significant financial and legal ramifications for Abercrombie & Fitch (A&F) - a billion-dollar public company with more than 750 stores worldwide, including the Hollister brand. Legal experts told the BBC the bill for the company is likely to run into millions of dollars.

The decision also raises questions about why the company made the far-reaching indemnity agreement when Mr Jeffries stepped down more than a decade ago. The BBC has previously asked A&F about the circumstances surrounding this agreement, and if it had been aware of any allegations against Mr Jeffries at the time, but it declined to comment.

Mr Jeffries, who ran the retailer for 22 years, is currently on bail after pleading not guilty to the charges along with his British life partner, Matthew Smith, and their middleman in the alleged trafficking operation, James Jacobson.

The arrests followed a BBC investigation in 2023 that revealed Mr Jeffries and his partner were at the centre of a sophisticated operation scouting young men for sex in the US and abroad.

Ruling that Mr Jeffries indemnification agreement does cover the criminal charges against him, Judge Paul Fioravanti said: "In my view, Jeffriess 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."

The criminal legal costs come in addition to fees in Mr Jeffries civil cases, which A&F was ordered to pay last year on similar grounds.

Along with Mr Jeffries, A&F is defending multiple civil lawsuits from alleged victims, accusing the brand of having facilitated and funded his "criminal enterprise".

"Jeffries legal fees will be millions of dollars when its all said and done," said Neama Rahmani, a former federal prosecutor and president of West Coast Trial Lawyers.

A former federal prosecutor and partner at Shihata & Geddes, Elizabeth Geddes, added: "Youll 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."

Companies can indemnify executives, even for criminal charges, she said, though this would typically be in cases of white-collar crime such as fraud and not sex trafficking.

Mr Rahmani said the Abercrombie & Fitch agreement was "unique" in its coverage of criminal conduct. "Generally, criminal conduct is not something that you can insure for because it falls outside the scope of any companys business," he said.

The criminal charges against Mr Jeffries date from 2008 to 2015. He stepped down as chief executive of A&F in December 2014 after two decades in charge.

US prosecutors allege he had used his wealth, power and status as CEO "to traffic men for his own sexual pleasure" and for the pleasure of his partner, Mr Smith.

A&F is not a defendant in the criminal case, but the latest ruling means it will now have to reimburse Mr Jeffries for legal fees dating back to 2023, as well as advance him funds for his ongoing defence.

On top of the legal fees of its former CEO, the company may also face further costs in civil cases it is defending if a court orders compensation to be paid out or both parties agree a settlement.

Despite the severity of the allegations, the company has been reporting record sales, amounting to $4.95bn (£3.84bn) in the past year.

"It doesnt appear as though A&F are at a detriment financially [in sales or share price] due to the lawsuits surrounding Mike Jeffries," said Heather Cucolo, a New York Law School professor.

She said it was interesting that the company appeared to have been able to "spin" or "stifle some of the information thats out there".

Following the BBCs investigation, A&F opened an independent investigation and suspended $1m (£770,000) annual retirement payments to Mr Jeffries.

It added that new leadership has transformed the company, and it has "zero tolerance for abuse, harassment or discrimination of any kind".