On Tuesday in the Northern District of California, plaintiff Diego Fazio filed a shareholder derivative complaint on behalf of nominal defendant Uber Technologies, Inc. against Uber’s current and former officers and members of the Board of Directors for allegedly violating the Securities Act of 1933.
The plaintiff has brought forth this complaint for the defendants’ purported “breaches of fiduciary duty, as well as, violations of the Securities Act from May 10, 2019 through the present (the ‘Relevant Period’) for issuing false and misleading statements and/or omitting material information in the Company’s documents in connection with its Initial Public Offering (‘IPO’) of Uber common stock.”
According to the complaint, Uber conducted its IPO on May 10, 2019. Furthermore, the plaintiff proffered Uber allegedly “lured investors into the IPO with a simple rationale: growth now, profits later. Uber committed as a public company to deliver unparalleled and rapid growth and scale, under the premise that the largest player dominates the market, winning both market share and profits. Investors took the bait.” Uber raised more than $8.1 billion via the sale of 180 million shares of common stock at $45.00 per share, the complaint said; as a result, Uber was valued at $75.5 billion.
However, the plaintiff claimed that “[u]nbeknownst to investors, Uber and its executives premised the Company’s growth on an undisclosed, unsustainable, and often illegal ‘growth at any cost’ business model, putting growth first above profits, the law, and even its own passengers’ safety.” Specifically, plaintiff Fazio contended that “[a]s disclosed post-IPO…Uber systematically violated local laws by launching and operating its Rides services in new domestic and international jurisdictions – irrespective of whether the Company was licensed or lawfully permitted to operate there.” Reportedly, Uber relied on the popularity of its apps in these jurisdictions to circumvent local laws and authorities.
Moreover, the plaintiff averred that Uber was “scarred by scandal.” For example, the complaint recounted that in 2017, Uber was caught using Greyball, a software tool which it allegedly used “to evade authorities seeking to enforce laws, rules, and regulations applicable to the Company’s ridesharing operations.” Fazio also pointed out purported workplace harassment, which allegedly prompted a #DeleteUber campaign and led to the replacement of the CEO. Additionally, the plaintiff claimed that Uber concealed reports of assault and harassment from the public and investors and allegedly upheld policies, such as its “three-strikes system” that “put the Company’s interests ahead of passenger safety.”
Furthermore, Uber also allegedly concealed that “its growth at any cost business model was negatively impacting its financial condition, resulting in slowing (not accelerating) growth and billions of dollars in losses.” Moreover, Q2 2019, which is the same quarter as Uber’s IPO, however, after the IPO closed Uber reported “a staggering $5.2 billion loss – the largest loss in the Company’s history. Uber blamed the loss on stock-based compensation paid to early investors ($3.9 billion), but even excluding that figure, the Company’s $1.3 billion loss was still its largest loss ever.” The plaintiff noted that Uber had various rounds of layoffs in an attempt to compensate for the revenue loss. Additionally, the plaintiff proffered that “Uber’s Q2 2019 financial results showed it was not growing as the Company had represented in the Offering Documents”; Uber allegedly had slow growth in terms of trips and users and concealed it. Consequently, plaintiff Fazio averred that Uber’s Offering Documents contained materially false or misleading information. The plaintiff proffered that the defendants “breached their fiduciary duties by failing to maintain internal controls, as well as, personally making and/or causing the Company to make materially false and misleading statements of fact and omitted material facts required to be disclosed in order to make the statements in the Offering Documents not misleading.” Accordingly, the plaintiff contended that the misstatements fall into three categories” (i) illegal business model; (ii) passenger safety; and (iii) financial condition.” Consequently, the plaintiff claimed that Uber’s success and business model was “deceptive.” As a result of the aforementioned conduct, the plaintiff alleged that Uber’s stock priced “dropped from the $45.00 per share Offering price to $29.67 per share on the day this Action was commenced,” which is a 34 percent decline and it declined to an “all-time low of $25.99 on November 14, 2019.”
The counts against the defendants include: violation of Section 11 of the Securities Act, breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets.
Another lawsuit filed by Boston Retirement System also alleged that Uber committed securities violations arising from its IPO, claiming that Uber and its executives made false and misleading statements. The Northern District of California denied Uber’s motion to dismiss.