A stockholder filed a verified derivative complaint against Lyft, members of its Board of Directors and members of its upper management on Monday in the Northern District of California for the defendants’ purported violations of securities laws, breach of fiduciary duty, waste of corporate assets, and unjust enrichment in relation to the allegedly false and misleading statements and omissions in Lyft’s Offering Documents for its proposed initial public offering (IPO).
According to the complaint, Lyft’s stock started trading publicly on March 29, 2019. The plaintiff noted that Lyft sold more than 32.5 million shares of stock priced at $72 per share, raising around $2.34 billion during its IPO. Moreover, the plaintiff stated that Lyft’s Offering Documents outlined Lyft’s brand, culture, and values, among other things, explained its growth, market share, and revenue goals, as well as risks. However, the plaintiff contended that “these outlined risks did not include a huge number of issues with the Company’s rideshare services known to Lyft at that time. During the relevant period of March 28, 2019, to the present, the plaintiff averred that the defendants “breached their fiduciary duties by personally making and/or causing the Company to make a series of materially false and misleading statements regarding the Company’s business, operations, and prospects in its Offering Documents, and failing to timely correct those statements.”
In particular, the statements allegedly failed to disclose “that passengers were phyiscally assaulted, sexually harassed, and/or raped by Lyft drivers,” incidents which passengers reported to Lyft before the IPO. Consequently, the plaintiffs said, Lyft was likely to suffer reputational harm or legal liability from the increasing number of assaults.
Other issues that the defendants allegedly failed to disclose include allegations that Lyft’s electric bikes had a defective braking system, which injured riders; the fact that safety issues with its electric bikes hindered its expansion into other transportation areas; labor disputes over driver classification which threatened to disrupt its workforce and affect its business; a large first quarter net loss of more than $1.1 billion; changes in internal controls; and overstated market share.
Therefore, the plaintiff proffered that Lyft’s statements were materially false and misleading. The plaintiff added that Lyft did disclose weak performance for Q1 2019, although it was known by the company beforehand. However, the plaintiff contended that the defendants failed to correct the misstatements or omissions in the Offering Documents and purportedly continued to repeat the Offering Documents’ false and misleading statements in statements after the IPO, such as Lyft’s quarterly report.
The plaintiff claimed that from Lyft’s IPO until when the aforementioned events were disclosed on May 8, 2019, “the price per share of the Company’s common stock dropped over 26.5%, or $19.09 from its IPO price of $72.00 per share to $52.91 per share.” Moreover, the plaintiff contended that because after the IPO the defendants did not fix false and misleading statements and omissions, they are liable for breaching their fiduciary duties.
The plaintiff claimed that the allegations have caused “substantial damage to Lyft’s reputation, goodwill, and standing in the business community and has exposed Lyft to substantial potential liability for violations of federal securities laws and the costs associated with defending itself.” The plaintiff asserted that this has caused millions of dollars in losses.
The plaintiff has sought to maintain this action on behalf of Lyft and for the plaintiff to represent the company, declaratory judgment in the plaintiff’s favor, an award for damages, pre and post judgment interest, for the defendants to take all necessary actions to remedy their conduct, and other relief.
The plaintiff is represented by Levi & Korsinsky LLP.
In addition, Lyft is currently facing an ongoing federal securities class-action. In September, the judge issued an order granting in part and denying in part Lyft’s motion to dismiss.