Tuesday, May 21, 2019

Class action alleges Lyft misled investors in IPO

By Lene Powell, J.D.

In a new lawsuit in California’s Northern District, a family trust is alleging that Lyft Inc. misled investors in documents supporting its recent IPO regarding the company's national market share, safety issues regarding its bike sharing business, and labor issues, causing the share price to be artificially inflated and resulting in investor losses when the truth came out (Malig v. Lyft Inc., May 17, 2019).

IPO. Headquartered in San Francisco, Lyft operates a peer-to-peer marketplace for on-demand ridesharing, including access to motor vehicles, shared bikes, and shared scooters. According to the suit brought by Block & Leviton, Lyft offered 32.5 million shares via its March 28 IPO at a price of $72.00 per share, for total proceeds of $2.34 billion.

Misrepresentations. The action claims violations of Section 11 of the Securities Act for misrepresentations in the registration statement and prospectus. According to the complaint, Lyft’s statements about company’s business metrics, growth potential, and financial prospects were not as strong as presented in the offering materials.

This financial weakness was allegedly due to several reasons. First, to increase the Company's reported revenues and profits in the lead-up to the IPO, Lyft began charging higher "surge pricing" more often than it had previously been doing, but keeping a higher portion of the additional revenue without sharing a proportionate share with drivers. This led to decreased payment to drivers, disincentivizing them to drive for Lyft, and potentially damaging the business on a long-term basis. Lyft drivers in Los Angeles went on strike for 25 hours on March 25, 2019, just three days before the IPO.

In addition, Lyft allegedly failed to disclose that more than 1,000 of its rideshare bicycles had safety issues, which led to thousands of bicycles being taken out of service in New York, San Francisco, and Washington, D.C. following dozens of reported injuries and safety concerns.

Damages. According to the complaint, these misrepresentations and omissions materially and artificially inflated the share price at the time of the offering. As investors learned additional information after the IPO, the company's shares fell sharply from $72.00 to under $57.00 on April 15, 2019.

The complaint states that the claims are purely strict liability and negligence claims, and that the plaintiff expressly eschews any allegation sounding in fraud.

The case is No. 3:19-cv-02690.