Farfetch Is Sued for Allegedly Misleading Shareholders in IPO

Farfetch Ltd. is at the center of multiple class-action lawsuits alleging that the luxury fashion platform had misled shareholders in its initial public offering.

Over the past week, documents filed with the U.S. District Court for the Southern District of New York, on behalf of investors that purchased the company’s stock, claimed that Farfetch made false statements and failed to disclose information about the business in its IPO registration statement leading up to Aug. 8, when it reported broader-than-expected losses in its second-quarter financial results.

At least 10 law firms — including Hagens Berman, Bragar Eagel & Squire and Rosen — have issued alerts to Farfetch investors to join in the suits. In one of the complaints, the plaintiff wrote that the defendants “concealed that Farfetch’s core business was vulnerable to heavy promotions of luxury goods and the company’s profitability depended on aggressive acquisitions.”

In a statement, Hagens Berman partner Reed Kathrein wrote, “We are focused on investors’ losses and whether Farfetch misrepresented the sustainability of its business model.”

On Sept. 20, 2018, the night before its first day of trading, Farfetch sold 44.2 million shares to raise $885 million and hit a valuation of about $6.2 billion. During its debut the following day on the New York Stock Exchange, Farfetch’s shares climbed upwards of 50%, opening at $27 with an intraday high of $30.60. (The company had priced its IPO a dollar above its range of $17–$19 per share.)

Almost a year later, in August, the company posted a disappointing $89.6 million quarterly loss in its Q2 results, which noted mounting costs for its tech infrastructure and the $675 million acquisition of Off-White parent New Guards Group, as well as the resignation of COO Andrew Robb. A subsequent sell-off on Wall Street pushed its shares down more than 40% during the day’s extended trading session and down nearly 50% the next morning.

About a week after Farfetch posted its Q2 results, several national law firms began investigating possible disclosure violations by the company. In its registration statement, the retailer boasted that its business model allowed for “low expenditures, favorable working capital dynamics, minimal inventory holding and an ability to drive stronger margins.”

Today, Farfetch’s stock hit a record low of $8.89 amid growing concerns over its long-term viability — just one day before its first anniversary as a public company.

A Farfetch spokesperson told FN that the company does not comment on pending litigation.

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