Blue Apron just can’t catch a break. The cooking kit company has seen its share price nearly cut in half since its late June IPO and now it could be in legal trouble, too.
Now law firms are coming after the company with proposed class-action lawsuits, alleging that Blue Apron failed to adequately disclose material information.
There are allegations that Blue Apron misrepresented its challenges with customer retention, delayed orders and reduced ad spend. Here’s how one law firm, Bragar Eagel and Squire, summarized it: “1) Blue Apron had decided to significantly reduce spending on advertising in Q2 2017, hurting sales and profit margins in future quarters; (2) Blue Apron was experiencing difficulty with customer retention due to orders not arriving on time or with all expected ingredients; and (3) the Company was experiencing delayed orders in Q2 2017 related to its new factory in Linden, New Jersey.”
A different law firm, Bottini & Bottini also filed a lawsuit with similar complaints.The plaintiff for this one is Rustem Nurlybayev. It appears that the same team previously sued Alibaba.
And there are a handful of other law firms making pretty much the same allegations. A quick Google search yields many results.
According to someone close to the company, some of these lawsuits are still seeking plaintiffs.
Apart from the outlined issues that have put pressure on Blue Apron’s stock, a lot of the blame for the depressed share price has been placed on Amazon, which agreed to purchase Whole Foods just weeks before Blue Apron’s debut. Following the announced deal, there were many media reports about the threat of Amazon potentially getting into Blue Apron’s cooking kit delivery business. IPO investors were at least made aware of this particular concern ahead of time.
It’s not uncommon for struggling companies to face shareholder lawsuits. In fact, there’s a name for them: stock-drop challenges. Facebook also faced legal challenges following its unsuccessful 2012 IPO. (Since then, the stock has gone up tremendously). More recently, a shareholder sued Snap for allegedly misrepresenting how many people use its Snapchat app. The lawsuit, filed in L.A., blames these alleged misrepresentations for a drop in Snap’s shares, with the plaintiff seeking unspecified damages and a class-action designation.
“As soon as the stock goes down like that, the lawyers come out,” said Kathleen Smith, a principal at Renaissance Capital who manages IPO ETFs.
Smith calls the issue a “distraction,” but notes that these lawsuits usually get settled. Among the reasons: in order to win, a plaintiff’s lawyers have to prove that the company made false statements, and that those false statements were material and that the plaintiff relied on them, which isn’t easy to do.
Comment