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Lyft's fast-slumping stock quickly leads to investor lawsuits

Apr 20 2019 14:27
Peter Blumberg and Robert Burnson, Bloomberg

Snap’s IPO honeymoon in 2017 gave way to investor lawsuits within 10 weeks. With Blue Apron Holdings it was just seven weeks.

For Lyft, whose stock has tumbled sharply since its March 28 launch, it took less than three weeks for disillusioned shareholders to sue the company over claims they were taken for a ride.

Such lawsuits are a rite of passage for newly public companies, and have become even more common after the 2008 financial crisis, according to Cornerstone Research. Most are dismissed or settle out of court; trials are exceedingly rare.

The standard claim is that the company’s officers and underwriters overhyped its prospects, leading to investor losses when when the truth comes out and the stock tanks.

Lyft was accused in two nearly identical complaints filed April 16 of exaggerating in its prospectus when it said its US market share was 39%. In both suits, the plaintiffs also dinged the company for failing to tell investors that it was about to recall more than a 1 000 of the bikes in its ride-share program. Lyft declined to comment on the lawsuits.

Since going public, Lyft has declined 19% to $58.36. That compares with the offering price of $72. The stock sold off sharply amid larger rival Uber’s filing for an initial public offering April 11, as investors will soon have another option to bet on the potential of ride-sharing and gig-economy.

Experts say that while the first Lyft lawsuits were on the quick side, some companies have been sued even sooner after their IPOs. When Facebook went public in 2012 and plunged 19% over two days after raising $16 billion in the IPO, it was hit within less than a week by a class action on behalf of investors who lost more than $2.5 billion.

“If the bad news comes out very quickly, that is going to cause investors to come out with a lawsuit right away,” said Jay Kesten, an associate professor at Florida State University’s College of Law who specialises in corporate finance and security regulation.

“That’s what’s going on here.”

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