The lawsuit alleges that Lyft intentionally concealed big risks from investors before going public.
Lyft is being sued by shareholders who claim the rideshare company misled investors in its filing to go public.
CNBC reports that Lyft’s stocks dipped by nearly 4% after the class action was announced Monday, but recovered slightly as the day wore on. But the lawsuit is only an addition to the company’s continuing woes.
Since its March IPO, Lyft shares have dropped by almost a quarter, decreasing from an initial $72 to less than $54 last Friday.
And it was on Friday that Boston-based law firm Block & Leviton filed a class action in the U.S. District Court in the Northern District of California. The complaint accuses Lyft of securities fraud, naming the company, its IPO underwriters and c-level brass as defendants.
The lawsuit, writes CNBC, accuses Lyft of making ‘inaccurate’ and ‘misleading’ statements about its business prior to its IPO. Among other accusations, the class actions says that Lyft didn’t disclose known and ongoing labor complaints and safety concerns.
For instance, the suit cites a New York Times article which details how “more than 1,000 of the bicycles in Lyft’s rideshare program suffered from safety issues that would lead to their recall.” Bad brakes, wrote the Times April, led to bicycles being pulled from markets in NYC, San Francisco and Washington, D.C.
“We recently received a small number of reports from riders who experienced stronger than expected braking force on the front wheel,” Lyft said in an online statement. “Out of an abundance of caution, we are proactively removing the pedal-assist bikes from service for the time being. We know this is disappointing to the many people who love the current experience – but reliability and safety come first.”
While the Times covered the electric bike recall in mid-April, the lawsuit says Lyft waited until after it went public to make the announcement, all in alleged ploy to inflate its valuation.
Along with potentially covering up trouble with its two-wheelers, investors claim Lyft also exaggerated its market share. In its S-1 filing, the company said it controlled 39% of the U.S. rideshare market at the end of 2018.
However, in its own filing, Uber said it holds 65% of the ridesharing category position in the United States and Canada, “further [undermining] Lyft’s purported claim” of a more level market.
On top of that, CNBC quotes the class action as alleging that Lyft misrepresented the security of its labor force by failing “to warn investors of the potential for a labor disruption,” a 25-hour strike by Lyft drivers in late March.
While CNBC says that Lyft declined its request for comment, the network notes that its IPO prospectus does appear to touch on shareholder concerns. In its risk evaluation, Lyft said its revenue may suffer if the company “fails to effectively attract and retain qualified drivers, or to increase utilization of our platform by existing drivers.”
Lyft also warned investors that its electric bikes and scooters “may experience quality problems from time to time, which could result in product recalls, injuries, litigation, enforcement actions and regulatory proceedings.”
The suit seeks recompense for shareholders who lost money as Lyft’s stock values fell since the company went public.