In re Farfetch Limited Securities Litigation

Court: United States District Court for the Southern District of New York
Case Number: 19-cv-08657-AJN, 19-cv-08720-AJN
Class Period: 09/21/2018 - 08/08/2019
Case Leader: Lauren A. Ormsbee
Case Team: Michael Mathai

This is a securities class action on behalf of all purchasers of the securities of Farfetch Limited ("Farfetch") in or traceable to the Company's September 21, 2018 initial public offering (the "IPO") or on the open market during the period from September 21, 2018 to August 8, 2019, inclusive (the "Class Period").

Defendant Farfetch, is a London-based technology company incorporated under the laws of the Cayman Islands. Farfetch’s primary business is operating an online retail platform that operates a “marketplace” for third-party sellers of luxury fashion items from around the world. Its growth is measured by the total dollar value of orders processed through its marketplace platform, or Gross Merchandise Value ( “GMV”).

This action seeks to pursue remedies against Farfetch and several of its most senior executives and those who signed the IPO registration statement for violations of the federal securities laws. The filed complaint alleges that during the Class Period, Defendants issued materially false and misleading statements regarding Farfetch's representations that its marketplace model was growing GMV organically, and that Farfetch would continue to grow GMV organically through its “growth strategies,” such as investing in new technology, fostering existing and creating new retail relationships with sellers and consumers, and building its brand awareness. In reality, the complaint alleges that the Company’s GMV was not growing organically. Farfetch’s organic growth was in fact stagnating, and future growth depended on expensive acquisitions of other companies that had established retail relationships, access to new sellers and consumers, and brand awareness that could drive GMV on Farfetch’s platform. Before the end of 2018, Farfetch acquired a consignment reseller of rare and limited-edition sneakers and streetwear products, Stadium Goods, for $250 million. Then, during the February 28, 2019, earnings call for the fourth quarter of 2018, Farfetch announced another $50 million acquisition of Toplife, a luxury website on China’s second largest e-commerce platform. When analysts questioned how Farfetch’s M&A activity related to (and might impact) its organic growth strategies, Farfetch executives insisted that the Company’s record GMV growth “underscores our unwavering execution of our growth strategy,” and that the Company was “investing in the long-term strategy we laid out at our IPO.”

The full truth of the Company’s failing organic growth and growth strategies and its undisclosed growth-by-acquisition strategy was revealed less than one year after its IPO when, on August 8, 2019, the Company made several announcements during its second quarter 2019 earnings call. The Company surprised analysts and investors by revealing that it was making another outsized $675 million acquisition of New Guards Group, an Italian luxury fashion production and distribution holding company and exclusive licensee for several popular labels. Moreover, the Company disclosed significant quarterly losses and sharply reduced guidance and margins—despite the fact that the new guidance included sales from two other retailers the Company had acquired since going public. Moreover, the Company revealed significantly lowered Platform GMV guidance for the third quarter to between 30 and 35%, down from the 44% growth reported in the second quarter, and wider than expected second quarter losses. In addition, the Company disclosed that its longstanding Chief Operating Officer had resigned.

These disclosures stunned investors and analysts, leaving questions about whether the Company’s acquisition strategy was designed to conceal a lack of organic growth. As a result of these disclosures, Farfetch shares plummeted by over 40%, from $18.25 per share on August 8, 2019 to close at $10.13 on August 9, 2019, eliminating nearly a billion dollars of shareholder equity in a single day.

On September 17 and 19, 2019, investors filed actions against Farfetch, certain of its directors and officers, and underwriters of Farfetch's IPO, alleging violations of Section 10(b) and 20(a) of the Exchange Act and Sections 11, 12(a)(2), and 15 of the Securities Act. On November 18, 2019, IAM National Pension Fund and Oklahoma Firefighters Pension and Retirement System moved for consolidation of the related actions against Farfetch, appointment as Lead Plaintiff, and approval of their selection of Bernstein Litowitz Berger & Grossmann LLP and Kessler Topaz Meltzer & Check, LLP as Lead Counsel for the class. The Court approved that motion on June 10, 2020.

Lead Plaintiffs filed their Consolidated Amended Complaint on August 10, 2020. Defendants moved to dismiss the complaint on October 23, 2020, that motion was fully briefed on February 4, 2021. On September 29, 2021, the Court issued an order granting Defendants’ motion to dismiss Section 10(b) claims on scienter grounds and Section 11 claims, concerning allegedly false and misleading statements in Farfetch’s IPO offering documents, on falsity grounds. Lead Plaintiff instituted an appeal of the motion to dismiss order in November 2021, and filed its opening appeal brief on January 28, 2022. Defendants filed their opposition brief on April 28, 2022, and Lead Plaintiff’s reply was filed on May 19, 2022. A hearing on the appeal has been scheduled for December 7, 2022.