Allbirds executives and its directors allegedly misrepresented the state of the company’s business/operations, causing the stock to be traded at “artificially inflated prices” and causing harm to shareholders who relied on market information relating to Allbirds and the integrity of the market price of the company’s stock. In the proposed class action lawsuit that he filed in federal court in northern California on April 13, Gennady Shnayder claims that San Francisco-based Allbirds, its co-founder and co-CEO Joey Zwillinger and other executives, along with directors, such as Warby Parker co-founder Neil Blumenthal, Glossier founder Emily Weiss, Dick Boyce, Nancy Green, and Mandy Fields, among others (the “defendants”) made “false and misleading” statements in furtherance of its effort to accelerate the company’s growth, which ultimately damaged Allbirds shareholders.
In the complaint, Shnayder claims that ahead of its initial public offering in November 2021 and in various filings and communications between November 4, 2021, and March 9, 2023, the defendants “materially misled the investing public, thereby inflating the price of Allbirds’ securities, by publicly issuing false and/or misleading statements and/or failing to disclose material adverse facts about the company’s business.” Specifically, he alleges that Allbirds management consistently touted the company’s successful focus on the strategic plan set out in the registration statement that it filed with the U.S. Securities and Exchange Commission ahead of its $237 million IPO, while failing to alert shareholders that it was actually shifting its efforts to capture new consumers with new, non-core products (including technical performance running products geared for elite athletes) “at the expense of core customers.”
The plan set out in Allbirds’ registering statement “discussed five strategies that will maintain the company’s success,” and centered on “deepening [Allbirds] relationships with [its] repeat customers,” which were driving approximately 53 percent of net sales in at the time of the IPO, per Shnayder.
In making such statements, Shnayder asserts that the defendants – armed with “material adverse non-public information” – failed to disclose to investors that: “(1) Allbirds was overemphasizing products that extended beyond the company’s core offerings; (2) the company’s non-core products had a narrower appeal and were not resonating with customers as well as the core products; (3) Allbirds was underinvesting in its core consumers’ favorite products to push newer products with narrower appeal; [and] (4) underinvesting in Allbirds’ core products was negatively impacting the company’s sales.” And as a result, “The defendants’ positive statements about the company’s business, operations, and prospects, were materially misleading and/or lacked a reasonable basis.”
Fast forward to March 9, 2023, and Shnayder states that on the heels of previous financial reports in which Allbirds management “failed to state that the company had shifted its focus away from core customers,” Allbirds issued a press release reporting Q4 and Full Year 2022 results, “which revealed, among other things, a full year 2022 net loss of $101.4 million.” In a corresponding earnings call, Zwillinger “explained how the company had fallen short and what decisions led to the poor financial results,” stating that Allbirds “overemphasized products that extended beyond our core DNA, [and] because we were spending significant time and resources on these new products that did not resonate well, we underinvested in our core consumers’ favorite products.”
In essence,” Zwillinger said on the call that “over the past couple of years, we shifted our focus away from our core consumer and we must refocus sharply on this large and attract[ive] group.
Such news – which also coincided with the announcement that Mike Bufano was stepping down as CFO and that Annie Mitchell would take his place – caused the company’s stock price to fall by $1.11, or 47 percent, to close at $1.25 per share on March 10, 2023, “thereby injuring investors.” Shnayder claims that by the time he commenced this lawsuit, Allbirds’ stock price had closed as low as $1.06 per share, a 92.9 percent decline from the company’s $15.00 per share IPO price.
With the foregoing in mind, Shnayder alleges that Allbirds and the individual defendants violated Section 11 of the Securities Act for making misrepresentations in the company’s registration statement, and Section 10(b) of The Exchange Act and Rule 10b-5 by carrying out “a plan, scheme and course of conduct” that intended to – and did – deceive the investing public, including the plaintiff; and cause the plaintiff and other members of the Class to purchase Allbirds’ securities at artificially inflated prices. As for the individual defendants, they are also on the hook under Section 15 of the Securities Act, which imposes joint and several liability on controlling persons for violations of the securities laws by any person or entity they directly or indirectly control.
In addition to compensatory damages against all of the defendants, jointly and severally, for all damages sustained as a result of their alleged wrongdoing, in an amount to be proven at trial, Shnayder is seeking certification of his class action to broaden it to all persons and entities that purchased or otherwise acquired Allbirds: (a) Class A common stock pursuant and/or traceable to the Company’s false and/or misleading Registration Statement issued in connection with the Company’s IPO; and/or (b) securities between November 4, 2021 and March 9, 2023, inclusive, and who were damaged as a result.
THE BIGGER PICTURE: The Allbirds lawsuit appears to fall neatly in line with the rise in securities class actions that lawyers expect to crop up this year. Reflecting on the state of such filings, following a drop in securities class action lawsuits following a 10-year high in 2019, Woodruff Swayer stated in a note that the downward trend may not continue. On one hand, [many] companies across the board have muted valuations, making it harder for plaintiffs to show that a particular disclosure is the cause of a stock decline.” However, at the same time, economic uncertainty and market volatility this year “could cause companies to miss expectations, keeping securities class action filings on an overall steady rate.”
In the fashion/retail space, adidas was recently named in a proposed class action suit, with HRSA-ILA Funds accusing adidas AG, its chief financial officer Harm Ohlmeyer, and former chief executive officer Kasper Rorsted of violating the Securities Exchange Act by “misrepresent[ing] and fail[ing] to disclose … adverse facts pertaining to the company’s business,” namely, the risks associated with its once-very-lucrative Yeezy deal with West, thereby, inflating adidas’ stock price.
Also worth noting here is the onslaught of ESG-related stock-drop suits. Wilkie Farr’s Todd Cosenza, Charles Cording, and Amanda Payne noted early this year that there has been “a recent wave of ESG-related securities cases involving allegations of greenwashing, against the backdrop of the SEC’s rulemaking on ESG-related disclosures,” and that this wave of litigation “shows no signs of slowing as shareholders continue to pressure companies to prioritize ESG-related issues.”
A rep for Allbirds did not immediately respond to a request for comment.
The case is Gennady Shnayder v. Allbirds, Inc., et al, 3:23-cv-01811 (N.D. Cal.)