Farfetch Execs Escape Investors’ Securities Fraud Lawsuit

A securities fraud lawsuit accusing Farfetch and a handful of its executives of misleading investors and obscuring the true state of its operations has been dismissed in its entirety. Taking on a motion to dismiss lodged by Farfetch’s founder and former CEO José Neves, and several other senior executives, Judge Edgardo Ramos of the U.S. District Court for the Southern District of New York tossed out the plaintiffs’ claims, finding that they “fail to allege a materially false or misleading statement that could sustain a securities fraud claim” and similarly fail to hold the individual leaders liable.

The Background in Brief: The case – which was filed by former Farfetch shareholders in December 2023 – targets Farfetch, Neves, former finance chief Elliot Jordan, and former Group President Stephanie Phair. Investors alleged that the executives issued “pervasive and material misstatements” about the company’s financial health while pursuing a series of high-cost acquisitions – most notably the $675 million purchase of New Guards Group in 2019 – that were poorly integrated and costly to manage.

An Across-the-Board Win

In his September 30 order, SDNY Judge Edgardo Ramos sided with the former Farfetch executives, drawing a careful distinction between the company’s aspirational messaging market and actionable misstatements. In particular, the court held that … 

> Corporate optimism is not fraud. Judge Ramos dismissed many of the plaintiffs’ claims as “inactionable puffery” – including upbeat commentary about Farfetch’s trajectory, the strength of luxury e-commerce, or the long-term promise of initiatives like its beauty business. Courts have consistently held that vague expressions of confidence – words like “strong,” “resilient,” or “well-positioned” – are too subjective to mislead a reasonable investor under Rule 10b-5. 

The fact that the optimism expressed by Farfetch failed to materialize does not, on its own, transform those statements into fraud, according to Judge Ramos. 

> Opinion statements and forward-looking guidance are generally protected. The judge reiterated the well-established rule that forward-looking statements and opinions are generally protected under the securities laws. Projections about growth, such as Farfetch’s anticipated expansion in China or customer acquisition, fall within this category and are only actionable if plaintiffs plausibly allege that the speaker did not genuinely believe them when made. In other words, even if optimistic guidance proves wrong, it is not fraud if it was honestly held at the time.

The plaintiffs in this case failed to meet that standard, with the court finding no specific allegations that Neves or other Farfetch executives privately disbelieved their growth narratives or knew them to be false. As a result, Ramos dismissed these claims, holding that without concrete allegations of contemporaneous disbelief or contradictory internal facts, the forward-looking statements are not actionable. 

> Non-actionable misrepresentations and omissions fall short. Finally, the court addressed what it called a “last-ditch effort” by the plaintiffs to save the complaint from a finding of impermissible “puzzle pleading” via a reorganization of their allegations into six distinct buckets: “(1) omissions of Farfetch’s deficient internal controls; (2) those concerning Farfetch’s current state of affairs; (3) those concerning Farfetch’s financial projections; (4) those concerning Farfetch’s financial condition; (5) false affirmations of controls over financial reporting; and (6) overstated value of Farfetch’s intangible assets.”

The plaintiffs failed on this front, according to the court, which determined that, among other things, the plaintiffs were unable to show that Farfetch materially misrepresented weaknesses in New Guards’ internal controls and did not allege a strong inference of scienter (and their allegations of motive are insufficient). 

At the same time, the court determined that the plaintiffs fell short in their attempt to establish that the individual defendants were “controlling persons” of Farfetch during the relevant period and thus, are liable for violations of the Securities Exchange Act. “Because [the] plaintiffs have failed to allege a primary violation of the Exchange Act,” Judge Ramos held that their claim under Section 20(a) is also dismissed.

While the court granted the plaintiffs the opportunity to filed a second consolidated amended complaint, the latest round marks a significant win for Farfetch, which is currently operating under the umbrella of Korean retail titan Coupang, and its former leadership team. 

The case is In Re Farfetch Limited Securities Litigation, 1:23-cv-10982 (SDNY).