Former Farfetch executives have prevailed in a securities fraud lawsuit accusing them of misleading investors about the luxury e-commerce company’s financial condition and need for external capital. In a new decision, as first reported by TFL, Judge Edgardo Ramos of the U.S. District Court for the Southern District of New York granted the former executives’ motion to dismiss with prejudice, finding that the shareholders failed to identify an actionable false or misleading statement or sufficiently allege fraudulent intent.
The case got its start in 2023 and centered on allegations that Farfetch founder and former CEO José Neves, former CFO Elliot Jordan, and former Group President Stephanie Phair misled investors about the company’s financial state while it faced mounting liquidity pressures and privately pursued outside capital or a sale or take-private transaction through “Project Athena.” Farfetch’s financial position deteriorated sharply later that year, culminating in a $500 million rescue transaction with Coupang announced in December 2023.
In the consolidated class action, the plaintiffs cited statements by Farfetch and its executives about expected growth, profitability, and positive free cash flow, arguing that its efforts to seek outside capital or pursue a sale or take-private transaction were inconsistent with its public messaging. The defendants countered, arguing, among other things, that Farfetch had disclosed the potential need for additional financing and had never represented that it was financially self-sufficient.
Inside the Liquidity Fight
Judge Ramos sided with the defendants on September 29, finding that the challenged statements did not represent to investors that Farfetch was self-sufficient or would not need external capital. The court noted that Farfetch had disclosed the potential need for additional financing and held that pursuing a take-private transaction “does not necessarily mean a company is facing a liquidity crisis.” The court also rejected the plaintiffs’ omission theory, finding that Farfetch was not required to disclose Project Athena simply because it was considering a transaction.
The court similarly shot down the plaintiffs’ effort to characterize statements about Farfetch’s future growth, profitability, and cash generation as actionable representations about its existing financial condition. Among the statements at issue were Neves’ prediction that Farfetch would continue on a path of growth, profitability, and cash generation, along with Jordan’s assertions about delivering positive free cash flow. Judge Ramos determined that these projections were forward-looking and accompanied by cautionary language, bringing them within the Private Securities Litigation Reform Act’s (“PSLRA”) safe harbor.
As a result, the plaintiffs could not rely on Farfetch’s subsequent deterioration on its own to make those projections actionable.
The Fraud-Intent Question
The court separately considered whether the shareholders had adequately alleged that the former Farfetch executives knew their statements were false. The shareholders argued that Farfetch’s leadership had a motive to conceal the company’s financial problems in order to stave off bankruptcy, preserve access to credit, and give Project Athena time to succeed. However, Judge Ramos found that the former Farfetch executives’ objectives were in line with ordinary corporate interests, rather than particularized evidence of fraud.
The defendants’ stock holdings also cut against the plaintiffs’ theory, according to the court. Although Jordan and Phair sold shares in August 2023, they increased their overall Farfetch holdings from 2022 to 2023 and continued to hold substantial stakes during the class period. The existence of Project Athena did not establish that the executives knew Farfetch was headed for a financial crisis, Judge Ramos found, and the allegations taken together did not support the required strong inference of fraudulent intent.
Finally, the plaintiffs’ scheme liability theory failed, with the court finding that they had not adequately alleged a deceptive or manipulative act distinct from the alleged misstatements and omissions. Without an underlying securities-law violation, their Section 20(a) control-person claim necessarily failed.
THE BOTTOM LINE: The court found that Farfetch’s disclosures did not amount to actionable misrepresentations about its need for outside capital, and that the shareholders failed to sufficiently allege fraudulent intent. Ramos had previously identified deficiencies in the plaintiffs’ claims, and their additional allegations surrounding Project Athena did not cure them, resulting in a dismissal with prejudice and bringing the case to a close absent an appeal.
The case is In Re Farfetch Limited Securities Litigation, 1:23-cv-10982 (SDNY).
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